Why an economic correction isn’t the end of the World

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It feels almost inevitable – a worldwide viral epidemic or pandemic, the onset of a ‘probable’ recession, jitters in the market, panic buying. The Novel Corona virus or something similar seems predictable when you have wet markets with unregulated selling and consumption of wildlife, people living at extremely high density and globalisation. And there have been warnings about the market since the last ‘too big to fail’ Global Financial Crisis led to interventions that continued to support unsustainable capitalism. High debt levels, overproduction, overconsumption, over-tourism, unsustainable growth levels – both for the planet and the economy, were going to cause a bust sometime soon – and many economists actually predicted it for last year, so in some ways ‘economic (and environmental) correction’ is overdue.

We live in both expected, and unprecedented times as efforts to contain and prevent a global pandemic give rise to a supply side export logistics shock leading, with other factors, to an emergent potential global economic shock. Panic is the enemy of stability as we’ve seen with the rush on food, toilet paper, and the markets.

The potential effects from a pandemic are scary. It doesn’t take much to realise how quickly hospitals and health systems would become overwhelmed if the disease spread significantly and had a higher infection and mortality rate. A cautious response that attempts to contain the virus is prudent – and may be a practice run for worse in the future. Unfortunately, the already vulnerable are more likely to suffer first and worst from the disease, especially in countries with marginal or no public health care. And with a recession, the precariat, recently employed and low paid workers are most at risk.

I’m not shedding tears though that the export of live seafood to China has been impacted by freight restrictions. I’m not sad that China’s CO2 emissions have been reduced by a quarter from the Covid 19 shutdown. There are other positives. Air pollution has dropped, people are reducing air travel, they are shopping less. It’s hoped that fuel prices will drop at the pump along with in international sales. The cost of borrowing should drop (not that New Zealanders need more debt). In New Zealand, banks might make less profit – though at $1.8-2billion per annum they can afford to.

I am concerned at the potential loss of jobs for working people, and the hardship of recession, disease and confinement. And naturally business advocates are suggesting the planned minimum wage rise be delayed. Though at this time it’s more important not just to support business continuity as owners would have, but also workers and those on the minimum wage too.

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Reserve Bank Governor Adrian Orr says New Zealand is well placed to withstand economic contraction resulting from the Novel Corona Virus. “Inflation is near its mid-point. Employment is at if not slightly above its maximum sustainable rate, and our monetary policy is already very stimulatory.” With our low public debt levels, we have room to move to support businesses retain workers for the duration of a short recession. But the effects of the expansionary capitalist growth model as manifest in climate change, biodiversity loss and impoverishment as the gap between the rich and the poor widens, all show that the planet is most likely to suffer without capitalist correction.

Indeed, the Novel Corona Virus and potential recession may provide an opportunity to reconsider the social and economic settings that have led to political and environmental instability around the world. A good start has been China’s review of the wildlife trade. But the moment also allows an opportunity to review the speculative, accumulative gambling house that is the stock-market where the rise and fall of bets and hedges can determine the availability of food for nations or the environmental quality of all. The current model has food stockpiled in warehouses to keep prices high while people starve. Billionaires accumulate more billions while people starve. Tourists among the world’s elite on cruise ships patrol the world in luxury and jet to tropical holidays while people live on the street, or starve. CEO’s pay has grown 1000% over the last 40 years and they now make 478x the average worker. Liquor and fishing barons get the highest honours in the land. The amount of food we throw away globally is ‘tragically high’, and in New Zealand $1.8billion worth is discarded every year. Excess production and wasteful consumption is driving climate change and species, habitat and cultural diversity loss. The global economy can afford to slow. In fact, our future might depend on it.

Design trend advisor Li Edelkoort says the virus might be an event of ‘amazing grace’ for the planet. “The virus will slow everything down”. “We will see an arrest in the making of consumer goods. That is terrible and wonderful because we need to stop producing at such a pace. We need to change our behaviour to save the environment”. She believes we can emerge from the health crisis as more conscientious humans. “We need to find new values—values of simple experience, of friendship.” “It might just turn the world around for the better.”

