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Long-term economic consequences of Covid-19 fallout

brad465

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Economic implications of the pandemic have come up in other threads recently so think a new thread is useful for this, as beyond how debt might be paid off, this hasn't really had its own discussion in recent months.

Job losses and public debt mounting up have happened and will continue to happen with their associated consequences. Other possible consequences I can think of that can up that may not be being talked about much include:

-Large number of business bankruptcies allowing larger firms to become monopolies, increasing prices and controlling supply of essential goods.

-Hyperinflation: the Quantitative Easing so far by the Bank of England and other Western Central Banks as already caused problems through inflating markets and assets (creating bubbles that could burst anytime), and since the pandemic this has accelerated to be more or less equal to the amount the Government has so far borrowed in this country since March. If they're not careful there may come a point where trying to inflate away our debt has disastrous consequences, like that seen in Zimbabwe, or Weimar Germany.

-Debt, both private and public: Again Bank of England policy has for too long encouraged borrowing over saving and allowed private debt to build-up, I've seen figures that suggest all debt in this country equates to over 200% of GDP, with private debt also at record highs. This would likely restrict spending potential, causing a feedback loop of decreased tax revenue from sales and jobs that require spending to create and further increase debt. The same bank said last week they expect a spending spree once this is all over, but to me this seems optimistic for many reasons, especially as ending restrictions isn't in their control.

The above policies/behaviour were making me and others believe another financial crisis was imminent at the end of the last decade, based on debt and inflated bubbles. While that has happened with the pandemic response, this was not the sort of crisis in question, where in fact these policies have only been exacerbated in the pandemic, such that another financial crisis could well be even worse because of it.

What I think we should be doing is going for a complete restructure of the economy, both in industry diversity and aiming for the future. The service sector dominance is clearly showing up its weaknesses, and when a central bank has to use last resort measures like QE and keeping interest rates very low for over a decade, the system is clearly broken and needs replacing, not plastering over.
 
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Кряква

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The way we have been speaking about inflation in the last decade or two is quite frankly detached from reality.

A terraced house where I live has increased in price by one order of magnitude (yes, 100K -> 1 million) in twenty years.

Stock markets are rallying despite the world being closed, house prices increased even in London during lockdown (even a lack of correction is a sign of monetary inflation, with the underlying 'value' obviously being lower).

I own hard assets along with plenty of GBP denominated debts, they can inflate as much as they want.

It's the workers that suffer. Always has been, always will be. If they manage to keep a lid on the riots, anyway.
 

brad465

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The way we have been speaking about inflation in the last decade or two is quite frankly detached from reality.

A terraced house where I live has increased in price by one order of magnitude (yes, 100K -> 1 million) in twenty years.

Stock markets are rallying despite the world being closed, house prices increased even in London during lockdown (even a lack of correction is a sign of monetary inflation, with the underlying 'value' obviously being lower).

I own hard assets along with plenty of GBP denominated debts, they can inflate as much as they want.

It's the workers that suffer. Always has been, always will be. If they manage to keep a lid on the riots, anyway.
Not to mention the rate of salary increase has for decades been considerably lower for those at the bottom vs at the top.

On your point about riots, I strongly believe there will be riots in connection to the pandemic eventually; I don't mean riots in relation to masses growing tired of restrictions (although that may happen), but because plenty of underlying conditions conducive for rioting exist as a result of all the inequalities that have been exposed and enhanced by the pandemic, including unemployment and increased poverty. There may also be dissent at some of the apparent discriminatory behaviour that has been allowed for super-rich people, whether through physical policy or their wealth just making life visibly easier at others' expense.
 

Кряква

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I wouldn't limit it to the super-rich.

We have essentially established a policy that isolates pensioners and office workers from the physical risks of the pandemic completely. I'm not sure what percentage that represents, but let's lower bound it at 20-30%.

As a result, we're in a bizarre situation in which 20-year-old techies stack cash in the bank whilst waffling on about wearing twenty masks when they go to the corner shop once per week, whilst a 60-year-old supermarket worker is economically forced to get on with it.

Top to bottom this has been a response which entrenches wealth.
 

Hadders

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At the very bottom there have been substantial increases driven by increased to the minimum wage. The top end has also of course risen significantly.

The issue comes in the squeezed middle.
 

takno

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At the very bottom there have been substantial increases driven by increased to the minimum wage. The top end has also of course risen significantly.

The issue comes in the squeezed middle.
That's been quite heavily offset by the numbers of under-25s in the workforce who don't qualify, heavy cuts to in-work benefits, and the rise of fake self-employment. The poorest segments are radically worse off to the point of absolute destitution. Meanwhile my old boss thought he was part of the squeezed middle on £150k a year.

