Economist Brian Easton asks: Will the Covid Crisis lead to a dramatic redirection for New Zealand and the World?

Economist Brian Easton asks: Will the Covid Crisis lead to a dramatic redirection for New Zealand and the World?

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.


A hinge in history occurs where the past and present are connected but they point in different directions. Big hinges are rare but crucial in the development of humankind. Not in Narrow Seas identifies six.

The six  previous New Zealand hinges were as follows. One was the arrival of the first Polynesians 700 years ago. The second occurred after 1840 with the mass arrival of Europeans. Refrigeration in the 1880s was another great hinge, redirecting New Zealand on a sustainable economic trajectory and reshaping its social and political life. 

Curiously, the Great Depression was not a hinge, or rather did not become one until the Second World War impacted too. That direction came to an end with the collapse of wool prices in 1966, the fifth hinge. Eventually the new direction was found with the neoliberal Rogernomics revolution in the 1980s, the sixth hinge.

You might have expected the Global Financial Crisis, which began in 2008, to be a hinge for the world but there was really no new direction. Perhaps the Covid Crisis will lead to the new direction which the GFC seemed to presage.

The GFC of 2008 proved pretty scary, but those in charge had studied the lessons of the Great Depression and, following Keynes, did ’whatever it takes’. While the central banks of the world bailed out the private financial sector, the private bankers showed little shame, despite for years having insisted that the government should not regulate them and that taxes on them should be kept low.

Instead the bankers insisted that any adjustment should fall on the poor and those on middle incomes rather than on the rich. This neoliberal approach, often called ‘Austerian’, used the opportunity afforded by the crisis to shrink the state and increase the size and power of the private sector. It was an approach reminiscent of Rogernomics, which also protected the rich, leaving the rest of the population to carry the burden of adjustment.

There are parallels with the aftermath the hinge (after the Great Depression) which came during the war. The GFC did not really lead to a change in the way we governed. Perhaps I am stretching the parallels, but the Covid Crisis is frequently referred to as a ‘war’. Might we get a parallel shift away from neoliberalism after it? One signal is that this time the neoliberal shame is more evident.

For instance, the Taxpayers' Union, a right-wing advocacy group concerned with promoting low government spending and low taxes, said they had accepted a $60,000-plus wage subsidy for their nine workers during the lockdown because donations had fallen off. They explained that ‘prior to Covid-19, we have stated on the record that we would never accept taxpayer funding’ but they reversed their position, claiming that ‘the welfare of our employees [is] a more pressing immediate concern than ideological purity’.

‘Welfare is more important than ideological purity’ sounds more like pragmatic social democracy than the voice of neoliberal lobbyists. However, it is not inevitable that neoliberals will admit they were wrong, and acknowledge that the state continues to play a critical role in the Covid Crisis.

That the public sector can do things better is nicely illustrated by the Covid-19 crisis. Sweden was once a poster country among right-wing bloggers advocating minimal government intervention because of its laid back approach to dealing with the virus. But when its case and death rates began climbing, the blog references mysteriously disappeared. Currently, Sweden has the fifth highest Covid death rate among all countries – five times those of the surrounding more interventionist Scandinavian countries and Germany. As so often occurs, what contradicts an ideologist’s theory gets ignored.

Unquestionably the world faces a major fiscal challenge (which only ideologists can ignore) for the upward pressures on government spending are increasing. In addition it is facing a increase in liquidity from the government debt arising from the huge fiscal injections to bridge the malfunctioning economy during the Covid Crisis. The rational solution would involve higher levels of tax.

How this may be resolved and what might the new direction might be is hard to tell. The post-wool-price transition tells us that there will be strong conservative forces trying to maintain the old direction.

Perhaps the new direction will be summarised by the social democrat slogan, ‘wellbeing over ideological purity’. Yet, there is so much we can but guess at, Not in Narrow Seas reduces the guesswork.

This is extracted from a paper, ‘Hinges of History: After Covid-19?, presented  to the Fabian Society on 25 June, 2020.


Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

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72 Comments

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Was this an advert for the Book or an article? For those not up on this , The Fabian Society is a British socialist organisation whose purpose is to advance the principles of democratic socialism via gradualist and reformist effort in democracies, rather than by revolutionary overthrow. https://en.wikipedia.org/wiki/Fabian_Society#:~:text=The%20Fabian%20Soci....

Fabian Window

Beware Obama’s Fabian Window
https://canadafreepress.com/article/beware-obamas-fabian-window

President Xi has said it long time ago -- the whole world is heading to the direction where we are become a community of shared future for all mankind.

It is an unstoppable trend.

