Airlines and oil giants are on the brink. No government should offer them a lifeline

This crisis is a chance to rebuild our economy for the good of humanity. Let’s bail out the living world, not its destroyers writes George Monbiot in The Guardian 

 

‘Governments have the oil industry over a barrel – hundreds of millions of unsaleable barrels, to be more precise – just as they had the banks over a barrel in 2008.’ Photograph: BEAWIHARTA/REUTERS


Do Not Resuscitate. This tag should be attached to the oil, airline and car industries. Governments should provide financial support to company workers while refashioning the economy to provide new jobs in different sectors. They should prop up only those sectors that will help secure the survival of humanity and the rest of the living world.

They should either buy up the dirty industries and turn them towards clean technologies, or do what they often call for but never really want: let the market decide. In other words, allow these companies to fail.

This is our second great chance to do things differently. It could be our last. The first, in 2008, was spectacularly squandered. Vast amounts of public money were spent reassembling the filthy old economy, while ensuring that wealth remained in the hands of the rich. Today, many governments appear determined to repeat that catastrophic mistake.

The “free market” has always been a product of government policy. If antitrust laws are weak, a few behemoths survive while everyone else goes down. If dirty industries are tightly regulated, clean ones flourish. If not, the corner-cutters win. But the dependency of enterprises on public policy has seldom been greater in capitalist nations than it is today. Many major industries are now entirely beholden to the state for their survival. Governments have the oil industry over a barrel – hundreds of millions of unsaleable barrels, to be more precise – just as they had the banks over a barrel in 2008. Then, they failed to use their power to eradicate the sector’s socially destructive practices and rebuild it around human needs. They are making the same mistake today.

The Bank of England has decided to buy debt from oil companies such as BP, Shell and Total. The government has given easyJet a £600m loan even though, just a few weeks ago, the company frittered away £171m in dividends: profit is privatised, risk is socialised. In the US, the first bailout includes $60bn (£48bn) for airlines. Overall, the bailout involves sucking as much oil as possible into strategic petroleum reserves and sweeping away pollution laws, while freezing out renewable energy. Several European countries are seeking to rescue their airlines and car manufacturers.

Don’t believe them when they tell you they do this on our behalf. A recent survey by Ipsos of 14 countries suggests that, on average, 65% of people want climate change to be prioritised in the economic recovery. Everywhere, electorates must struggle to persuade governments to act in the interests of the people, rather than the corporations and billionaires who fund and lobby them. The perennial democratic challenge is to break the bonds between politicians and the economic sectors they should be regulating, or, in this case, closing down.

Even when legislators seek to represent these concerns, their efforts are often feeble and naive. The recent letter to the government from a cross-party group of MPs calling for airlines to receive a bailout only if they “do more to tackle the climate crisis” could have been written in 1990. Air travel is inherently polluting. There are no realistic measures that could, even in the medium term, make a significant difference. We now know that the carbon offsetting schemes the MPs call for is useless: every economic sector needs to maximise cuts in greenhouse gases, so shifting the responsibility from one sector to another solves nothing. The only meaningful reform is fewer flights. Anything that impedes the contraction of the aviation industry impedes the reduction of its impacts.

The current crisis gives us a glimpse of how much we need to do to pull out of our disastrous trajectory. Despite the vast changes we have made in our lives, global carbon dioxide emissions are likely to reduce by only about 5.5% this year. A UN report shows that to stand a reasonable chance of avoiding 1.5C or more of global heating, we need to cut emissions by 7.6% per year for the next decade. In other words, the lockdown exposes the limits of individual action. Travelling less helps, but not enough. To make the necessary cuts we need structural change. This means an entirely new industrial policy, created and guided by government. 

Governments like the UK’s should drop their road-building plans. Instead of expanding airports, they should publish plans for reducing landing slots. They should commit to an explicit policy of leaving fossil fuels in the ground.