The squeezed middle is some grade-A divide and conquer nonsense.
 

Hadders

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That's been quite heavily offset by the numbers of under-25s in the workforce who don't qualify, heavy cuts to in-work benefits, and the rise of fake self-employment. The poorest segments are radically worse off to the point of absolute destitution. Meanwhile my old boss thought he was part of the squeezed middle on £150k a year.

The squeezed middle is some grade-A divide and conquer nonsense.
The squeezed middle I'm referring to are those you would consider to be supervisors and junior managers.

I get the point about benefit cuts but in terms of cost to employers the minimum wage increases in recent years have had a significant impact.

The minimum wage in 2012 was £6.19 and now it is £8.72, a 41% increase. This has hurt employers who have sought to recover their costs by restructuring (removing) supervisory and junior manager grades.
 

yorkie

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It's very unpredictable but it is a very dangerous situation on so many levels.

The "lockdown indefinitely" brigade are completely out of touch with reality. When you ask them what price is worth paying, in terms of peoples livelihoods, in terms of physical and mental well-being, in terms of the economic cost, the risk of hyperinflation, or indeed anything, their response is the same: all risks can be taken and nothing else matters.

Much of the general public do not even realise the average age of a death with Covid is older than the average age of all deaths because of the media reporting; there is a genuine belief among some of the pro-lockdown brigade that the virus is likely to kill young people and literally any price is worth paying, no matter what the costs and harms to society. I find that extremely worrying.
 

takno

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The squeezed middle I'm referring to are those you would consider to be supervisors and junior managers.

I get the point about benefit cuts but in terms of cost to employers the minimum wage increases in recent years have had a significant impact.

The minimum wage in 2012 was £6.19 and now it is £8.72, a 41% increase. This has hurt employers who have sought to recover their costs by restructuring (removing) supervisory and junior manager grades.
Half of that amount is covered by inflation over the period, so it's up 21%. Meanwhile my salary at the other end of the spectrum has gone up by around twice that.

Ultimately I think all the grades you mention are below the middle, and it isn't the people on minimum wage doing the squeezing
 

Kite159

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The squeezed middle I'm referring to are those you would consider to be supervisors and junior managers.

I get the point about benefit cuts but in terms of cost to employers the minimum wage increases in recent years have had a significant impact.

The minimum wage in 2012 was £6.19 and now it is £8.72, a 41% increase. This has hurt employers who have sought to recover their costs by restructuring (removing) supervisory and junior manager grades.

And in the case where I work either not replacing people who leave or cutting the hours for a replacement (ie 37.5 hours per week reduced to 30 hours), making the remaining staff work harder.
 

brad465

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It's very unpredictable but it is a very dangerous situation on so many levels.

The "lockdown indefinitely" brigade are completely out of touch with reality. When you ask them what price is worth paying, in terms of peoples livelihoods, in terms of physical and mental well-being, in terms of the economic cost, the risk of hyperinflation, or indeed anything, their response is the same: all risks can be taken and nothing else matters.

Much of the general public do not even realise the average age of a death with Covid is older than the average age of all deaths because of the media reporting; there is a genuine belief among some of the pro-lockdown brigade that the virus is likely to kill young people and literally any price is worth paying, no matter what the costs and harms to society. I find that extremely worrying.
The best hope in the short-term is the budget is used to heavily emphasise the cost of everything so far, the unsustainability of it all going forward and some policies that hit home these realities. A big problem we have is that when it comes to the pro-lockdown brigade and cost, they usually think of things that we can either scrap as they're deemed less essential/pointless (examples include don't renew Trident and/or scrap HS2), or implement a wealth tax and/or clamp down on offshore tax avoidance as means to say we can afford everything.

I do sympathise with some of these and support fairer taxation measures, however, while they would help pay the debt off, I do not support the current measures going on just because these means of paying it all back exist, as there is nowhere near an offset that allows it all to go on indefinitely, and then there's all the harms outweighing the apparent goods of reducing covid impacts, from both economic and non-economic perspectives.
 

PG

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History has a habit of repeating. Things seem to me to be close to the mid/late seventies and early eighties. I'm sure the riots will happen, not so sure about strikes as legislation has tightened up.

