In last week’s note I outlined how the financial and economic worlds exist under a heavy monetary shroud. The cover of central banks deprives fiscal policy, supply side reforms and financial market reforms of the urgency that is needed for them to activate and innovate.
In particular, fiscal policy is still very much in emergency mode – governments are focused on the need to restart economies, and less on their longer term structural needs, though the recently announced 100 bn Eur recovery plan in France is a step in the right direction.
However, with the monetary pendulum at an extreme, the post COVID policy environment might usher in a transition from a decade of (over) aggressive monetary policy to more inventive fiscal policy, and supply side reforms (changes to the rules, regulations and structure of the economy). There are several reasons for this.
Monetary policy is now arguably reaching its limits in terms of the deployment of central bank balance sheets, and also in the plain fact that many of the problems central bankers declare they are trying to fix – the climate, inequality and racism (there is a Democratic proposal in Congress to change the mandate of the Federal Reserve to reduce racial inequality) – are much better left to politicians and policy architects than the blunderbusses of central banks.
Central to the problems of our day, productivity, will in my view remain suppressed by the inefficient investment caused by oversupply of liquidity, and can only be repaired (for instance productivity in the UK is at multi decade lows) by ongoing investment in education, technology and reskilling.
Against this background, the potential for the passing of the policy baton from central banks to finance ministers is made more interesting by at least two new trends. The first is the way in which the labour market in changing, and the second is the percolation of ‘values’ into policy making.
In continental Europe, the coronavirus policy response has shown the value of flexible work practices and has so far staved off large redundancies. In other countries it is not so kind and in recent years I have a sense that labour markets are becoming ‘tinder-ized’ in that workers are ready to sacrifice security for a sense of liberty. The worry here is that in atomised labour markets, aggregate wages will be depressed by competition, workers won’t have the level of pension and healthcare benefits they might enjoy in more traditional systems, and across the board there is less structured learning by workers.
The economic consequences of the coronavirus have made these risks clear, and the public emergency around the virus has also managed to illicit appreciation for public sector workers (nurses for example), many of whom have, in recent years, been consistently deprived of resources by the governments they serve. To a certain extent, one accomplishment of the coronavirus has made clear the social value of certain occupations.
This particular thought was reinforced by the sad death last week of the polemic American anthropologist David Graeber. He has many claims to fame – inspiring the Occupy movement in the early 2000’s, coining the phrase ‘we are the 99%’, author of ‘Debt – the first 5,000 years’ and also more recently the book ‘Bullshit Jobs’.
In the book he strips away the real social value of certain roles, to quote from one of his articles ‘A world without teachers or dock-workers would soon be in trouble, and even one without science fiction writers or ska musicians would clearly be a lesser place. It’s not entirely clear how humanity would suffer were all private equity CEOs, lobbyists, PR researchers, actuaries, telemarketers, bailiffs or legal consultants to similarly vanish’.
Graeber’s view is a relevant and provocative one. I will let readers do the ‘bullshit job’ test in the privacy of their own home, or office. What interests me is what governments can do about this, especially in the light of the lessons of the coronavirus crisis for public service.
I think that from this starting point, especially for the Anglo-Saxon countries and some emerging economies, there are broadly two things that can be done. The first, simply put, is to reintroduce the narrative around the importance of public projects in economies and societies, and back this with investment. In the US and UK public projects like education, healthcare and the civil society in general are being devalued. For instance, the latest gossip in Washington is that Donald Trump is alleged to have asked his generals ‘why did you serve?’, ‘why didn’t you want to make money?’.
The second is to start a policy experiment that explicitly ties the social value of jobs to economic policy. One approach, though extreme, might be to have a tax reduction for doctors and a tax hike for derivatives traders.
A first, more subtle approach might be to grant greater incentives for workers to build up human capital in certain areas. This might be more relevant in countries where education fees are high and student debt burdensome.
An enlightened government might ask a body like the OECD to draw up a broad, internationally recognized code of job roles, categorized by social impact. Then governments could add (or subtract) a tax (or incentive) depending on the social relevance of specific jobs. In such a system, a plastic surgeon might pay higher taxes, but more young doctors might be incentivized to work as accident and emergency surgeons.
An example that is close to me is that Cork Fire Brigade have for the first time since 2012 begun a recruitment campaign – we can ask what incentives could be put in place (in a historically tight labour market) to attract suitable candidates, who might otherwise work as property brokers?
I don’t know of governments who are explicitly tying the social value of occupations to tax policy, but I expect that in the post COVID world, it is an experiment that will soon be taken up.
Have a great week ahead,