During the pandemic, many of us have begun to discover how much of our travel is unnecessary. Governments can build on this to create plans for reducing the need to move, while investing in walking, cycling and – when physical distancing is less necessary – public transport. This means wider pavements, better cycle lanes, buses run for service not profit. They should invest heavily in green energy, and even more heavily in reducing energy demand – through, for example, home insulation and better heating and lighting. The pandemic exposes the need for better neighbourhood design, with less public space given to cars and more to people. It also shows how badly we need the kind of security that a lightly taxed, deregulated economy cannot deliver.

In other words, let’s have what many people were calling for long before this disaster hit: a green new deal. But please let’s stop describing it as a stimulus package. We have stimulated consumption too much over the past century, which is why we face environmental disaster. Let us call it a survival package, whose purpose is to provide incomes, distribute wealth and avoid catastrophe, without stoking perpetual economic growth. Bail out the people, not the corporations. Bail out the living world, not its destroyers. Let’s not waste our second chance.

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Should we be scared of the coronavirus debt mountain?

The pandemic has necessitated huge borrowing – but post-crisis austerity would be the very worst way to deal with it 

 

‘A world in which coronavirus debts are repaid by a wealth tax would look very different from one in which benefits are slashed and VAT is raised.’ Photograph: Ben Birchall/PA


We do not know how this pandemic will end. We do know that we will be poorer when it’s over: GDP is plunging around the world.

We also know that there will be a towering pile of IOUs left from the bills run up during the crisis. When it is over we will have to figure out how to repay them – or whether to repay them at all. That question will decide the complexion of our politics, and the quality of our public infrastructure and services for years to come. Unless we tackle this issue, coronavirus debts will be the battering ram for a new campaign of austerity.

The scale of the challenge is huge. Hard cases like Italy grab the headlines. Its debt currently stands at 135% of GDP. As a result of the crisis it will likely rise to 155%. But it is no longer an extreme outlier. According to the IMF, the debt ratio of the average advanced economy will exceed 120% next year. In the US, the debt to GDP ratio may soon surpass that at the end of the second world war.

These numbers are impressive, daunting even. They offer an open door to conservative scaremongering. The first move in that tradition of debt politics is to invoke the tenuous analogy to a household. In this picture, debts are a burden on the profligate; a moral obligation that must be honoured on pain of national bankruptcy and ruin.

There are some circumstances in which this analogy is apt, specifically when you are an impoverished and desperate country dependent on foreign creditors who will lend to you only in the currency of another country, most commonly that of the US. Many poorer countries are in this position. Few rich countries are. Indeed, one of the definitions of being an advanced economy is that you are not.

Advanced economies borrow in their own currency and overwhelmingly from their own citizens. For them, the household analogy is profoundly misleading. In fact, those seeking to rebut the misconceptions of the household analogy sometimes say we merely owe government debts to ourselves.

That is a liberating thought. It makes clear that we are not in the position of a subordinate debtor nation. But it has a dizzying circularity to it. If we are our own creditors, are we not also our own debtors – master and slave at the same time? Ultimately, it is a bon mot that relies on treating the economic nation as a unit. That may look like liberation, but it is an illusion achieved by removing the real politics of debt – which are about class, not nationality.

Historically, government debts were assets owned by the middle and upper classes, the famous rentiers. And taxes were overwhelmingly indirect and thus fell disproportionately on lower incomes.

Today, the richest still own a disproportionate share of government debt. But the liabilities of the government are now widely distributed. They are staple investments for pension funds and insurers. Government debt is not simply a burden; it is a highly useful financial asset, offering modest interest rates in exchange for safety. It is all the more useful for the fact that the government lives for ever and will generate revenue for ever through taxation. So it enables very long-term planning.

The tax base today is much broader than it was a century ago. But who pays taxes – and who does not – remains one of the most urgent questions of the moment. A world in which coronavirus debts are repaid by a wealth tax or a global crackdown on corporate tax havens would look very different from one in which benefits are slashed and VAT is raised. And it is very possible that debt service will be taken out of other spending, whether that be schools, pensions or national defence.