Steven Pearlstein, economics columnist for the Washington Post, and Professor of Public Affairs at George Mason University in the States, says that a ‘huge and long-overdue correction in asset prices – especially stocks, bonds, real estate’ is necessary and inevitable. But he says, “the aim is not to prevent this painful process from unfolding, but to ensure it unfolds in as orderly a fashion as possible”. An orderly unfolding of the entire economic order is my hope for this juncture, and a transition to a system that’s better for people and the planet.

Even a radical ‘correction’ to capitalism isn’t the end of the world. With climate change and environmental destruction, the end of the world is more likely if we carry on with our usual trajectory of business as usual.

22 COMMENTS

    • I agree with most of what was said.
      The issue I have is that I have precisely zero optimism that any such reflection will take place.
      Just like after the GFC, the poor will be hard hit, the middle class will have stood still and the wealthy will have had the means to capitalise on this “opportunity”.

  1. We can reasonably expect the COVID-19 tsunami to swamp our health sytem & bring public life to a grinding halt. Sound melodramatic? Read some of the accounts coming out of 1st world Italy (https://www.msn.com/en-nz/news/world/stop-saying-its-a-bad-flu-doctor-fighting-coronavirus-shares-dramatic-account/ar-BB10ZqlU?ocid=spartanntp).
    We’re only potentially weeks away from something similar – the government’s wishy washy response of “yeah, just self isolate if you’re feeling a bit crook. She’ll be right” doesn’t inspire confidence. It may already be too late.
    As commentators on TDB have been stating for some time, this ‘radical correction’ will give more for the middle classes to contemplate than just their dwindling Kiwisaver accounts & ruined holiday plans.
    Christine, you state: “Even a radical ‘correction’ to capitalism isn’t the end of the world” – but it will feel like it for many.
    If this is the cost of “transition to a system that’s better for people and the planet” then be warned – the price will insufferably painful for those least able to pay that cost .

  2. lovely written piece and really insightful….its a timely reminder that when things slow down it allows room for reflection and solutions to emerge to the problem. But we are talking about the greed of some of us here and I doubt the 10% in between cruises, golf and general pigs at the trough behavior will change.

  3. Also, you could look at this as the “Stress Test” for all the western countries that went full on knee deep into running Austerity policys post GCF.
    What I mean is that, those nations leaders all went onto a slash and burn of social services balance sheets driving their health system, education system and social services into the ground.
    So now we’ll see how well they’ll cope without those services there to support the population in a time of need. Nations retreating to within their own borders?

    2020 has had Forest Fires through Droughts and deforestation,Locust Plague … what next? We’re only into March!

  4. Another unintended benefit to the globe may be a slight decrease in the rate of carbon emissions due to falling production and global tourism.

  5. There seem to be macro and micro aspects to this economic downturn. Supply chains and communications underpin global trade in goods and services while share markets and complex financial instruments manage interconnected monetary systems. Schwarz (2020) reports that in the US the richest 10% of households account for 80% of that country’s share market investments, while half the country have no stock market shares at all. In NZ the banks and the government will be responsible for balancing the high level financial levers in trade, currency, borrowing and Kiwisaver investments. Kiwisaver represents future financial security of a majority of NZ employed (3/5 of all NZers contribute) so these global level events influence our savings portfolios at the intermediary, regardless of actual share market engagement (a direct financial link between macro and micro). At the level of the average business in NZ (from single self employed to dozens or hundreds of employees) the government and also the media, academia and professional bodies have a responsibility to manage the actual and perceived reactions to this financial downturn. Here at the micro level everyone has a stake in the outcomes. Government have to manage public sector, social and infrastructure spending while also interpreting the large scale market downturns, any trade and tourism restrictions, the spread and containment of disease and the outcomes for everyday living, the management of medical information and dissemination into the public arena. Media need to report the facts about economy, people and medical events without contorting the truth (or opinions) to suit a narrative or elicit emotion. Academia and professionals must inform government and the public about the risks financially, medically and socially of these events, including the margins of errors in modelling and methods, with totality, context and objectivity.
    This all feeds back into local economic systems which reverberate into the global market.

