Economists weigh in on what COVID-19 is likely to change
With COVID-19 leaving a spate of problems in its wake, economists give their take on what the pandemic is likely to change.
- Governments won’t be able to cut COVID-19 spending anytime soon, and there will be less panic about government debt than previously.
- Australian and New Zealand companies may look to use locally produced supplies, encouraging domestic manufacturing.
- The success of remote working and remote learning may lead to smaller offices and university campuses.
By Christopher Niesche
The case for cutting spending is going to be a lot weaker
Professor John Quiggin, School of Economics, University of Queensland
“There’s going to be a lot more debate and discussion around ideas like universal basic income, that is, a guaranteed minimum income. That’s already happening and, roughly speaking, the government’s response to the crisis has been along the lines of ‘here’s money for everybody’.
“We’re not going to punish people who have lost their jobs due to this. There’s a snapback measure in the legislation but when that comes up in six months’ time, nobody is going to be worrying very much about government debt. The idea that it’s really urgent to scale this back won’t have the purchase it might have had.
“Unless the economy recovers much more rapidly than most people expect, the case for cutting spending is going to be a lot weaker. I think there’s going to be pressure to say at least some of this should be sustained well into the future.
“A lot of people, even those strongly opposed, have also been the people saying, ‘Why don’t we just let the virus rip, kill the oldies, let the economy go?’ I think those people are going to be less listened to in the future than they have been.
“There’s an economic benefit, obviously, in terms of people being better off. That’s the objective of economic policy. So, to the extent that losing your job isn’t a disaster, that’s the good outcome in itself. The less fear we have of this, the better off we all are.”
We might reconsider outsourcing supply chain
Alex Joiner, chief economist, IFM Investors
“Countries such as Australia, the US and the UK have outsourced so much in terms of manufacturing and supply chain that we are now reconsidering that. The theme is one of self-sufficiency. Do we need to bring things back to our economies because we can’t rely on the supply of some of the essential manufactures from places like China if they shut down?
“It’s key high-tech, medical, manufacturing – those sorts of things – that we might need to be more self-sufficient in going forward and that will have implications. Take the Australian example: we no longer produce motor vehicles in this country at all. Is that going to be some industrial knowledge or capability that’s going to be lost, that we could use?
“There is at least a debate in Australia questioning the unambiguous positives that globalisation brings. The argument then becomes, to make these goods in Australia we would have to subsidise the industries that produce them, and that’s always been the issue. How much government subsidy should an industry get?
“That’s the other side of the debate. How are we going to balance those things about the essential goods in the economy and still embrace globalisation for the cheap goods we want? It’s a matter of striking a balance between what do we think is essential if we couldn’t get it elsewhere, and should we be producing these things in Australia?”
We could end up with public debt that is 50% of GDP
Saul Eslake, independent economist
“Every country will be dealing with the legacy of increased government debt. Australia will be among the more fortunate countries in this regard because while we’re taking on an enormous amount of public debt, our starting point is much more favourable.
“We could end up with public debt of, say, 50% of GDP. There are a lot of countries who were starting with public debt at more than 80% of GDP.
“There are important conversations to be had about what we do about that. Do we, as the post-war generation did, just simply say, ‘Well, we have to carry it and gradually grow our way out of it,’ which for Australia at least is a feasible option?
“We came out of the Second World War with public debt of 150% of GDP. We only ran one budget surplus between 1945 and 1989 and yet the debt shrank to less than 20% of GDP because the economy grew.
“This idea that you actually have to pay it off is a false analogy between households and societies. Households usually want to pay off their debt because they’re not perpetual entities. People die. They don’t want to leave debts as opposed to assets to their dependants. But governments don’t die, usually, so we don’t actually have to pay off the debt.
“Other options would be around various ways of seeking to pay it down, which obviously involves some combination of raising additional revenue and cutting government spending in other areas.”
Adjustment in work will give more power to parents, particularly women
Nicki Hutley, Partner, Deloitte Access Economics
“For a lot of employers, the idea that you can work from home was still a challenge. Particularly for older executives, there was the idea that people will just laze around and slack off. We’re now having a perfect social experiment about what works and what doesn’t.
“For the vast majority of people, the productivity issue is not valid. There’s no evidence that we are slacking off. In fact, the statistics suggest that we’re actually not distinguishing between our weekdays and our weekends. And that actually is a bit more of a problem – that people are finding it harder to switch off.
“The benefits urban economists talk about in terms of agglomeration and that meeting of people and exchanging of ideas is still super important. So the idea we’d all just stay at home [after COVID-19] is not likely, but some adjustment will give more power to parents, particularly women.
“It has implications, of course, for the commercial property sector. There will still be that core concentration in cities, but we might have less rapid growth in commercial office space in the future. And that will obviously affect the construction sector.