As the great Austrian economist Joseph Schumpeter remarked in the aftermath of the first world war, “the budget is the skeleton of the state stripped of all misleading ideologies”, the truest reflection of the distribution of power and influence.
It is a distributional issue. But not only that. Debts may also affect the size of the cake itself. As we know only too well, a regime of austerity that keeps taxes high and government spending low is not conducive to rapid economic growth. And yet for debt to be sustainable, what we need is growth in GDP – to be precise, growth in nominal GDP, which includes real economic growth and inflation. Inflation matters because it acts as a tax on debts that are owed in money that is progressively losing its value. Price stability, the objective of monetary policy since the 1970s, no doubt has benefits for everyone, but most of all the creditor class.

This is the awesome dilemma we will face in the aftermath of Covid-19. This is the battle for which we must brace. Not right now, but once the immediate crisis has passed. After the financial crisis of 2007-08, it was in 2010 that the push for belt-tightening began. Like revenge, austerity is a dish best served cold.

Progressive politics cannot, of course, shrink from a battle about budgetary priorities. But it should resist fighting on the terms set by austerian debt-fear. In the circumstances of the UK or the US, alarmism about debt is false. And how false is being demonstrated by the crisis itself.

There is one mechanism through which we can ensure we truly owe the debts to ourselves. That mechanism is the central bank. Its principal job is to manage public debt – and at a moment of crisis central banks do what they must. They buy government debts or, in what amounts to the same thing, they open overdraft accounts for the government.

That has two effects that, acting together, have the potential to negate debt as a political issue. Central bank intervention lowers the interest rate. If interest rates are held down, debt service need not be an onerous burden. At the same time, the central bank purchases remove government IOUs from private portfolios and put them on the balance sheet of the central bank. There, they are literally claims by the public upon itself. 

When the central bank buys the debt it does so by creating money. Under ordinary circumstances one might worry about that causing inflation. But given the recession we face that is a risk worth running. Indeed modest inflation would help us by taking a bite out of the real value of the debt.

Of course, ensuring that the central banks continue their crisis-fighting methods into the recovery period will itself require a political battle. Fearmongering about inflation is the close cousin of fearmongering about debt. We should resist both blackmails. We have the institutions and techniques to neutralise the coronavirus debt problem. We owe it to ourselves to use them.

Nudge theory is a poor substitute for hard science in matters of life or death

Behavioural economics is being abused by politicians as a justification for flawed policies over the coronavirus outbreak writes Sonia Sodha in The Guardian 

Illustration: Dom McKenzie/The Observer


I first came across “nudge” – the concept many consider to be the pinnacle of behavioural economics – at a thinktank seminar a little over 10 years ago. We were all handed a mock wine menu and asked what we’d order.

This was supposed to illustrate that most price-aware diners order the second-cheapest bottle to avoid looking tight and that restaurateurs use this to nudge us towards the bottle with the highest markup. I remember thinking it an interesting insight, but that these sorts of nudges were nowhere near as likely to transform the world as their enthusiastic proponent claimed.

Lots of far more eminent people disagreed with me. Behavioural economics looks at how people make decisions in the real world – warts, irrational biases and all – and applies this to public policy. Its signature policy is set out in the 2008 book Nudge , by Cass Sunstein and Richard Thaler. The central insight is that changing the way choices are presented to people can have a huge impact. Make saving for retirement or donating your organs an opt-out rather than opt-in and watch as people suddenly adopt more socially responsible behaviour. Coming just as the financial crisis hit, Nudge was perfectly timed to achieve maximum traction by offering politicians the chance to reap savings through low-cost policy. Sunstein was quickly appointed to a senior job in the Obama administration, while David Cameron set up the behavioural insights team, dubbed the “nudge unit”, led by psychologist turned policy wonk David Halpern.

