The economic and financial problems we will face in a few months from now are as nothing to those we faced in 1945. After enduring six years of war, millions of servicemen needed to be demobilised, millions more workers redeployed, the nation’s bomb-damaged housing and worn-out capital stock replaced, exports massively increased to compensate for the loss of foreign income from the liquidation of our foreign assets, American loans repaid, the empire policed and decolonised, and a promised national health service instituted. Britain faced, in Keynes’ words, ‘a financial Dunkirk’. Yet, somehow, we managed; and there is no reason we should not manage now after a few months of staying at home.
The plight of the self-employed and small businesses is real enough, and government must replicate the support they have provided to salaried workers who have been furloughed. But this aside, lots of rubbish is being churned out about the economic cost of the current lockdown. Tens or even hundreds of billions of pounds will be wiped off our GDP, never to be recovered, we are warned by economists. Future generations will be burdened with colossal debt. The economic chaos that will ensue will cost far more lives than the virus ever would have.
This is on a par with warnings of how much output is ‘lost’ through sickness and ill-health in normal times. If only the ill were stretchered into work, and we all adhered to puritanical healthy living regimes, with all pleasures banned, the output of the nation (as measured by GDP) would be significantly increased. By the same logic, increasing the working week to eighty hours including Saturdays, working every day of the year, abolishing retirement and sending children to work from the age of four, would double national output. Of course, we choose not to do these things because it is our overall quality of life that matters, not GDP.
So it is that we have decided as a nation to forego GDP to save the lives of the elderly and vulnerable. Whether this will work remains to be seen. But the point is that most of the real economic cost of the current lockdown is born not by future generations but by us, now. This cost comprises all the goods and services that, because we are locked down, we are not purchasing and therefore not consuming – the weekend away or day trip, the meal out, the haircut, the travel expenses. The lost output here is cancelled by the lost consumption of the corresponding services.
Likewise, the debt incurred by government can be discharged in the time-honoured way. Future debt interest repayments will increase; but they can be financed by re-issuing the debt. The former increases liquidity in the system, the latter soaks it up again. This is how governments have always financed their war debt. Britain only repaid the final instalment of its US war loan in 2006. It finally redeemed its First World War debt in 2015. The real economic cost was incurred during the war itself.
After the current lockdown, taxes may need to rise if pent-up demand is unleashed, threatening inflation. On the other hand, taxes may need to be cut if people economise to rebuild their savings. But either way, the economy, and along with it our GDP, will quickly recover.
Much more interesting is how our attitudes and priorities as a nation will change – to global trade, free movement and uncontrolled immigration, to our strategic industries, to our manufacturing base, to our health service, to our bureaucrats and administrators, to locally sourced produce, to working from home and travelling to work, to our neighbours, and above all, to China. In these respects, things may never be the same again.
Suddenly, the mantra ‘Global Britain’ does not seem half so dynamic or appealing. ‘Little Britain’, or even better, ‘Little England’, seems a much more attractive proposition.