Covid 19 coronavirus: Peter Lyons: The Covid-19 economic freefall

Opinion

COMMENT

This economic situation is extreme. It has been unfolding in real time which is unique except in wartime. We are in a state of shock. There are two huge elements at work. One is the pandemic. The other is the economic implications.

Thomas Hobbes was an English philosopher in the 17th century. He wrote about how easily societies can fall apart in extreme times such as the English Civil War. How self-interest can destroy a society during extreme times. People hoard, they panic-buy, they fear for their own safety and survival. Some resort to violence. We need to avoid this worst-case scenario. We have the leaders to do this. We have the resources. We need to understand what is happening to our economy.

Huge chunks have been temporarily lost. This means a huge loss of jobs and incomes and output. But people need to understand they are not alone. It is not their fault. We can only deal with this together. It's not about winners or losers. This is about national survival and unity in an extreme time. If we fail to look after each other, we will all lose.

We are at war as a nation. But the enemy is not in front of us. It is among us and could be us if we allow that to happen. We must stick together yet apart to fight this pandemic plus its economic effects.

Here is how we can fight the economic battle. We are all going to take a hit. All of us. Don't think you will come out a winner by smart investment or panic buying or hoarding or abusing the system. You will lose, and we will all lose.

We need to ensure everyone has access to the basic necessities - food, water, electricity, communication and the roof over their heads. Just the basics. Lose the sense of entitlement. This is war.

We need to put the financial sectors into partial hibernation. This is already starting to happen. A temporary debt holiday for those who have taken the hit. Remove the fear of debt. The Reserve Bank can create the money for the financial sector to partially hibernate during the crisis. There will be little inflation because there are few opportunities to spend.

The money can be created by the Reserve Bank; it is just computer credits created by a mouse-click. But those most vulnerable need access to these credits to buy the basics. In extreme times, the main function of money is to provide the basics.

The wage subsidy scheme was a great start. But it has a fundamental flaw for good employers. If employers have no income, they are draining their capital by trying to look after their staff. This will make recovery much harder when this passes. If a business has lost its income, we must put its staff on a Code Red benefit to meet their basics.

No one can be allowed to lose the roof over their heads during this war. Otherwise they become a potential nomadic infection on others. Landlords with mortgages will be given a debt holiday. Those who rely on rents for living expenses can access the Code Red allowance. Otherwise it will be too slow and cumbersome.

We all take a hit but it must be shared, otherwise we will all lose. Those who seek to profit from the fighting are scum. Those on the frontline are healthcare workers, police, emergency workers, food producers, supply chain staff, supermarket staff, rest home staff - amazing people who are stepping up.

Peter Lyons. Photo / supplied

We are very well led compared to many nations. We produce our basic necessities as a country. We have a very large moat and pleasant climate. We can survive and function as a society. We must stick together, otherwise we will make it much worse than it needs to be. The economic concept of self-interest does not work when a nation is at war.

There are key things we are about to realise about our cool little country. Our political leaders of all persuasions are competent and moderate. Our political differences are not extreme. When it hits the fan, we ultimately unite. We can supply our own basic needs as a nation if we need to. Nothing fancy, but we can survive. Our small population allows for greater mutual trust and co-operation compared to other larger nations. We can do this.

• Peter Lyons teaches economics at St Peter's College, from home.