In Europe and the United States, governments across the political spectrum are now plotting vast sums of state spending and loans to shore up their beleaguered societies. Lawmakers in Washington wrangled Thursday over a mammoth stimulus plan that could add up to $1 trillion. Germany’s central bank has said it could lend as much as $610 billion to companies. Britain’s Conservative government, criticized for its lack of preparation as the outbreak worsened, has proposed about $400 billion in loans and $35 billion in direct state aid to individuals and firms in need.
The French government proposed Wednesday about $50 billion in spending, plus $320 billion in loan guarantees, as part of a new emergency budget. That marked a reverse from its controversial initiatives to loosen up the economy, indefinitely suspending earlier planned spending cuts and pension reforms.
“We are facing an economic and financial war,” French Finance Minister Bruno Le Maire told reporters. “This economic and financial war will be long, it will be violent and will require all the strength of our nation, Europe,” and the Group of 7 advanced economies, he said.
That echoes the rhetoric of President Trump and Le Maire’s boss, French President Emmanuel Macron. And that’s for good reason — the political reaction to a pandemic of this scale will probably require the kinds of state mobilization not seen since World War II. Whole industries are shuddering to a halt, while a quarter of the American workforce has already lost work or reported wage losses.
Far from the politics of austerity embraced by many governments in the wake of the global financial crisis over a decade ago, the challenges posed by the spread of the coronavirus demand massive state intervention. Already, there are clear signs of a shifting ethos. If Democrats get their way, planned bailouts of major firms may come with conditions limiting executive pay and bonuses. The right-wing Trump administration is weighing various plans to send checks of somewhere between $1,000 to $2,000 to most Americans — a cash handout unthinkable in previous eras of Republican governance and which may be followed by more handouts in the months to come.
Numerous other countries are preparing to or have already rolled out their own solutions to help workers without placing additional strains on employers. The Dutch government is set to cover 90 percent of salaries lost because of reductions in work hours. The Danish government will shoulder 75 percent of wages to prevent the country’s affected companies from carrying out layoffs.
Prominent libertarians are now clamoring for state subsidies. And orthodox Republican economists have been brushed to the side. “Some people are using this crisis to push their preferred ideas — supply-side ideologues like Art Laffer, Stephen Moore and Steve Forbes want more tax cuts, for example,” noted New York Times columnist Jamelle Bouie. “But this isn’t that. In forcing people to stay away from each other, the outbreak has made our mutual interdependence clear. This, in turn, has made it a powerful, real-life argument for the broadest forms of social insurance.”
Some analysts believe this has been a long time coming. “We have been stumbling, from crisis to crisis, toward an enhanced savior role for the state,” wrote Pankaj Mishra in Bloomberg Opinion, tracing the world’s steady disillusionment with unfettered markets and globalization from an era of liberal triumph in the 1990s. After the 2008 financial crisis, even globalization’s defenders recognized the responsibility of governments to protect citizens from the whims of the markets.
“Today, the coronavirus has elevated that responsibility into a life-or-death imperative,” Mishra noted. “And, as happened in the interwar era, the state’s deep penetration into economic and social life to counteract a disaster is likely to endure.”
It’s unclear what this will look like in a United States under Trump. The notion of his administration refashioning itself into a wartime behemoth — mass-producing vital medical equipment, plugging the holes of a sagging economy and galvanizing a divided nation — still seems improbable.
“At the center of the World War II production effort was [President Franklin D.] Roosevelt himself — he set the goals, hired and removed the New Dealers and businessmen brought on to run the production effort, and was tasked with explaining it all to the American public,” Matthew Zeitlin noted in Slate. “Trump theoretically has the same job, but his team has been hampered by infighting, inexperience, and his own, until recently, insistence that the virus was not that big of a deal.”
But without that effort, experts warn of dark times ahead. “Already, some 30 percent of Americans have zero or negative wealth,” economist Branko Milanovic wrote in Foreign Affairs. “If more people emerge from the current crisis with neither money, nor jobs, nor access to health care, and if these people become desperate and angry, such scenes as the recent escape of prisoners in Italy or the looting that followed Hurricane Katrina in New Orleans in 2005 might become commonplace.”
As the virus spreads and economies tank, only governments can hold the line. “Advanced societies must not allow economics, particularly the fortunes of financial markets, to blind them to the fact that the most important role economic policy can play now is to keep social bonds strong under this extraordinary pressure,” Milanovic concluded.