Covid-19: Tomorrow belongs to you

by George Hatjoullis

This blog is addressed to the ‘young’. The definition of ‘young’ is basically everyone that has not yet reproduced and is free to live whatever life they choose. Reproduction creates ‘parents’ and they are never young. The title of the piece is deliberately provocative. This is a provocative blog. Covid-19 is a great calamity but also a great opportunity. Previous blogs have highlighted the great climate change experiment it has afforded which the newly authoritative voice of science can exploit. It also affords an opportunity for social reform on a scale last seen in the UK after WW2. But it needs the young to grasp this opportunity.

The NHS has emerged as the front line. Years of underfunding and threats to privatise it left the institution in poor condition. The excuse was always not enough money. All of a sudden money is materialising from nowhere. If Covid-19 does not destroy the ability of any government to use that bogus excuse in the future then I guess there is no hope. And perhaps there is no hope. There is an opportunity which I can delineate but only the young can grasp it. I am not young.

How much money does an economy have? The answer is potential GDP adjusted for the external account. The government can borrow from the central bank any amount of cash. The constraint is potential GDP adjusted for the external account. Potential GDP is the amount of aggregate spending that is possible before inflation starts to accelerate above target. It is further constrained because we spend on imports and if we run a deficit we must borrow (portfolio flows) to generate the required foreign currency. Alternatively we can let the currency float and recognise it may lead to accelerating inflation. The answer to how much money is the behaviour of inflation and inflation expectations. We have as much as we need until accelerating inflation above target kicks in. There is a cap but it has nothing to do with budget deficits or arbitrary borrowing rules. During the period of austerity the behaviour of inflation makes clear there was a lot more money than the Tory governments suggested.

Once we hit the limit does this mean there is not enough money for the NHS or other social welfare services? Not at all. It is a matter of priorities. It is a an income distribution decision. Not only did the Tories have more money at there disposal during austerity but what they did spend they chose to spend on things other than the NHS. They did not prioritise the NHS. Priorities is one way of delineating political parties. The big philosophical differentiation is between moral hazard and social justice, the subject of earlier blogs.

Moral hazard arises when by helping someone (giving him a fish) you stop him helping himself (learning to fish). Tory priorities always weigh heavily towards avoiding moral hazard. Social justice is a concern for the well being of all members of society irrespective of how they came to their condition. Labour has traditionally weighed its priorities towards social justice. A total emphasis on social justice will risk inviting moral hazard as free riders exploit the system. But the efforts to avoid moral hazard often introduce social injustice. There is no perfect balance just a judgement and perhaps efforts to identify and shame the free riders. The other thorny question that is raised is who qualifies as a member of society.

The whole Brexit issue has been driven by considerations of Citizenship. Who should be admitted as a citizen and what of those not so admitted? Covid-19 has demonstrated beyond doubt (if there ever was really any) the diverse nature of the NHS workforce. Many have risked their lives and far too many have lost their lives. It demonstrates that citizenship is about commitment to the society and not DNA, colour, location of birth or any other crass criteria that have been used. This must not be forgotten.

Finally, I come to the issue of the value of citizens. The people that have sacrificed most and been put at risk and without whom the Covid-19 fiasco would have been catastrophic are typically little valued and low paid. The Tory Home Office policy enshrines this low valuation in its hostile immigration guidelines. In light of what we have experienced does this not need review?

Pay levels have more to do with barriers to entry than the marginal product. If a form of employment has low barriers to entry it will attract more people and pay levels will be suppressed. If an employment has high barriers to entry it will command, other things being equal, higher than average pay because it will not attract sufficient people. It does not really have much to do with the marginal product of the employee. If barriers to entry decline so will pay levels. This may be oversimplifying the theory of pay but it may be a better working model for the average young voter.

The role of unions is largely to create artificial barriers much like the role of professional bodies (though the latter pretend it is solely about standards). The fact that unions and professional bodies do other things should not obscure the importance of regulating labour supply to these bodies. If the state does not intervene to provide a more equitable distribution of income based on value to society then perhaps there is a case for unions to resume their once infamous bargaining practices. Of course some changes in legislation may be required.

The Tory argument is that their focus on moral hazard creates a wealthier society. Perhaps it does but if the distribution of that wealth becomes unbalanced it does not create a healthier society, physically or psychologically. Wealth without health is pointless. If Covid-19 has demonstrated anything it is this simple fact. UK society has become unbalanced with too much wealth in too few hands and not enough social health or indeed social justice. It does not need a revolution to correct the imbalance merely a new government of competent pragmatists rather than incompetent ideologues.

The opportunity to make this adjustment lies in the hands of the young. Next time you vote think about what you are being told. Not enough money? What is inflation doing relative to target (2%)? is it accelerating? What about the priorities? Could we not simply prioritise the NHS and drop spending elsewhere? Are immigrants really a burden on ‘our’ NHS? Do you feel comfortable being treated by a doctor who has been working non-stop for 23 hours? Are you comfortable being cared for by poorly paid nurses? Is that person sleeping on the street a free rider or a victim? Maybe consider joining your union. Covid-19 has provided an opportunity for social change. Take it. Tomorrow belongs to you….