“In the past couple of years, the average size of people’s homes has been starting to shrink for the first time in many years. But will this actually mean that people will be wanting to have that extra bedroom for a home office and making sure they have that space?”
“There’s no evidence that we are slacking off. In fact, the statistics suggest that we’re actually not distinguishing between our weekdays and our weekends.”
People are going to be worried about supply chain disruptions
Shamubeel Eaqub, economist and partner, Sense Partners
“Most of the businesses that I advise are seriously rethinking their relationship with suppliers, in terms of how much inventory to manage and storing inventory onshore.
“That trend is going to be really fascinating to watch in terms of vertical integration, where people look to secure the supply chain through things like inventory management, but also to actually build up their own supply chain, owning the upstream stuff.
“A supply chain is very thin and it goes all the way to the producer, and everybody does just-in-time inventory management.
“I think we’re also going to see a lot of medium-sized businesses fail over the coming weeks and months. That space is going to be taken up by larger businesses.
“At least for a little while after this, people are going to be worried about supply chain disruptions and they’re going to hold a lot more inventory.
“That’s interesting, because we don’t really do inventory financing very much any more. And yet those are going to be really useful. If you’re holding a lot of stock relative to sales, your business in accounting terms is highly inefficient.
“So, we’re going to have to think about how we finance some of these things. The skills that we’ll use in our accounting, in our banking, are probably going to change a lot.”
There will probably be a lot less office space required
Sharon Zollner, chief economist ANZ New Zealand
“A bunch of firms are discovering that, actually, jobs can be done from home with a smaller hurt to productivity than they had envisaged. For example, ANZ discovered that call centres can work from home. That was something that was seen as technologically challenging before; it’s been a remarkable performance by our tech and property teams in the past three weeks.
“I think that’s a relatively common experience across firms – that things that were too hard suddenly turn out to be possible after all. And, fortunately, we have the underground internet cable to allow it in most places.
“There will be people who are swearing that they will never, ever work from home again. But there will be other people who say that they’re quite enjoying not having the commute and being able to work more flexibly.
“On balance, there will be a permanent shift up in the number of people working from home. That’s good for the environment, bad for people who own office buildings. That would actually make a big difference in terms of congestion and carbon emissions and localised air pollution.
“There will probably be a lot less office space required. People with C-grade space would be a bit nervous about how it might pan out. The commercial property sector was really booming [before the pandemic].”
A lot of university resources aren’t going to be as necessary
Paul Hansen, head of the Economics Department, University of Otago
“It’s fascinating watching how things change so quickly in such a short time. My colleagues would normally stand in a lecture theatre for 30 minutes and use PowerPoint and draw on the whiteboard. Now, they’re showing their PowerPoint slides and running lectures through Zoom.
“I think it is going to have a structural change. People are going to see that the technology is quite viable – and certainly it would have some cost advantages.
“Universities have huge physical plants and equipment and assets. A lot of those resources aren’t going to be as necessary as they were before COVID because a lot of the stuff can just be done online.
“There’s one point that really needs making: there’s a world of difference between delivering something through Zoom or Google Hangouts, versus tailored, deliberately built online resources that have been designed for that purpose.
“The future is going to be delivering education using professional delivery mechanisms. But still, those are very cheap relative to having lots of real estate and big spaces that for most of the year are empty.
“Before that happens, of course, universities are going to have to come out of this crisis and have held onto as many students as they can, particularly international students.”
The old idea of fiscal policy is going to be no use
Donal Curtin, economic consultant and former BNZ chief economist
“The idea of active fiscal policy is back on the agenda. Really using fiscal policy to push against bad stuff has been rather passé. It’s been out of fashion because successive treasurers of New Zealand have been focused on putting a surplus in the window.
“The idea that, actually, you can use fiscal policy to offset things like COVID or the GFC, it just hasn’t been sufficiently front and centre as it always should’ve been.
“We’ve been relying on the Reserve Bank of New Zealand to do the heavy lifting, but they’ve gone pretty much as far as they can go. So, of course, you’re going to have to use fiscal policy to support the cash flow of businesses and household incomes and all the rest of it.
“It should go the other way, too: that a fiscal policy shouldn’t be sitting there like a possum under headlights. When things are getting excessive, monetary policy shouldn’t be left to do all the work by itself. Fiscal policy should be just as active when the party is getting uproarious.
“One of the things that’s been holding fiscal policy back is the perception that it takes too long to roll out anything – no bricks will be laid in the next 18 months. The old idea of fiscal policy – we fire up infrastructure and then we start the hydroelectric dam in five years’ time – is going to be no use.
“But you can think of really fast ways to get money into people’s hands quickly.”
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