    Schwarz, J. (2020). Coronavirus matters, the stock market doesn’t, and thinking it does may literally kill us. Retrieved from
    https://theintercept.com/2020/03/06/coronavirus-covid-19-stock-market-economy/

    • Jody, I’m not sure that all this talk about “interconnected monetary systems.” Kiwisaver investments” …. “future financial security” etc. actually means anything. Nearly all these things represent just paper and promises.
      How much of it is real tangible assets here and now? What does “future financial security” actually mean? Until tomorrow comes we will not know what we own, if anything. All the money tied up in shares etc may not have any real assets to under pin it. If the stock market plummets catastrophically what will our Kiwisaver investments be worth then? Where is the future security in that?

      • Workers hours and toil is converted into money credited to their bank accounts and if not withdrawn may well contribute to bolstering the banksters in their activity trans fusing money from the economy until they crash and are allowed to take depositors funds to stuff their pockets.
        But Kiwisaver funds are taken from the wages and placed into a range of speculative fund managers and this money may all but disappear when the crash approaches.
        All ways the lowly worker suffers grossly.

  6. An orderly unfolding of the entire economic order is my hope for this juncture, and a transition to a system that’s better for people and the planet.

    Totally agree.

  7. Mike Smith for NZer of the Year!!!! Good on this guy!

    NZ has become a basket case for polluters and part of it is that our government has failed and only people like Mike Smith through legal means, are going to change the corporate behaviour because our lazy environmental watchdogs certainly ain’t!

    Fonterra, Genesis Energy and Z will go to trial for ‘failing’ to protect against effects of climate change
    https://www.stuff.co.nz/environment/climate-news/120103409/fonterra-genesis-energy-and-z-will-go-to-trial-for-failing-to-protect-against-effects-of-climate-change?fbclid=IwAR23ofylw3I8n9meiGZCh1UmgPrufZnP6-2RZdNO8y7lIluAVjAkK7aHqhw

    Thames-Coromandel council fails to bat off climate change court case
    https://www.stuff.co.nz/environment/climate-news/120175034/thamescoromandel-council-fails-to-bat-off-climate-change-court-case

    Our lazy, sleepy, incompetent environmental watchdogs in bed with big polluters. So what have EPA been doing since 2011 while the country has our rivers and seas becoming polluted places, disease like Kauri DieBack/PSA is increasing and biodiversity is dying with many endangered species about to become extinct in NZ so that fisheries and big polluters can make a bit more profit or don’t have to change their behaviour, and the carbon footprint in NZ increasing???

    Environment watchdog has never brought a prosecution
    https://www.newsroom.co.nz/greenroom/2020/03/10/1074422/no-prosecutions-ever-from-environmental-protection-authority

    EPA grants drilling and discharge consent for Otago coast to oil and gas company OMV
    https://www.stuff.co.nz/business/118277477/epa-grants-drilling-and-discharge-consent-for-otago-coast-to-oil-and-gas-company-omv

    EPA’s ‘inappropriate’ reaction to student’s speech
    https://www.stuff.co.nz/national/117378375/epas-inappropriate-reaction-to-students-speech

    In addition

    The energy charter treaty considered one of the world’s most dangerous treatys and operates largely out of the public eye…

    Australian company sues Sweden for $1.8 billion for phasing out uranium mining

    Aura Energy Ltd, an Australian company also listed in the UK, has lodged an ISDS claim under the Energy Charter Treaty for US 1.8 billion compensation from the Swedish government because in 2018 it decided to phase out uranium mining for environmental reasons.

    Read more: http://aftinet.org.au/cms/node/1823

    https://www.energy-charter-dirty-secrets.org

    You really have to fucking wonder who in their right mind allows Fonterra to use coal to dry milk powder in this day and age!!!! No wonder Fonterra are suffering big losses, the rot started when they failed to keep up with technology and instead thought it would all go away and leave the job to someone else, including their overseas partners to lead the golden path way which funny enough never happened, Sanlu and Beingmate happened instead!