Harold Wilson's white heat of technology seemed to be where the country ended up come the mid/late eighties albeit a decade or two later than Wilson envisaged.
I wonder what direction the country will go in this time round?​
 

takno

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The best hope in the short-term is the budget is used to heavily emphasise the cost of everything so far, the unsustainability of it all going forward and some policies that hit home these realities. A big problem we have is that when it comes to the pro-lockdown brigade and cost, they usually think of things that we can either scrap as they're deemed less essential/pointless (examples include don't renew Trident and/or scrap HS2), or implement a wealth tax and/or clamp down on offshore tax avoidance as means to say we can afford everything.

I do sympathise with some of these and support fairer taxation measures, however, while they would help pay the debt off, I do not support the current measures going on just because these means of paying it all back exist, as there is nowhere near an offset that allows it all to go on indefinitely, and then there's all the harms outweighing the apparent goods of reducing covid impacts, from both economic and non-economic perspectives.
I think the problem is that a wealth tax isn't a desirable thing in of itself. It's worth doing if it can be used to have a positive impact on people's lives and society as a whole. It isn't worth doing so we can pay to massively increase the sum of human misery, and let some bigwig scientists delay by a few months admitting that they've completely lost their minds
 

Кряква

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I think the problem is that a wealth tax isn't a desirable thing in of itself. It's worth doing if it can be used to have a positive impact on people's lives and society as a whole. It isn't worth doing so we can pay to massively increase the sum of human misery, and let some bigwig scientists delay by a few months admitting that they've completely lost their minds

Right.

I earn and have earned well. I have no issue with paying taxes for the benefit of society. Roads, rail, the NHS, police, fire, ambulance, our defence etc.

I am absolutely not willing to pay for the misery that has been inflicted me over the past year. I didn't ask for it, it didn't benefit the population.
 

yorkie

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I am absolutely not willing to pay for the misery that has been inflicted me over the past year. I didn't ask for it, it didn't benefit the population.
unfortunately there is no way of ensuring that only people with pro-lockdown views pay for it!

and if it doesn't get paid for, we risk hyperinflation.
 

greyman42

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History has a habit of repeating. Things seem to me to be close to the mid/late seventies and early eighties. I'm sure the riots will happen, not so sure about strikes as legislation has tightened up.
I think people will be very wary about strike action for fear of losing their jobs in a climate where jobs are going to be scarce.
 

317 forever

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Many countries' economies have suffered as a result of Covid and lockdowns.

Even if countries' debts to some extent cancel eachother out, some countries will have run up proportionately more debts than others. New Zealand and South Korea have had economies suffer less than average, but the UK's economy has suffered more than average, the most among the G7 for a start.
 

takno

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Many countries' economies have suffered as a result of Covid and lockdowns.

Even if countries' debts to some extent cancel eachother out, some countries will have run up proportionately more debts than others. New Zealand and South Korea have had economies suffer less than average, but the UK's economy has suffered more than average, the most among the G7 for a start.
I think we're going to have to get used to the fact that between Brexit and Covid-hysteria we are likely to be almost immediately around 20% poorer against the rest of the world compared to where we have been in the past 20 years or so. Hopefully it won't be worse than that, but frankly I don't have a lot of faith in the current shower not to knock it down by another 10%
 

david1212

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One issue for industry is that so many UK sites are owned by foreign groups. To those at the top making decisions about viability, overcapacity, the need for investment etc UK employees will just be a number while the businesses that are in some way dependant will not be on their radar.

The result will be a triple blow of the goverment trying to extract more income from fewer sources while unemployment rises.
 

brad465

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One issue for industry is that so many UK sites are owned by foreign groups. To those at the top making decisions about viability, overcapacity, the need for investment etc UK employees will just be a number while the businesses that are in some way dependant will not be on their radar.

The result will be a triple blow of the government trying to extract more income from fewer sources while unemployment rises.
When the Government last announced a defence spending increase, I was thinking what do we need to defend ourselves from when most other major powers have their ownership of businesses here. There does need to be investment in domestic industry to try and help recover, but somehow I don't see this Government doing it much.
 

david1212

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When the Government last announced a defence spending increase, I was thinking what do we need to defend ourselves from when most other major powers have their ownership of businesses here. There does need to be investment in domestic industry to try and help recover, but somehow I don't see this Government doing it much.

The survival of the UK site that now with the loss of so many others is directly the main customer of my employer is far more dependant on US defence investment and tag-on orders around the world than UK spending. While the UK has contributed to at least one development program, and may still have commitments, I doubt any UK government intervention based on this would change any decision about the UK site since components for this product / project are only a minority of the total output.
 

brad465

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Here's what's happened economically in 2020, with the first quarter of 2021 set of continue this hard slump:


The UK economy shrank by a record 9.9% last year as coronavirus restrictions hit output, official figures show.

