ECONOMIC PERSPECTIVES – 80 [GOING POSTAL – 1st June 2020]

EMILE WOOLF

In his latest book (“The Body – a Guide for Occupants”) Bill Bryson highlights the limitations on what money can buy. He points out, for example, that America spends more per capita on healthcare than any other nation in the world: two-and-a-half times more per person than the average for all other developed nations. No less than one-fifth of the total of all Americans’ earnings, which is more than $10,000 per year per citizen, is spent on healthcare. It is the nation’s sixth largest industry and is responsible for one-sixth of its total employment.

Yet, despite all this spending on medicines, supplements, doctors’ bills, healthcare insurance, public sector welfare provision, high-quality clinics and hospitals, the USA comes 31st in global rankings of life expectancy – behind Costa Rica, Chile and Cyprus; and only marginally ahead of Cuba and Albania.

Bryson says that to understand this paradox it is necessary to assess the lifestyles adopted by citizens of different countries – not just oversized food portions and physical inactivity, but stress.

The psychology of immunity

Is it any wonder that New York has registered such a high Covid-19 fatality rate? This virus serves as a timely reminder that the effectiveness of the human immune system, our first line of resistance to infection, lies hugely, if not predominantly, within our own minds as well as bodies; and it is foolhardy to rely on the institutions of government to keep us alive and well – indefinitely – no matter what! Perhaps the magnanimous monetary palliatives showered on people and businesses have weakened individual willpower and shielded people from the need to re-engage their own brains?

money-printing extravaganza

 

Doling out mountains of cash, courtesy of the biggest money-printing extravaganza the global economy has ever witnessed, the impact of which no official economic adviser can remotely comprehend, let alone explain, has lulled entire populations into the belief that their governments can now, somehow, get them out of this lockdown-induced horror show and magically restore “normality”.

There certainly appears to be a direct correlation between (i) state-induced capitulation of the popular will and (ii) the level of economic destruction wrought. Could this explain why places with the least regimented approach to Covid-19 have achieved the greatest success in coping with its impact?

A lone voice

Amid all the confusing “scientific” arguments and counter-arguments on international responses to Covid-19, Camilla Stoltenberg, director of Norway’s public health agency, has given a candid interview on a new report in which her agency concludes that the virus was already on the way out when the lockdown was ordered. Staying open with common-sense precautions to stop the spread would probably have achieved the same effect. She stresses the importance of Norway’s findings because if infection levels rise again, or a second wave hits in the winter, “you need to be brutally honest about whether lockdown proved effective.”

With the virus now patently on the wane, arguments on the wisdom or madness of lockdown will persist inconclusively. However, a parallel conflict in the economic sphere has been seething and has now surfaced. Its potential repercussions are so great that it is certainly worth exploring.

Balancing risks – again

Just as authorities everywhere have had to balance (i) the risks to health of allowing the virus to spread with (ii) the risks (also to health) of a massive lockdown-induced economic destruction, a comparable debate is raging in Europe following this month’s surprise ruling by the German Constitutional Court that the flood of money-printing (QE) of the European Central Bank (ECB) has exceeded its legitimate mandate. It finds, in particular, that the ECB did not respect the “principle of proportionality”, while at the same time criticising the German government for failing to challenge those abuses, as it should have done.

ECB balancing failures- again

 

The Court’s ruling highlighted the economic side-effects of the ECB’s ultra-loose monetary policy, notably penalizing savers and pensioners – and (here’s the Covid-19 parallel) “the ECB fails to conduct the necessary balancing of its monetary policy objective against the economic policy effects arising from its programme.” [my emphasis]

Same old question: is the cure worse than the disease?

The Court then issued an ultimatum, directly instructing the Bundesbank (Germany’s central bank) to agree by August to comply with its ruling and to cease its buying of government bonds under the ECB’s QE programme.

As you might expect, EU authorities have not taken this blow to their authority lying down. There were predictable squawks from Christine Lagarde, (ECB President), Ursula von der Leyen (EC President) and the European Court of Justice (ECJ) – all claiming to be undeterred by, and contemptuously dismissive of, the Constitutional Court’s ruling. Indeed the ECJ reiterated defensively that it, the ECJ, is the judicial authority of the entire bloc, and that it alone possesses the jurisdiction to decide whether EU institutions are breaking EU law. Von der Leyen echoed this unequivocally in her official statement that “EU law has primacy over national law”. Talk about lighting the blue touch paper!

Incestuous governance rules

The truth at last! We now have an unambiguous admission, from no less than the ECJ, the EU’s highest judicial authority, that individual member states have no say in any of these matters and that there exists no internal “checks-and-balances” separation of powers between lawmakers and judges. As Claudio Grass puts it in his latest essay, when the state is responsible even for “adjudicating cases against itself, the concept of impartiality goes out the door”.

little Caesars – so disengaged from reality

 

Are these little Caesars so disengaged from the real world that they cannot recognise for themselves the absurdity of abdicating the levers of legislation, governance and justice to the same group of technocrats, bureaucrats and functionaries, all largely unelected and unaccountable to the citizens they rule over?

To quote Claudio Grass: “not only do they get to write the rules and enforce them, but they also police themselves, check each other’s work and then deliver “justice”, without any interference or argument by the representatives of those who are directly affected by their actions. Member states are entirely excluded from the process, even those whose citizens are forced to pay the bill for all the generous programs and ambitious initiatives.”

Does the euro have a future?

These intriguing developments are a welcome distraction from the tripe that vies for our attention these days. It will no doubt occur to readers that we are contemplating an existential moment for the euro itself. If this ruling stands – and I cannot imagine that the German Bundestag will overrule its own nation’s constitutional court – the counterpart constitutional courts of 26 other nations will be at liberty to seize the opportunity to lift the ignominious blanket, peep about at what’s left of their economic structures, and ask themselves whether, in today’s uncomfortably unstable global balancing act, national self-determination is such a bad idea after all, especially when this lockdown has devastated pretty-well every economy.

Although the UK is now blessedly free of the pit bulls in Brussels, the condition of our tattered economy is typical enough to demonstrate to our European ex-partners the effect of these ravages. The lesson for all of us is that without a flourishing private sector no economy in the world can withstand the irreconcilable pulls of (i) funding welfare; (ii) raising the taxes to pay for it; and (iii) rewarding the nation’s long-suffering savers with something more than the negligible returns now available.

Salvaging something for the savers

Many of our largest companies have the scale to survive and the cautious investor will still be able to select equities that provide a return. But for the first time gilts offer no competition: a ten-year bond gives 0.2 per cent interest, well below inflation. Buying UK government debt is now a one-way ticket to shrinking the purchasing power of what’s left of your savings.

But note: according to the Office of National Statistics the UK has six million small businesses, employing 16 million workers, or half the private-sector total. These constitute a crucial part of the engine of economic recovery. Value them. Clap for them every Thursday.

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EMILE WOOLF [30-5-20]