Steve Keen, a crowdfunded Professor of Economics on Patreon, has offered his views on the new figures, announced by the UK Office for National Statistics, suggesting that the country's GDP shrank 2 percent in the first quarter of 2020.
Chancellor of the Exchequer Rishi Sunak has already described the figures as "not surprising", explaining that the United Kingdom, which is currently facing a transition period following Brexit, is facing a "severe impact" from the ongoing coronavirus pandemic.
Sputnik: How hard is the pandemic expected to hit the economy overall? When can we expect the economy to balance itself after this?
Steve Keen: I don't think it's anywhere near getting through the crisis. So the worry for me is about the US and the United Kingdom, in particular, that had a thing they call a lockdown, but it's been far less effective than the lockdown applied in Southeast Asia.
And consequently, they're running at an enormous number of cases still. As soon as they start opening up the population, those cases will explode once more. Once people are back on the tubes in London, for example, and commuting to work without face masks in general, there'll be an explosion of numbers, and they'll be forced back into it again. And the damage will continue.
And to me, it's very tragic because experts I know in complex systems analysis, particularly Yaneer Bar-Yam, the person who was responsible for the control of the Ebola virus in 2014, said that a five-week lockdown would be all that it would take to completely eliminate the virus everywhere on the planet.
If we can have five weeks where everybody stayed at home, except those who are making food, delivering food, delivering power, sanitation, etc. and if we had very careful measures for those who actually had to work, then in five weeks we could eliminate the virus completely.
Instead, what you see in countries like the US and the UK have been through a lockdown half-heartedly for a month or more, two months in some cases, and they've still got a massive number of cases of the virus.
There'll be another explosion in cases. There will be a second wave. So I can see this knocking the GDP back not just by 6%, but by about 20-30%. And going on for far longer than it should have done and not destroying those economies, but paralysing them for a substantial period.
And when they come out, the debts that people went into before the crisis struck, the level of private debt was so high, people will be bankrupted by this and will have a financial crisis after we finish with the virus crisis. If and if indeed we do actually finish with the virus process.
Sputnik: So are you definitely expecting a second wave of the virus in the UK particularly?
Steve Keen: Oh, yeah, definitely. Definitely for America and the UK. If you look at the John Hopkins database, it's quite fascinating to see the number of cases that are happening in those countries.
So they're talking about ending lockdown in the UK, where the number of new cases yesterday totalled 3,400, and they're running at about 4,000 cases a day. Now, the UK is a country of about 60 million people.
I'm living in Thailand now by choice because I saw how bad this crisis was and how bad it was being handled by the Western nations, and Thailand has roughly the same population as the UK. Its total number of cases is less than the daily increase in cases in the UK.
So I think there's 3,015 cumulative cases in Thailand and cases are running at below 10 cases a day. They can say they've succeeded with the lockdown.
The US, the UK, Russia, Spain, Italy, France, reading off the top-damaged nations, they have not succeeded and yet they're talking about opening up their economies again. I think you're almost certain to have a second wave.
Sputnik: From January to March 2020, the UK's GDP contracted 2.0% from the last three months of 2019, the Office for National Statistics said. That was the largest quarter-on-quarter fall since the end of 2008, when the global financial crisis (GFC) hit its peak. How would you compare the ramifications of the current crisis and the GFC?
Steve Keen: It's at least 10 times the scale of the GFC and 10 times the speed as well. So it's something which is unprecedented in history to have a crisis like this and a shutdown.
The last time we had a crisis of this nature was the Spanish flu over a century ago, and that occurred at the end of the First World War, which was already disrupting the economy, but already meant you had military distribution systems.
There was not the same impact on the production system as we're having this time around. And if you look at the level of debt at the time... at the time of the Spanish flu, it was one-third the level that is now in America compared to what it was back then.
There was one-third the debt we have now, and that means the fragility is much higher.
We have a globalised production system. So the reliance upon international trade and shipping is much higher. This time around, all those things mean we're more fragile and more damaged by this crisis than we were the last time around.
So there's no other crisis that compares to this. Not really the GFC, not the Great Depression. This is an order of magnitude more extreme. And the other thing about it, which I can put in an interesting perspective, is Marx's wonderful concept of dividing the economy into two bits, two circuits. He called one the circuit of commodities, and that's where you have a commodity. You sell it for money and you use that to buy other commodities which equal that, and say you're not trying to make a profit in that circuit.
And that's pretty much what workers do. Then there's what he called the Circuit of Capital: M-C-M-plus. You start with a certain amount of money. You buy commodities, you sell for more money. That's what capitalists do. Now, most of the crises we have occur in the M-C-M class circuit.
Suddenly, you have a financial crisis, you're actually losing money. You stop investing. So there's a plunge in that side of the economy and that's equivalent to about 30 percent of GDP. So that's what normally causes our crises.
This time around it's actually the C-M-C circuit because we're telling workers you can't go to work and workers don't have incomes, so workers can't spend. So what we're doing is we're taking out not 30% of the economy but 70%, and that's far more destructive.