  8. While there are some great points in the article and the comments there is no mention of the failure of the banking system which is almost guaranteed as property prices make their long overdue correction.
    And governments have a reduced capacity to deal with another crisis as they have failed to unwind QE from the last crisis. But they will still try as they are now beholden to their corporate donors/masters.
    Which means another mass transfer of wealth from the people to the elite, facilitated by governments.
    This may or not be the end of the world, but it certainly will be a massive step in that direction.

    • johnky over saw the immigration increase and bonanza of foreign buyers snapping up houses and farmland. The resulting increase in prices transferred into massive increases in the mortgages held by Ozzie banks. This mortgage money is clear profit for banksters of which johnky was and is one.
      Corrupt bastard. Kiwis are paying daily for his dirty work.
      Those sleeping in cars with their kids never voted for that traitor but suffer what he has dished out in scorn for the poor.

      • Well yes of course.
        I rarely disagree with you John.
        What amazes me though are the swathes of politically naive voters who did enable the man to pillage billions.
        I guess they are about to get there comeuppance but the dismal fact is the real elite and not the wannabes will do very nicely out of this financial crisis, as they always do.
        Unless it’s the last one of course, or else people decide enough really is enough.

  9. Any significant ‘correction’ will destroy the lives of millions, for sure, given the total dependence on fossil fuels in many countries and economies. Let’s see how people in Bangla Desh, Cambodia, Philippines, Afghanistan, Ecuador, Venezuela and many other countries that are called ‘developing’ countries will fare, when their humble and desperate work output is no longer wanted, and when there is no fertiliser to put onto their crop fields.

    Let us see how those nations will cope that depend on petroleum and gas exports, and little else, perhaps.

    It will be easier for some alternatively thinking middle class Kiwis with their own property and garden or more, to change their lifestyle and activities, others will be stuffed, as alternatives are not there in sufficient quantity and not affordable enough to replace oil, coal and gas at this stage.

    Humanity is stuffed, a system collapse will create wars, civil wars, crime and chaos, eventually killing hundreds of millions.

    • A managed change cannot happen under capitalism so yes die off will happen long before it needs to.
      Managed reduction of population is only seen in China’s one child policy which has been modified a little recently to allow a second child under strict criteria.

      If NZ stopped immigration then our Kiwi population will shrink which is very necessary long term

  10. We are back to old known problems, no easy solution:
    https://www.nytimes.com/2020/03/11/business/coronavirus-corporate-debt.html

    https://www.theguardian.com/business/2020/jan/08/world-bank-global-debt-crisis-borrowing-build-up

    Forget also the low government debt for NZ Inc, per capita NZers are quite highly indebted, for various purposes.

    With already very low interest rates worldwide, the existing model offers little in the way of solutions, prepare for a rough ride and eventual collapse, forget your retirement savings and so, learn survival skills, get armed to defend yourselves, and learn to grow or hunt your own food, perhaps even build a solid bunker.

    If there are enough likeminded that can be trusted, organise yourselves, but as so often most are deluded to the extreme and will pose a problem if not a threat in the end.

  11. What the most important difference in Aotearoa between 2008 and 2020? In 2008, an exhausted Blairite Labour government, hobbled by NZ First, was puttering towards inevitable defeat, putting a Wall St banker in charge of NZ economic policy for the next 8 years. In 2020, a confused Labour government is heading for a political correction in which, all going well, NZ First and National will be punished by their conservative voters for their financial hi-jinks, and a Labour/ Greens government will be formed with a clear majority.

    As Bomber predicted a few years back, Labour and the Greens will be able to point to their neo-liberal Budget Responsibility rules, and point out that following these rules has utterly failed to prevent or mitigate a massive recession. They can claim this gives them a mandate for the biggest change in political-economic policy since the 1980s, dealing the final death blow to the Rogernomics era. This will open up space for the sort of ambitious, transformative policy changes we were hoping for in this term. Our job, as politically engaged citizens, is to engage in robust but respectful debate about what these new policies ought to be.

    • Let the debate begin.
      Do we need foreign banks ruling us extracting in excess of at least $15Bn annually while declaring a paltry $5Bn profit.

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