The British government has recently pledged £1.6bn to support the theatre industry and the arts in general, and announced this week that it’s willing to pay £10 towards peoples’ restaurant bills in a bid to kick start the leisure sector.
Whether any of this will work is open to question. Yes, there’s an appetite to get back to normal. But that’s not quite what’s being allowed to happen. Instead, an environment is being created where pub staff are wearing visors, where tables need to be booked, and a crowded, vivacious and lively atmosphere is likely to be frowned upon. Outside, things look a bit more relaxed, but that just means that huge swathes of the hospitality will be even more weather-dependent than they were already.
Meanwhile, another, bigger question, continues to go unanswered: can the government actually get away with all this?
Not in terms of the draconian measures it’s imposed, which the British populace by and large and with only a certain amount of grumbling have shown themselves willing to go along with. No, the question is whether the markets will allow it?
We live in an unusual moment, when a notionally conservative government is willing to offer up billions of pounds in newly printed or newly borrowed money, almost at the drop of a hat, or rather, at the sniff of a celebrity-supported social media campaign. So much the better for it, at least for now.
But quantitative easing has been tried before, and with mixed results. Doubling down on the response to the 2008 global financial crisis comes with risks of its own. Inflation has been rampant since that time in hard assets – witness booming stock markets and property prices – and it’s only been kept out of the consumer arena by the rise of cheap Chinese imports and the amazing supply chain efficiencies that have been drive by the internet.
In lockdown, Amazon (NASDAQ:AMZN) wins and the high street loses. So much should have been obvious, and so much we’ve learned. But the rhetoric surrounding coronavirus and its consequences has now moved beyond the original shock and fear, and is talking about what to do next. One thing politicians seem particularly keen on is repatriating manufacturing, both from the point of view of retaining jobs, and from the standpoint of ensuring supply chain security.
Thus Boris Johnson talked up the UK’s nascent lithium industry in the House of Commons recently, and thus Donald Trump’s administration in the US has suddenly become interested in the supply-demand dynamics of the world’s rare earths industry.
But if supply chains are repatriated – and the political arguments do make sense – it will come at a cost. Locally-produced goods, perhaps paradoxically, are likely to be more expensive. To put it another way: the political plan looks like it will end up importing inflation for consumers and spreading a whole new layer of price increases out on top of the already inflated asset prices that we see today.
Inflation will therefore likely hit at around the same time that markets eventually arise from their coronavirus stupor and take stock of global government debt levels. The UK’s debt to GDP ratio is now over 100% and is higher than it has been since the early 1960s. How deep the borrowing well goes remains open to question, although at least for now the UK government’s reputation as a debtor remains good. But if inflation starts to strangle the UK economy serious doubts will arise, and probably quite soon, about how the UK government will be able to raise enough money to service all those debts. Yes, it’s helpful that interest rates are low, and that a significant amount of the debt is long-dated. But it’s all still there, the economy is in recession and inflation may yet impoverish us all, notwithstanding the magic spells cast and woven by the wizards of modern monetary theory.
At the same time, the radicals will be looking around and seeing the billions that are being splashed around willy nilly and almost without care. With some justification they will ask, if these billions were available for this emergency, why were they not available for spending on health and other social needs before? The answer, if one accepts that such spending is warranted now, is not actually clear.
And so, if the government does eventually decide to turn off the taps, whether because inflation is on the rise or because it’s found some other reason to brand itself as “fiscally prudent” again, don’t expect a young generation already priced out of the property market by the round of inflation initiated in 2008, to take it lying down. Why would they? They have nothing invested in the current system: they can’t afford to buy in in the first place.
Which brings us depressingly to the round of social unrest we’ve seen in the wake of the coronavirus crisis. The specific triggers were all too real, and there was the added frustration that people had just been cooped up inside too long. Down the line, the danger is that even free money from the government won’t be enough to head unrest off at the past, when money itself is worth less and less, and everything is being debased.
As Bob Dylan, co-incidentally currently at number one in the UK album chart, said only too well, and also at a time of massive unrest: “If you ain’t got nothing, you got nothing to lose.”