‘Govt has failed’: World set to repeat Great Depression
With no plans for economic measures beyond September, Australia could be set to repeat mistakes from the Great Depression, experts warn.
The government’s stimulus packages have been integral to keeping the economy afloat, but things could get rocky after six months, according to former deputy prime minister Wayne Swan.
“The government doesn't seem to have any plans beyond September,” Swan said in an Australia Institute webinar.
“And it seems to me that we're about to repeat the mistake that was made after the Great Depression when people flipped the switch from stimulus to austerity too early and the world suffered a very deep and prolonged recession.”
And rather than fire off bailouts, the government should be putting in place effective, strong stimulus through investment, infrastructure and energy, Swan said.
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“If governments don't have that commitment to medium term stimulus, then, of course, we could be looking down the barrel of the Great Depression.”
But economic recovery won’t look like a quick, sharp bounce-back. Instead, Nobel Prize laureate and US Professor Joseph Stiglitz said the economic recovery would be long-winded.
“No one is thinking that there is going to be a V-shaped recovery,” Stiglitz said.
“There is some discussion of a ‘W’ – a slight recovery and then a second wave a little later. The concern I have is actually the way this is rolling out all over the world is that it's a W, but that the second part of that uptick, that W, isn’t going to be there.”
Inequality is worsened
Without adequate protections for workers, inequality will be worsened by the coronavirus pandemic, Stiglitz said.
“Their bargaining power is low, that's why their wages are low,” Stiglitz said.
“But we don't even have adequate protections for the frontline workers, the people in the hospitals, the people in the meat-packing [industry]. And the result of that is they are going to work every day without protective gear, without masks, getting exposed to Covid-19 and unfortunately coming down and some of them dying.”
This situation is exacerbated by the fact that there is no mandated sick leave or paid sick leave in the US, Stiglitz said.
“The government has failed,” he said.
“If you come down with Covid-19, the bottom 40 per cent of America is living paycheque to paycheque...They have no choice but to go to work.”
While Congress attempted to instill paid sick leave, big companies lobbied against it successfully. Now, 80 per cent of American workers are exempt from the provision of paid sick leave, Stiglitz said.
“That facilitates the spread and increases deaths,” he said.
Tax reform necessary
While more than 20 million Americans lost their jobs and employment rates worldwide grew, the combined wealth of the US’ billionaires has grown a whopping 10 per cent, the Institute for Policy Studies Billionaire Bonanza report revealed.
“This is the tale of two pandemics,” co-author Chuck Collins said.
“While some are seeing their wealth increase by billions, others are suffering. We are not all in the same boat as long as billionaires are cruising in their yachts, and most Americans are simply trying to keep their heads above water.”
And while the report suggested placing a wealth tax on the rich could be one way to reduce the inequality gap, Richard Dennis, chief economist at the Australia Institute said some corporations have been pushing to cut corporate tax rates.
“In Australia, we’ve been told that if we do one thing to cut the help the economy, it’s to cut the company tax rate,” Dennis said.
“Similarly, cuts for personal income taxes for high income earners are on the table.”
However, Stiglitz said doing so wouldn’t stimulate spending, but rather lead to a fiscal deficit.
“In December of 2017, we had a norm US corporate tax cut,” Stiglitz said.
“And the evidence was unambiguous. It did not stimulate investment. What it did is lead to almost a trillion dollars of share buybacks. It led before the pandemic to a trillion dollar fiscal deficit.”
In fact, bailing out big companies during this time was “outrageous”, Stiglitz said.
“Companies like Delta Airlines paid zero corporate taxes in 2018,” he said.
“And now we have to bail it out to the tune of billions of dollars. This is, you might say, an outrageous kind of situation.”
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