Coronavirus: “Boomer removal” we can’t endure, as we run up debt, By Adam Creighton.
The young and poor have little say in society but they are incurring the bulk of the costs from the shutdown.
Whether it’s their incomes, their schooling or their ability to enjoy life, the sacrifices that students and so-called generations X and Y are making for the over-75s are very significant. Unlike the Spanish flu 90 years ago, it seems coronavirus is of little threat to the vast majority.
The $320bn the government and Reserve Bank have allocated so far to staunch the self-imposed economic carnage will have to be paid for. The plunge in tax revenues could well be as significant as the increase in outlays, leaving a gap that will test governments’ ability to borrow. … And the bill will come long after those whom the younger generations have tried to protect have died. …
Policies that were thought fair and reasonable only months ago will start to look unfair, even absurd. The government will face stark choices about how to allocate the burden. Will it crush the productive sector of the economy with even more income tax? …
Inflation, inflation, inflation — the cost of a free lunch:
Significant inflation may well be on the horizon. The borrowing lobby in society is much more politically powerful than the lending lobby. That is, the constituency that benefits from inflation (anyone with debt) is greater than those who wouldn’t.
What’s more, a niche group of economists reckons the central bank can give us all money directly — say, $10,000 each straight into our bank accounts — without undermining the economic system.
It’s known as Modern Monetary Theory [MMT] and, understandably, it is becoming popular.
“There’s no such thing as a free lunch” was branded into me through years of economics study. It’s hard to imagine that we can just make new money out of thin air without serious long-term costs to the economic system, or certainly respect for it.
Why would anyone bother working or saving?
The fiscal situation is looking so dire a future government might well give MMT a try. It’s so seductive. They should be wary, though. A great inflation has unpredictable consequences, which history suggests can be terrible.
Nevertheless, if inflation does break out, the burden of the economic shutdown would play out very differently. It would remove the government and private debt burden, obviating the need for the various tax increases suggested above. Anyone with significant cash or deposit holdings would be wiped out.
It’s unclear at this stage what damage the coronavirus does to people long term, whether you can catch it over and over, and what effect is has on under-60s. At this stage we’ve simply little idea what the benefits of crushing the curve are, except that we most of us don’t catch it.
The cost of crushing the economy temporarily are all too well known, however.
What if the virus becomes endemic in many parts of the world but not our part: do we keep shutting down the economy for a while every time we get re-infected? What if it flares up every winter .. forever?