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xingmowang,

"shared future for all mankind". Indeed, just so long as it is controlled, by force if necessary, by the CCP. First Tibet, now HK, the continuing expansion into other countries' territorial waters in the S China Sea and the installation of military hardware there and perhaps, Taiwan.

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Are the Uyghur Muslims part of Xi's shared future?

Puny China sometimes gets a leg up from the mighty USA, bow before your enablers.

That would be Emperor Xi, Xing. Get with the nomenclature... We, the people? We're done with Emperors of any stripe....

Did he give you a timeline for building naval bases in the South Pacific?

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Quote: "The rational solution would involve higher levels of tax."

Recommendation: check out the financial accounts for Ryman Healthcare and the taxes they haven't paid over the last 5 years. An increase in the tax-rate wouldn't bother them at all. Turnover $2 billion per annum

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For instance, the Taxpayers' Union, a right-wing advocacy group concerned with promoting low government spending and low taxes, said they had accepted a $60,000-plus wage subsidy for their nine workers during the lockdown because donations had fallen off. They explained that ‘prior to Covid-19, we have stated on the record that we would never accept taxpayer funding’ but they reversed their position, claiming that ‘the welfare of our employees [is] a more pressing immediate concern than ideological purity’.

This generally reflects the ideological consistency of NZers agitating for free market capitalism for others, moreover.

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'the welfare of our employees [is] a more pressing immediate concern than ideological purity’

That's hilarious.

This generally reflects the ideological consistency of NZers agitating for free market capitalism for others, moreover.

Yes. I know so many NZers who righteously believe they're the eptiome of free market ideals and behavior. Mike Hosking taps into all this deluded thinking.

Ignorance is bliss.

GR said he wanted a 'great reset' and I see this as the 'hinge' Brian refers to. But as Brian suggests, I suspect the banks are lobbying/advising otherwise because they will ultimately suffer. But the question must be asked - who does the Government serve, the people or the banks?

Linking this article to the Greens policy on a wealth tax, and noting some of the comments in this forum; here some questions. Brian is advocating for a change in economic policies, the Greens advocating for a wealth tax. Which is better? Doesn't a society with significant wealth inequities indicate unbalanced economic policies? And isn't a wealth tax a somewhat clumsy solution without delivering a real out come (It takes money from the wealthy by way of tax, but there is no guarantee it will change the lot of the poor)? surely the desirable process is to develop economic policies that creates real economic opportunities for everyone?

I'm not optimistic that there will be the profound change that is required. Despite the individual and collective rhetoric, I see most people returning to the ways (good, bad and ugly) of old (ie. pre-lockdown). Even personally, I'm returning to some of the bad habits of old (eg. buying lunches too much, rather than bringing my own...although I guess it's not bad in supporting the economy :) .
I think our whole self-interested way of living has just become so ingrained in so many.
Sadly, I think it would take an economic disaster for us to head in a better, sustainable direction...

And thats the rub
Spend & consume .... or the economy gets it
Or lessen consumption .... and the economy gets it
Theres no way out of this one

As far as the planet is concerned, things are always heading in a sustainable direction ... whatever isnt sustainable wont be sustained
As we are now well in overshoot, this is likely to include the vast majority of humans

Can't wait to see National's counter to the Greens recent tax/welfare proposals. Muller has already stated there will be no changes to tax but there will be more spending on the welfare safety net;

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12339707

So far it looks like our choices are stacking up as:

GREEN = more tax/more welfare
NAT = same tax/more welfare
ACT = less tax/same welfare
LAB = same tax/same welfare
NZF = same tax/more corporate welfare

It makes Labour look relatively right wing compared to National.

It is indeed going to be weird/interesting.

What both Labour and National have yet to address specifically is what happens to the current $490/week post-COVID and $250/week pre-COVID unemployment benefits.

Only the Greens have addressed that so far and gone for the middle ground of $325/week for all - which is exactly equal to superannuation for a married couple (per person).

It's the most equitable position - I wouldn't be surprised if they all get to something around that. If that were the case, then really the distinguishing factor becomes: which party has a plan to pay for this other than through more debt/borrowing? So far, Greens have a plan for that (i.e., by raising taxes) - which makes them the most fiscally conservative so far! AND, oddly enough, a potential coalition partner for either LAB or NAT (i.e., allowing both of them to 'blame' the higher taxes on the coalition partner).

Yes its funny reading the comments in the other article along the lines of 'why do we punish those who want to be responsible with their money' wrt the wealth taxes. Yet they fail to see the lack of wealth taxes will only cause the government to be less financially responsible as they will need to increase their debt further - so as you say, Green's might be the most financial prudent lot at present - despite the strong commentary in the opposing view. All a matter of perspective - most are only thinking of themselves as opposed to the system as a whole and the interdependencies.