Sputnik: As I follow the news and current situation, there are many companies that are trying to persuade people to invest in their companies, saying this crisis is the best opportunity to invest. Do you agree or disagree with such calls and why?
Steve Keen: I think it's all a lie. I mean, there will be some companies that do very well over this, the obvious sorts of companies that have done very well, toilet roll manufacturers, hand sanitising companies, those sorts of things which everybody knows they need; food companies, distribution companies that send food by delivery car, that sort of thing. That's obviously an opportunity for them.
But for most people, it's an incredibly dangerous, risky period. And in general, investment's going to be cut dramatically back.
So the aggregate level of investment is going to fall. And therefore, if you're going to try to make money out of this, you've got to pick not just a sector which is going to grow, but you've got affected firms in that sector.
That is an incredibly dangerous thing to do with this particular period of time. So I would not be encouraging people to take those so-called investment opportunities up.
Sputnik: How much time will it take the UK to leave the lockdown? Is the timing of the easing dictated by the economy or is it really that the danger of the virus has passed and everyone can gradually return to real life?
Steve Keen: It's the danger of the virus. if you don't have controls on the system, you're just a bunch of herd animals. Then this disease doubles every two days.
And there's an old joke about a philosopher who helps the king win a battle by some strategy and then is asked what he wants as his reward. And he says, well, I want one grain of rice on one square of a chessboard, two on the next, four on the one after that, etc., etc.
The king thinks he has a bargain, and so he gets to about the twentieth square and he suddenly realise if he keeps on going, he's going to have nothing left in his kingdom. And that's what an exponential process is. And that's what the coronavirus is.
So if you let it get back to its normal rate of growth, which is on the order of doubling every two days, then once you've locked down after 20 days, you have a thousand times as many cases as you had 20 days earlier.
So within three weeks we can have 1,000 times as many cases. Now, until such time when either the virus is eliminated or a vaccine is produced or you have it spread through the entire population, that effect is going to apply.
And from what I've seen for the old nations, all the major Western nations and Russia, they've done nothing to really control the virus properly.
So every time they try to reopen the economy, that exponential rate of growth will take off once more and you'll be back with another enforced lockdown. And it could go on for months, possibly even go on for a year.
And that's tragic because if you look at the website called Endcoronavirus.org, which is this website put together by some of my complex systems colleagues, they make a very sensible case. A five-week lockdown would be all that it would take to eliminate the virus completely.
But we have to make it possible for people to survive complete isolation in their family units for five weeks. And if we do that, the virus would be gone from the planet.
So there are some countries which have done that. New Zealand is probably the best example, but also Taiwan is outrageously good. So it is possible to do it. But it's been mishandled so badly by our leaders that they are going to reopen when it's too soon and reignite the virus.
We're going back from lockdown because there are so many reasons for that. One is that we're going to lose a massive number of health workers. We're going to have more investment in health, the way that the UK is going backwards under austerity.
For the previous decade, it's been slashing the National Health Service and now they say they love the National Health Service. Well, they should have been showing that love in the previous decade. So we're going to have to train people in medical health.
And in some ways people are not going to want to go there out of self-interest, because why would you go somewhere you're likely to catch a disease like this again?
So, I should say, it's a serious shock to not just the physical economy itself, the people's attitudes about what they should be doing in that economy. I don't think we'll ever go back to so-called normal. And let's not forget so-called normal got us in this situation in the first place.
So we're not going to go back to anything like a revival of previous times and economic models, which presume it'll be a V-shaped recovery. It is just showing how stupid those models are, how not realistic their estimates of the future are.
Sputnik: The coronavirus crisis has affected the economy of almost all countries, which have somehow gone back to ‘factory default settings’. When will the economic forecasts reshape, bearing in mind this new economic reality?
Steve Keen: I think we're going to have a new reality. We'll be like what Roubini Nouriel called an L-shaped recovery, that you go down and you don't come back up again.
So I guess the only way to get out of this really is for the government to massively cover people's financial expenses right now. And some governments are doing that with varying degrees of seriousness, but they are giving people the cash flow that they don't have because they aren't allowed to go to work. And that's the point when you want the government to spend money.
But on the other side of it, the government has to spend massively to get the economy started. Again, it's a bit like a defibrillator. They have to throw the electric shock to the heart to get it working once more.
And yet governments are talking about going back to austerity; if they have actual austerity people who have already been squeezed by not being able to work during the crisis and accumulated more debts because they couldn't pay their rent or couldn't pay their mortgage, they are going to be taxed that even little money in their accounts again and be unable to spend, and the economy will go down even more deeply. So it is a massive need to rethink the nature of the economy itself and how we manage it.
And we have to cut back dramatically on the amount of energy we consume and the amount of goods that we consume and reduce the pressure on the planet to the stage where the ecosphere can survive us. And that means a physical form of austerity, which we're not even talking about yet.