The nudge unit has since had a mixed track record: there have been some real successes on pensions and tax payments but in other areas it’s been a bit of a damp squib. So I was surprised when Halpern popped up to talk about the government’s pandemic strategy in the press in early March. It was he who first publicly mentioned the idea of “herd immunity” as part of an effective response to Covid-19 (the government has since denied this was ever the strategy). And it’s clear from the briefing he gave journalists that he favoured delaying a lockdown because of the risk of “behavioural fatigue”, the idea that people will stick with restrictions for only so long, making it better to save social distancing for when more people are infected. “If you go too early and tell people to take a week off work when they are very unlikely to have coronavirus, and then a couple of weeks later they have another cough, it’s likely they’ll say ‘come on already’,” he told one reporter.

Halpern is reportedly on Sage, the government’s scientific advisory committee for emergencies, and he is also the government’s What Works national adviser, responsible for helping it apply evidence to public policy. So one might expect there to be something substantial behind the idea of behavioural fatigue. 

But evidence presented to government by the Sage behavioural subcommittee on 4 March, representing the views of a wider group of experts, was non-committal on the behavioural impact of a lockdown, noting that the empirical evidence on behavioural interventions in a pandemic is limited. Shortly after Halpern’s interviews, more than 600 behavioural economists wrote a letter questioning the evidence base for behavioural fatigue.

Rightly so: a rapid evidence review of behavioural science as it relates to pandemics only fleetingly refers to evidence that extending a lockdown might increase non-compliance, but this turns out to be a study about extending deployment in the armed forces. “Behavioural fatigue is a nebulous concept,” the review’s authors later concluded in the Irish Times.

This is a common critique of behavioural economics: some (not all) members of the discipline have a tendency to overclaim and overgeneralise, based on small studies carried out in a very different context, often on university students in academic settings. It’s extraordinary that Halpern was briefing on what essentially looks like his opinion as if it were science. We won’t know how influential it was in the government’s decision to delay lockdown until a post-hoc inquiry, but there’s no reason to suppose Boris Johnson wasn’t listening to his “what works” adviser. “The behavioural psychologists say that if you don’t shake somebody’s hand, that sends an important message… [about] washing your hands,” he said on 9 March.

It’s less extraordinary, though, when you understand that the Behavioural Insights Team is a multimillion-pound profitable company, which pays Halpern, who owns 7.5% of its shares, a bigger salary than the prime minister. Here lies the potential conflict of interest: someone who contributes to Sage also has a significant financial incentive to sell his wares. It perhaps explains BIT’s bombastic claims – “it’s no longer a matter of supposition… we can now say with a high degree of confidence these models give you best policy,” Halpern claimed in 2018. And: “We make much of the simplicity of our interventions… but if properly implemented, they can have a powerful impact on even our biggest societal challenges.” (It is worth noting that Sir Patrick Vallance, the government’s chief scientific adviser, says that one reason the composition of Sage has been kept private is to protect scientists from “lobbying and other forms of unwanted influence which may hinder their ability to give impartial advice”.)

This hubris has led some behavioural scientists to push their approach way beyond those realms such as consumer policy, where it has the potential to be most effective. My jaw dropped on reading a recent 70-page BIT report on applying behavioural insights to domestic abuse that included not one survivor’s voice and in which the word “trauma” appeared only once. It describes domestic abuse as a “phenomenon made up of multiple behaviours undertaken by different actors at different points in time”. Its recommendations are that strange mix of common sense dressed up as behavioural revelation and jarring suggestions that tend to characterise behavioural science when it overreaches itself.

Little wonder that a House of Lords committee was highly critical of government tendencies to emphasise nudges at the expense of other effective policy solutions in 2011. Nudges undoubtedly have their place, but they’re not going to eradicate domestic violence or end catastrophic climate change.

The problem with all forms of expertise in public policy is that it is often the most formidable salespeople who claim greater certainty than the evidence allows who are invited to jet around the world advising governments. But the irony for behavioural scientists is that this is a product of them trading off, and falling prey to, the very biases they have made their names calling out.

I can only imagine how easy it might have been for Johnson to succumb to confirmation bias in looking for reasons to delay a lockdown: what prime minister wants to shut down the economy? And it is the optimism bias of the behavioural tsars that has led them to place too much stock in their own judgement in a world of limited evidence. But this isn’t some experiment in a university psychology department - it is a pandemic and lives are at stake.