The contraction in 2020 "was more than twice as much as the previous largest annual fall on record", the Office for National Statistics (ONS) said.

However, the economy looks set to avoid a double-dip recession after growth picked up at the end of the year.

In December, the economy grew by 1.2%, after shrinking by 2.3% in November, as some restrictions eased.

Hospitality, car sales and hairdressers recovered some lost ground, the ONS said.

The growth meant that in the October-to-December quarter the economy expanded by 1%. As a result, the UK is expected to avoid what could have been its first double-dip recession since the 1970s.

A double-dip is when the economy briefly recovers from recession, only to quickly sink back. A recession is generally defined as two consecutive quarters where the economy contracts.

While I don't like the trashing of the economy and the harms lockdowns are causing generally, I am someone who believes we need to stop using GDP as a measure of economic progress, as the perpetual growth this measure encourages is what ultimately caused the environmental destruction that helped bring about this pandemic, as well as being a risk factor for future ones.
 

Dent

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I am someone who believes we need to stop using GDP as a measure of economic progress, as the perpetual growth this measure encourages is what ultimately caused the environmental destruction that helped bring about this pandemic, as well as being a risk factor for future ones.

Which measure would you prefer to use?
 

takno

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While I don't like the trashing of the economy and the harms lockdowns are causing generally, I am someone who believes we need to stop using GDP as a measure of economic progress, as the perpetual growth this measure encourages is what ultimately caused the environmental destruction that helped bring about this pandemic, as well as being a risk factor for future ones.
I've heard some interesting arguments about how the things we are doing make pandemics more likely, but most of them revolve around the interconnectedness of people, and sometimes the enforced closer contact between domesticated animals and wildlife. I haven't heard anything that would lead me to believe that this particular pathogen's jump from animals to humans was in any way driven by GDP growth. I feel like it's like the way alcohol gets demonised, and masks are turned into emblems of virtue - just a bunch of attempts to turn the current pandemic into a morality play in three acts. It's a cheap way to make us all feel complicit, in the hopes that we will therefore be more compliant.

On a wider note, I'm quite supportive of preventing climate change, and of stopping targeting GDP growth as a measure of progress. I could even be convinced that a slow 1% a year decline (preferably across the developed economies) could be a good thing. A catastrophic 10% fall in one year isn't progress towards that though. It's more likely to result in people cutting environmentally friendly behaviour to save a quick buck, and ultimately in people developing even more of a growth mindset as they see it as necessary to regaining what they've lost.
 

WelshBluebird

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In terms of GDP, I don't actually have the time to research, but I'd be interested in how many years ago we are now level with thanks to last year? My gut feeling is probably not that many years ago actually, so is GDP falling by 10% last year really that much of a problem? For the people who lost their jobs or businesses etc, of course. But as a country? I have to agree with one of the posts upthread, the only reason it is an issue for our country is because of the unstable and unsustainable idea of perpetual growth.
 

RuralRambler

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There are some very high marginal tax rates in the "squeezed middle" due to the thresholds for student loan repayments, higher rate tax band, child benefit claw backs (over £50k), and the withdrawal of the personal allowance on incomes between £100-£125k. At lower levels you have the withdrawal of some benefits, i.e. losing free prescriptions, council tax relief, tax credits, etc. A graph of marginal "tax" rates including all these factors (and NIC) looks like a jagged mountain range. In any sane tax system it would be a gradual curve. So many points on a rising income scale where the net "take home" pay is less than half of the marginal increase in pay due to a promotion or overtime etc. Not only that, but there is the hassle factor that people want to avoid, i.e. having to fill in a self assessment tax return to repay some child benefit, or having to deregister/re-register for tax credits or UC if you temporarily earn over the threshold then income falls back again and you have to return to the claims regime. So many disincentives to better themselves. And then, of course, at the top end of the "squeezed middle" you have doctors and dentists refusing extra shifts which take them over £100k as they have 62% marginal tax/nic on the earnings of that extra shift. The entire tax system is a mess and disincentivises working harder/longer etc.
 

takno

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In terms of GDP, I don't actually have the time to research, but I'd be interested in how many years ago we are now level with thanks to last year? My gut feeling is probably not that many years ago actually, so is GDP falling by 10% last year really that much of a problem? For the people who lost their jobs or businesses etc, of course. But as a country? I have to agree with one of the posts upthread, the only reason it is an issue for our country is because of the unstable and unsustainable idea of perpetual growth.
At a very quick eyeball, it takes us back to 2004ish per capita in absolute terms. I think it's probably back into the 90s in inflation adjusted terms. Bear in mind that the economy has already been basically flat for the last 10 years anyway.
 

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