Certainly not saying I'm a Green voter, or that I will this election - but if National is going to propose tax cuts after the amount of public debt we just created....well my vote isn't going in that direction.

A tax cut doesn't mean a reduction in tax revenue. Often, the resulting economic growth makes up for the reduced rate. There's some strong historic precedent for this.

I'm not sure you understand what a wealth tax is. It can force yearly liquidation of assets and will discourage ownership of assets in New Zealand. It's a very damaging form of taxation.

If it were the 1980's and the outset of the neoliberal/driving interest rates to zero experiment, I might agree with you. But having tried something for decades and being where we are with the system self imploding and the ever increasing wealth inequality, with the argument of more the same, I'm personally ready for change.

Often, the resulting economic growth makes up for the reduced rate.

More low-skilled mass immigration and asset sales from National then?

What do you mean by strong historic precedence?

Surely you can't still claim to believe in trickle down?

https://www.forbes.com/sites/camilomaldonado/2019/10/10/trump-tax-cuts-h...

https://www.npr.org/2019/12/20/789540931/2-years-later-trump-tax-cuts-ha...

Act - same welfare? Surely not.

Kate's comment is incorrect on ACT. Their policy is an aggressive restriction on welfare. I had a read through their policy prescription. I must admit as a National voter, i'm certainly rethinking things now..

ACT will:
Introduce a lifetime limit of five years on Sole Parent Support and a lifetime limit of three years on Jobseeker Support, with ‘cashless welfare’ being applied when those limits are reached. ACT would also extend cashless welfare to any parent who has additional children while receiving a benefit. This means a person’s benefit will be placed on a debit card which can only be used for specific purposes – for example, rent, power and groceries.

HOWEVER, as I read it, the 'lifetime limit' clock starts post-election - hence for the first five years = SAME.

And, if you think about 'cashless welfare' (direct payment of rent, power and groceries) that will in actual fact cost MORE than the $250/week pre-COVID benefit - hence (in many cases) = MORE.

I disagree. First off, the proposal isn't direct payment, it's a restriction on what the funds can be spent on. This, combined with the time limit should discourage welfare as a lifestyle choice. By making welfare less palatable after a period, I would expect to see more people returning to the workforce.

Your mental gymnastics are admirable, but turning a time-limit and restriction on purposes into "MORE" is a real stretch.

A restriction on what the funds can be spent on only works by direct payment + vouchers.

That aside though, you can't deny that for the purposes of this election, welfare = SAME.

Five years of SAME.

I disagree, even with "SAME".

With a limit of 3 years of job seeker's support in a lifetime, one has more motivation to get out and find work. Not only has the clock started ticking, but it could run out within a single election cycle.

All hypothetical anyway, we're unlikely to see ACT get their way, no matter how practical the ideas are!

Not if it has the effect of reducing the total number by making welfare less attractive to those who choose it as a lifestyle if it's cash to spend as you wish. Which in pre covid times was a significant ppn of those on job seeker benefits. You could also add into the cost benefit calculation the resulting lower number of work visa people we'd need to import.

This notion you seem to be expressing between the deserving v the undeserving unemployed needs to be binned.

We have moved into a period of all unemployed being unemployed not by local choice but by global circumstance.

I suspect the next two terms of government will be faced with that reality.

I haven't seen specific ACT policy on immigration yet - I think they have usually favoured relatively unrestricted immigration policy. But I must check.

Hence referencing my point to 'normal' times. ACTs policy would be unreasonable if implemented during this crisis, for reasons you outline. Immigration is demand driven, incentivising welfare lifestylers to join the workforce reduces demand for migrant visa workers.

ACT among many repugnant things, are in the thrall of big tobacco and the gun lobby.

Yeah not to mention climate change deniers.
I flirted with their ideology once upon a time, think I even voted for them in the early / mid 2000s, then snapped out of my deluded ways...

COVID19 didn't shut down the economy, the government did (whether this was right or wrong is a seperate issue). Compensation or support should be offered to businesses that are impacted. In the same way, if the government bulldozes my business to make way for a road, it must compensate me.

The Tax Payer's union did the right thing in accepting support. It is wrong to frame this as support for "social democracy". The vast majority of right-wingers support having a government, it's simply a question of scale.

We won't know for sure for at least a year, whether the Swedish model was the wrong one. It's possible they're just going through the inevitable pain in a short-sharp-shock, rather than a drawn out medical crisis.

That's an interesting perspective (non sarc)

The vast majority of right-wingers support having a government, it's simply a question of scale.

