All of this additional government spending will need to either be paid for through higher taxes or whittled away through higher inflation…
Temporary measures must not become permanent
As restrictions are lifted and life begins to return to normal, I fear that some of the changes put into place to contain the pandemic in March and April may persist and become ‘the new normal.’ While additional government spending, an increased reliance on large corporations and a move away from cash payments were necessary responses to the crisis, we must insist that these changes, which accelerated trends already present even before the onset of the virus, are reversed once the danger has passed.
Given that the country was put into a government-mandated lockdown, it is only fair that workers and businesses have been compensated by the government for their lost earnings through programs like the Canada Emergency Response Benefit (CERB). The only problem, of course, is that eventually all of this additional spending (an eye-watering 343 billion dollars of deficit spending for 2020 – an average of almost $10 000 per Canadian!) will need to either be paid for through higher taxes or whittled away through higher inflation.
More troubling, though, is the fact that, as Milton Friedman memorably put it, “Nothing is so permanent as a temporary government program.” Already, the CERB is being seen by some politicians as a trial run for a more ambitious and permanent system of Universal Basic Income (UBI). Politically, UBI will be very popular, because who among us doesn’t like receiving money from the government? However, we should be aware of the principle that while government transfer payments may or may not improve the well-being of their recipients, they most certainly do increase dependence on the state and therefore government power.
Perhaps this is just as well, as a strong government may be needed to check the power of the large corporations which have become ever-more entrenched over the course of the pandemic. While small retailers and businesses deemed ‘non-essential’ were forced to shut their doors, corporations like Wal-Mart, major grocery, pharmacy and fast-food chains and online businesses like Amazon and Netflix have seen business boom. The hard fact is that during the crisis, with supply chains disrupted and inventories depleted, large firms had the logistical and financial resources needed to distribute essential supplies and services. Now, though, with so many small and medium enterprises driven out of business, large firms are in a position to increase their market share and monopoly power.
Of course, one key factor driving such increased corporate concentration has been access to cheap credit from the banking system. While government borrowing has ballooned this year, corporate borrowing has been rising for years, as rock-bottom interest rates have encouraged firms to borrow money to both take over rival firms and buy back their own shares on the stock market (which, by driving up earnings per share, boosts both stock prices and executive bonuses).
To allow indebted governments and corporations (and households) to continue to service their debts, central banks have kept interest rates low for almost 20 years (which, of course, has encouraged the taking on of even more debt). While, as the economist Dr. Michael Hudson has famously put it, “debts that can’t be paid, won’t,” the reduction of interest rates to near zero can sustain the illusion that current debt levels are manageable.
However, if big borrowers are paying a fraction of a percent interest, depositors (as you are no doubt well aware) are being paid nothing. Without the inducement of interest payments, though, why keep one’s money in the bank? Why not simply withdraw your balance and keep your bills and coins under your mattress at home?
And so, we come to what the author Jim Rickards calls “the war on cash.” As the banks would fail were a sufficient number of people to withdraw their savings and live an unbanked life, those in charge of the financial system have been working for years to discourage the use and acceptance of cash. While debit and credit cards offer us convenience (and improved hygiene), they also serve to ensnare us in the banking system. Furthermore, all transactions made electronically through the payments system can be tracked. If cash payments become a thing of the past, so too will ‘under the table’ payments made out of sight of the taxman. Trapped and exposed, our money will be easily stolen, either directly through bank ‘bail-ins’ and higher taxes (which will be impossible to avoid or evade) or indirectly through negative interest rates (real or nominal) and inflation.
Like most people, I accept that in times of crisis some customary liberties may need to be temporarily suspended. No one wants to force retail clerks to handle potentially virus-infused cash or see people whose sources of income have been destroyed driven into poverty. However, when the threat posed by COVID-19 recedes, we must insist on a reduction in government spending, a commitment to support entrepreneurs and independent businesses in the face of competition from well-connected oligopolies and monopolies, and the renewed acceptance of cash as a universal means of payment, because if we fail to do so, the drift towards ever-more government and corporate surveillance and control will become almost impossible to reverse.
Workbook for the New I.B. Economicswww.brycemcbride.com