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Chris HodderChris Hodder has a quick look at the problems facing the country related to the COVID-19 pandemic.

Whilst COVID-19 is self-evidently a health crisis requiring draconian measures to keep everyone safe, those measures are also having a dramatic effect on the economy. Government support so far seems to be focussed on bailing people out rather than addressing the very real problem: the collapse in demand.

Advising everyone to stay at home has already had a very dramatic effect on the amount of economic activity in the country. The leisure industry, for example, is steadily collapsing,  with bars, restaurants and theatres closing for business. This means that all their revenue stops immediately. Government has offered help with business rates, but it is further down the supply chain that the real damage is being done with the fishing industry that supplied those restaurants basically at a standstill, with boats tied up in ports.

Keeping everyone in a job will be useful in the interim as the potential for a lockdown increases, but all this does is increase the potential for a total collapse of the economy. Infrastructure that currently stands idle, such as the ports and fish markets where the fish and landed and sold in the example above, may not be available when normality returns as layoffs and insolvencies take workers and ownership away from current operators.

The medium-term activity from government has to be to stimulate as much demand as possible. If that means buying large volumes of goods for stockpiling or services in a make-work exercise, then this may be a better use of public funds than simply buying commercial bonds or forgoing taxes. Buying ventilators is a good start, but more needs to be done to keep people active as well as in work. One suggestion is that basic jobs in hospitals can be done by novice workers rather than by nurses, freeing nurses up to concentrate on the more skilled tasks.

Additionally, as time goes on, there will be a steadily growing pool of workers who have come through COVID-9, having recovered from illness (perhaps never having had symptoms) but still isolating and economically idle. These are the very people who will help the country start the process of recovery. Urgent progress needs to made on rolling out testing to identify those who may now be immune from the virus.

Rather than being a lender of last resort, like during the financial crisis of 2008, the government now needs to become a buyer of last resort – purchasing the goods and services the economy may need and keeping people busy. Some activity may have to halt, but some can change (restaurants switching to delivery, for example) and this will benefit more people in the long run. Yes, we need to keep people alive right now, but with businesses shedding staff and hunkering down despite government pleas, we are storing a problem up for the long-run which may be bigger than the problem we’re solving now.

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