Most "right-wingers" (a kind of meaningless term) will support a public sector that works in their own self interest.

When sneering at the taxpayers union's philosophical stance on taxpayer support Easton is well aware neither it nor any other entities could have, when developing their foundational philosophies, anticipated the unique and exceptional circumstances of a government mandated shutdown caused by an international pandemic. Cheap shot.

So odd you defend them on this taxpayer handout matter yet still suggest the unemployed have made a lifestyle choice to take a taxpayer handout. Do you see the irony in that? I think that is what Easton is pointing out - Austrian ideological dogma (like any dogma) only works when it suits.

Austrian ideological dogma (like any dogma) only works when it suits.

But the Taxpayer's Union ideology is not wholly woven into Austrian economics. It's selective at best.

The government inflicted the economic hardship on the organisation, by shutting down the economy (a reasonable response given COVID19). Therefore, it should offer support. This is different to simply not participating in the economy and taking support. There is no irony here.

The government did not shut down donations/charity during COVID - both being the TPU's modus operandi. I upped the amount I gave to voluntary payments and charities during the lockdown/crisis (and haven't yet amended those direct debits). Perhaps TPU's regular donors didn't - but the TU made the decision as soon as the wage subsidy was announced, hence they were 'predicting' they would have a revenue drop. I suspect that prediction had less to do with COVID and more to do with pre-existing trends in their donor base.

The government prevented them from operating their charity as usual. Technically my business could still be paid (the government didn't shut down our bank account), however our ability to perform work was severely impacted. Our freedom of movement and assembly was essentially removed.

The TU would have been similarly impacted. Other charities have also had their ability to fundraise limited by the lockdown. I'm certain the prediction of a drop in revenue as a result of the Government's actions would have been correct.

Our freedom of movement and assembly was essentially removed.

OK. Does the TU collect donations door to door?

I would assume not. However, their mascot "Porky the waste-hater" was unable to deliver awards during the lockdown.

Glad you've resorted to humour to bolster your argument :-).

False equivalence. The disconnect between employers desperate for labour and 130K claiming they can't find work is compelling evidence that for many the jobseeker support benefit lifestyle is a choice. As far as I know the TPU didn't choose to have C19 enter the country although that'd be an ideal conspiracy theory; Jordan Williams has a secret lab financed by the CIA who supplied him with the virus which he released to embarrass the government.

See above.

We'll see. I have no doubt the TPUs affairs will be examined closely and their claim that revenues dropped during C19 verified or not. It'd be dumb of them to have blundered into that obvious a trap, although more than a few supposedly smart lawyers tried it on.

Sneering is appropriate when the so called taxpayers union are a front for big business and neo liberalism

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What we are witness to today is the result of The Can being kicked down the road in 2008. Some might argue 'But they (USA) printed money & that was different.' Which is true to a point. However, they'd watched the Japanese do this 20 years ago so it wasn't as if they went into that decision making process totally blind. The worst part was that the rich got richer & the inequality gap widened. This time round we've seen dividends stopped/suspended on one side, with employee perks (wage subsidies) on the other, so you could argue that the socialists are trying a different tack. Although how does this same/similar approach read in America, where even share buybacks have been stopped? It doesn't matter what side of politics you support, the civilised world is trying similar tactics, regardless of who's in power. And that's my point. Neither side will solve this situation on their own. Why? because they've both only got half the answers, due to their politics. What we are experiencing today is way bigger than politics. It's even bigger than business, even big business. It's a crisis of leadership, which I've been banging on about for a while now. We either have the right system & the wrong people, or the wrong system & the right people. Or even worse, the wrong system & the wrong people. Democracy needs a full renovation. Some might suggest a complete rebuild. What we do know is that our parliamentary system, once so admired, has reached the end of its current incarnation & usefulness. Where to from here(?) is the big question.

An interesting post.
A big question though - how do you reform democracy, and for whom? (The answer *should* be the collective good).
We are talking about the process not the policy.
Democracy will never be perfect, only authoritarian ideologies pretend to be perfect.

Starters for 10?
- changing election terms?
- having fewer mp's, who get more pay?
- donations laws?
- compulsory voting (like Aus)
- revisit mmp?

Donations encourage corruption. I've yet to see how they benefit a truly democratic society in any way.

"What we do know is that our parliamentary system, once so admired, has reached the end of its current incarnation & usefulness."

On what do you base this statement? We currently have the highest quality of living ever. We are wealthier than ever. We live longer than ever. Our poor live better than kings and queens of old. We carry around devices in our pockets that would have been considered super-computers 30 years ago.

