Saved by the state, shaped by the state

governments opinion
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The British economist, John Maynard Keynes once joked that during recessions, governments would do well to bury money in jam jars and pay people to dig them up. He was only half-joking: if prices and employment are falling, printing money for people to spend will only stimulate an economy and without much threat of inflation.

 

In response to the current crisis, governments the world over are once again turning to the Keynes playbook – printing cash on an unprecedented scale to maintain some semblance of economy until the storm passes. Unlike past crises however (typically of demand, this is a shortage of supply) today’s stimulus is not about getting people back to work; states are effectively paying them not to. Instead of digging money out of the ground (a euphemism for infrastructure spending) self-isolating staff are encouraged to play hide-and-seek for their wages at home. Businesses meanwhile, may apply for interest free loans and tax breaks to keep them from going bust.

This quick and near universal antidote is undoubtedly good news. Yet no state intervention can avoid the age-old conundrums which had given policymakers pause so many times before: Can politicians ever do a better job than markets? And even if they could, would they?

In a way both questions are already academic to the current crisis. In ordering non-essential businesses to close, the market has in many cases been taken out of the equation. Administrators elected to manage capitalism are suddenly charged with steering command economies – and making executive decisions over which businesses die and which survive; what is “essential” and what is not.

What opponents to Keynes have long reminded is that any individual’s efforts to allocate capital efficiently and fairly is a poor substitute to the impartiality of markets: politicians are fallible, and prone to prejudice. When the crisis subsides and markets resume, months of “picking favourites” may leave the landscape of participants irrevocably changed.

This is a worrying prospect for sectors that are poorly understood or unpopular with policy-makers. Gambling businesses in the UK got a taste of this in March when the chancellor, Rishi Sunak, announced business rate relief for all retail, hospitality and leisure firms – yet (with an air of spite) this did not include gambling firms – a sector which employs around 70,000 people (exclusively in leisure, retail and hospitality) and pays over £3bn a year in taxes. In the US, casinos which employ over 600,000 people, have also appealed for support. But again, as Michael Soll of the Innovation Group points out, gaming tends to be “disaggregated from lodging and leisure” purely because public opinion imagines gambling companies enjoy wildy fatter margins – unaware of course, that post-tax they certainly don’t.

After a week of arm twisting, the Betting and Gaming Council won relief for its members, and casinos in the US may yet get theirs too. But depending on how long the pandemic continues, firms large and small may require substantial further support. Loans and grants to otherwise successful businesses may or may not be given, or only given upon certain conditions. Unlike market forces, these conditions can only reflect the preferences of a prejudicial few, and might yet shape the industry out of keeping with its customers.


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