You Can't Take It With You

The government's bellicose language around Covid-19 has raised the spectre of rationing and triggered panic-buying. While this may partly reflect a realistic fear about the fragility of supply-chains, it also reflects a folk-memory about the unwillingness of the state to protect the people. Despite the mythology of welfare and collectivism, the state's strategy since the start of the 20th century has been to talk about protection while doing little of substance, all the while treating people as an expendable resource. In practice this only differed from the aristocratic disdain of the 19th century, most famously on display during the Irish and Scottish famines, because of the need to pay lip service to popular security in the democratic era. For example, little provision was made to protect the population from the bombing that had long been anticipated in the 1920s and 30s, hence the London Tube had to be used during the Blitz in place of the deep shelters that weren't built, while the public issue of essentially useless gas-masks was little more than a PR exercise.

There was a time when the welfare state provided adequate social security, though this was largely limited to the 1960s and 70s, and there is clearly substance to the argument that the capability and capacity of the state has been stripped back during the neoliberal era, but that was also a period when civil contingency for a national existential threat was little more than the now-traditional "Britain can take it" defiance, culminating in the ridiculous Protect and Survive leaflets of the 1980s. This habitual attitude was all-too evident in the clumsy discussion about "herd immunity", which highlighted both the instrumentalism of the state's strategy and its fundamental disregard for the safety of the population. The suggestion that this changed once they appreciated the likely scale of fatalities is not evidence of sympathy but of a fear that crashing the NHS would be politically damaging. Of course, such cynicism is not confined to just the Tory party. Consider the latest centrist calls for a government of national unity.

The current crisis is not like a war. In wartime, the priority is supply - chiefly of military personnel and materiel - and its deliberate destruction. To that end, demand is artificially suppressed. For example, in World War Two Britons ate a basic diet and wore plain clothes not because there wasn't enough food to go around, or because all the silk was requisitioned for parachutes, but because foreign currency was diverted from food and cloth imports to weapons and oil while marginal domestic production was switched from non-essentials to the war effort. The current supply shock - the absence of labour due to self-isolation - will be temporary and quickly reversed (fatalities will be relatively light and will disproportionately affect non-workers), and it is already apparent that many businesses are able to operate while maintaining "social distance". The far bigger issue is the demand shock, notably in non-essential sectors such as leisure and entertainment.

That shock will be amplified by uncertainty over future income. Basically, a lot of people fear being laid off or asked to take a pay cut and are therefore loath to continue spending at their normal rate or make significant financial commitments. While it's true that people aren't going to up their frequency of going out to restaurants or the cinema later in the year, in order to catch-up on what they missed during their isolation, it is also true that monies saved over this period are likely to be spent, even if some is used to pay down household debt, which means there will be a boost in demand after the epidemic is over. This is the point at which a fiscal injection might be helpful, as a way of turbo-charging that growth in demand and offsetting any increase in household saving, but how best to do this is a debate about ends as much as means - i.e. the resulting balance between labour and capital. Two ideas have gained traction in the discussion of means over the last week: basic income and helicopter money.

The sudden rediscovery of the state's ability to directly intervene in labour markets is striking, as is the absence of the usual "How will we pay for it?" bleat, but the idea that one simple trick can get us through the hard times indicates that UBI is being thought of not just as equivalent to a cash handout but as an exceptional bridging loan. Implicit is the expectation that this would eventually be clawed-back at the aggegate level through higher taxes on income and spending. This is to misunderstand that basic income is a permanent social dividend, not temporary relief. It is the counterparty to accumulated wealth, so it can only meaningfully be funded by capital, not by labour. The sudden liberal interest in basic income appears to be partly motivated by a desire to avoid burdening businesses and asset-owners with any social responsibility. Like Richard Branson's plea for a state bailout of the airline sector while threatening redundancies, it privileges capital.

The alternative solution of helicopter money, such as the US proposal to send everyone a cheque for $1,000, is similarly wrong-headed, but at least has the virtue that it doesn't corrupt the concept itself. This is a solution whose time has not yet come. It might be appropriate in the period after the epidemic has passed when you want to stimulate demand and supply is no longer constrained by missing workers, but prior experience suggests that a flat cash grant has a weak effect. The US Economic Stability Act of 2008, which provided tax rebates of $300 per person, was aimed at averting recession after the financial crash. In the event it was relatively ineffective as much of the money was simply used to pay down existing household debt, pointing back to one of the underlying causes of the crash. The issue today is not the need to stimulate demand but the need to compensate workers who are unable to earn because of "social distancing", but the amounts being mooted are woefully inadequate even for a furlough as short as a month.

There is an ideological division between those proposing UBI versus those advocating helicopter money, with the former favoured by centrists and the latter by the right. The reason for this is that basic income has gradually been framed in recent years as a benefit, while helicopter money remains conceptually linked to tax rebates. The liberal mangling of the concept of basic income has come in two flavours: an optimistic one that sees it as a means of smoothing labour market frictions in the modern economy, such as gig-working and the impact of automation, and a more pessimistic one that envisages it as another necessary reform of welfare focused on efficient targeting. As a benefit nominally funded by tax (i.e. by the working population), this would inevitably be parsimonious and might even be largely payment in kind - "universal basic services" rather than cash.

The term "helicopter money" originates with Milton Friedman, who wasn't advocating it as such but merely conducting a thought experiment about the money supply (in other words, it is an artefact of monetarism). However, that he was also an advocate of negative income tax is not coincidental. The term's popularity on the right as an unconventional measure owes much to his authority as a critic of fiscal policy and the historic growth of the welfare state. Consequently, much of the vulgar justification has revolved around "giving people their money back", while the current proposal has also been hitched to a three-month tax deferment. The unstated assumption is that the cost of this addition to the national debt would be recouped after the epidemic has passed not through tax rises but through further cuts in government spending.

What the economy needs today is comprehensive income support. It is reasonable for the left to advocate increased benefits for the sick and unemployed - every opportunity should be taken to reverse austerity - but we shouldn't lose sight of the fact that what is most urgently needed is security for those in employment who provide the bulk of economic demand. How this is done is a secondary issue, but the debate should avoid notions such as basic income, where the emphasis will inevitably gravitate to "basic" and thus inadequate, and arbitrary helicopter money. More fundamentally, the debate should focus on who should ultimately pay for this: capital or labour. Given the historic shift in power between them over the last 50 years, Covid-19 offers the opportunity to genuinely rebalance the economy before more lasting reforms, such as UBI, are considered. Every indication to date suggests that the government will have to be dragged kicking and screaming to any consideration of increased taxes on capital or the expropriation of historic wealth. That's one parallel with wartime that will not be highlighted.