This is due to capitalism and democracy. They are imperfect, but extremely effective nonetheless. If we have a problem, it's lack of good quality education and information. Old, broken ideas like socialism still haunt us and try to regain a foothold through universities and mass-media. We should focus on strengthening the good things, like the free market, freedom of ideas and freedom of speech.

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Er, Brian seems quite reasonable until he says we need higher taxes. Higher taxes will collapse the economy even more. Surely we need to flood the economy with money, not put some in with one hand and take it back with another? When the economy is working the taxes will flood back in anyway. Typical lefty illusions, that only if they tax us more will we be better off. In fact, we all end up worse off and they get to tell us what to think. Don't fall for the logical fallacy. Orwellian doublethink.

I thought the logical fallacy was extend and pretend?

It depends where that increased tax take comes from....theres plenty of scope to put a lot of that equities bubble to better use...not to mention the tax that is currently 'avoided'

Only if you believe the best way to get from 25 km/hour to 50 km/hour is to put your foot on the gas and on the brake at the same time. We need fiscal and monetary stimulus until we are cruising along with unemployment back to 5% or less. Then is the time to reduce the fiscal and monetary stimulus, not now.

So you're in this camp:

NZF = same tax/more corporate welfare

If you believe that tax will be diligently paid and there is no change to investment patterns then you may have a case.....but that would require some rather foolish investment decisions.
The funds targeted are largely unproductive in the current environment and do nothing to increase the demand you claim will suffer as a result.

'Higher taxes will collapse the economy even more'.

I disagree. They have the potential do to so - but only the potential.

For example, more tax revenue, if spent well, can mean more and better public facilities. These generate both temporary and permanent economic growth and jobs.

More tax revenue means we can pay our invaluable front line public sector workers more. That has economic benefits as well as social benefits.

Wealth taxes and higher income taxes for high earners (like me) should mean cuts for middle and lower income earners, giving them more to spend.

More and higher taxes have the *potential* to be disastrous, there's no doubting that. And the revenue they generate is only as good as how well the revenue is spent. And governments have certainly shown they can make awful spending choices. So I do have some sympathy for your concerns.

Gareth Kiernan was just on Radio NZ and didn't rubbish the Greens tax policy at all. In fact he appeared quite supportive.

I can understand that - as so far they seem to be the most fiscally prudent.

How about the trickle down effect that is non existent? The wealthy get away with far too much and have done for the last 40 years of neoliberalism in this country. Time to level the playing field.

The human race invented "economics" and you know what, we can uninvent them, if we so choose.
We need to be more concerned with the destruction of the natural world going on behind basically closed doors while this is going on.

Extremely well said.

If you uninvent economics we all starve. If you want to see how it plays out, take a look at Venezuela.

Who said anything about uninventing economics? I'm all for capitalism, just not the rapacious greedy neoliberalism laying waste to the world.

There are different ways of doing things, as is the way of a complex multifaceted problem.

It's worth slogging yer way through Scheidel's 'The Great Leveller'. Contra to the simplistic strain running through so many comments here, which boils down to a Utopian wish for 'policies to reverse inequality', Scheidel's magisterial survey of inequality across several millenia shows two aspects clearly:

  1. Inequality is baked into agrarian (and its later variants including industrial and post-industrial) existence. The need to harvest, store, allocate and secure grains means, even in simple societal arrangements, that there is great opportunity to clip tickets and enrich elites at every step of the chain. So and invariably, societies develop priestly, ruling, military and other top-of-the-tree layers which then and equally invariably, oppress all beneath them. Millennia of histories, in his scholarly account, attest to this.
  2. The only episodes which stop or significantly reverse this trend, are inherently violent. Mass-mobilisation wars, catastrophic pandemics, transformative revolutions, and state collapse are the Four Horsemen - the Great Levellers. Period.

    Finally, and if one was to take seriously the 'population overshoot' espoused by some commenters as the Root of our current Condition, it really just depends on one's tolerance for high body counts.......which Horse to back....

    From the blurb:

    Are mass violence and catastrophes the only forces that can seriously decrease economic inequality? To judge by thousands of years of history, the answer is yes. Tracing the global history of inequality from the Stone Age to today, Walter Scheidel shows that it never dies peacefully. The Great Leveler is the first book to chart the crucial role of violent shocks in reducing inequality over the full sweep of human history around the world. The “Four Horsemen” of leveling―mass-mobilization warfare, transformative revolutions, state collapse, and catastrophic plagues―have repeatedly destroyed the fortunes of the rich. Today, the violence that reduced inequality in the past seems to have diminished, and that is a good thing. But it casts serious doubt on the prospects for a more equal future.