'Heads we win, tails you lose': how America's rich have turned pandemic into profit

As 26 million Americans lose their jobs, the billionaire class has added $308bn to its wealth writes Dominic Rushe and Mona Chalabi in The Guardian


 

Jeff Bezos has seen his wealth increase from $105bn to $130bn. Photograph: Mona Chalabi


Never let a good crisis go to waste: as the coronavirus pandemic sweeps the world, America’s 1% have taken profitable advantage of the old saying.

Some of the richest people in the US have been at the front of the queue as the government has handed out trillions of dollars to prop up an economy it shuttered amid the coronavirus pandemic. At the same time, the billionaire class has added $308bn to its wealth in four weeks - even as a record 26 million people lost their jobs.

According to a new report from the Institute for Policy Studies, a progressive thinktank, between 18 March and 22 April the wealth of America’s plutocrats grew 10.5%. After the last recession, it took over two years for total billionaire wealth to get back to the levels they enjoyed in 2007.

Eight of those billionaires have seen their net worth surge by over $1bn each, including the Amazon boss, Jeff Bezos, and his ex-wife MacKenzie Bezos; Eric Yuan, founder of Zoom; the former Microsoft chief Steve Ballmer; and Elon Musk, the Tesla and SpaceX technocrat.

The billionaire bonanza comes as a flotilla of big businesses, millionaires and billionaires sail through loopholes in a $349bn bailout meant to save hard-hit small businesses. About 150 public companies managed to bag more than $600m in forgivable loans before the funds ran out. Among them was Shake Shack, a company with 6,000 employees valued at $2bn. It has since given the cash back but others have not.

Fisher Island, a members-only location off the coast of Miami where the average income of residents is $2.2m and the beaches are made from imported Bahamian sand, has received $2m in aid.

Its residents seemed to be doing fine even before the bailout. This month, the island purchased thousands of rapid Covid-19 blood test kits for all residents and workers. The rest of Florida is struggling. About 1% of Florida’s population has been tested for the coronavirus, behind the national figure of 4%. The state is also in the midst of an unemployment claims crisis, with its underfunded benefits system unable to cope with the volume of people filing.

The banks that were the largest recipients of bailout cash in the last recession have also done well, raking in $10bn in fees from the government loans, according to an analysis by National Public Radio.

“Heads we win, tails you lose,” said Chuck Collins, director of the program on inequality and the common good at the Institute for Policy Studies and co-author of the new report.

Collins said the pandemic had further exposed fault lines in the US body politic that have been widening the gap between the really rich and the rest over decades.

“The rules of the economy have been tipped in favor of asset owners against everyone else,” said Collins.

By 2016 – seven years after the end of the last recession – the bottom 90% of households in the US had still not recovered from the last downturn while the top 10% had more wealth than they had in 2007.

Throughout the recovery, stock market gains disproportionately favored the wealthy. The top 1% of households own nearly 38% of all stock, according to research by the New York University economist Edward Wolff. Even before the coronavirus hit, homeownership in the US – a traditional source of wealth growth – was well below its 2004 peak.

Nor did Americans earn more. Wage growth remained sluggish during the decade-long record-breaking growth in the jobs market that came after the last recession.

For black and Latin Americans, the situation is worse. The black-white wage gaps are larger today than they were in 1979.

Meanwhile, billionaires have been unable to put a well-heeled foot wrong. Billionaire wealth soared 1,130% in 2020 dollars between 1990 and 2020, according to the Institute for Policy Studies. That increase is more than 200 times greater than the 5.37% growth of median wealth in the US over this same period. And the tax obligations of America’s billionaires, measured as a percentage of their wealth, decreased 79% between 1980 and 2018.

So when the pandemic struck, those at the apex of the wealth pyramid were better positioned than ever to take advantage of the chaos. The rest, not so much.

Collins has been studying income inequality for 25 years and has seen the really rich win victory after victory. But even he was surprised by how quickly America’s billionaires have turned pandemic into profit. “I still get shocked,” he said.

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