Macroeconomic influencers believe that the number of jobs lost during the Covid-19 pandemic, can be moderated by tackling the effect of the pandemic on private debt that has directly impacted people’s jobs and livelihoods.
Prof. Steve Keen
Prof. Steve Keen, an applied economist at the John Hopkins University, re-tweeted his views on how tackling private debt can aid in providing greater Covid-19 resilience. In his view, the impact of private debt on livelihoods and jobs has been ignored far too long by mainstream economists, one of the reasons why the US walked blindfolded into the financial crisis in 2008.
According to Keen, private debt and unemployment have a staggering correlation that somewhat resembles a Rorschach Blot on a graph. He states that when credit goes up, unemployment goes down and vice versa.
The global pandemic has had a massive blow on people’s jobs and security across the globe. While the US hit a record high of 192,000 Covid cases in a day recently, tens and millions of Americans are at a risk of losing their unemployment benefits in the upcoming month with the expiration of Cares Act provisions.
Meanwhile, in the UK, one in every two young people seem to be unemployed, with the Covid-19 disease hammering people out of employment despite Chancellor Rishi Sunak having spent billions of pounds on furloughs to save jobs.
🔹“When credit goes up, unemployment goes down… like a Rorschach Blot. This is no black swan …"@TransparencyTF will host economist @ProfSteveKeen this week. Do the #jobs lost in the #Covid_19 pandemic support Keen's calls for tackling private debt?https://t.co/4qQBnit0dp pic.twitter.com/WhZgCq8jAr
— Alex Varley-Winter (@avwinter) November 23, 2020
Adam Tooze, a historian and director of the European Institute, shared an article on a Federal Financial Stability Report which states that small businesses have been more adversely affected by the Covid-19 pandemic. Furthermore, strains related with the performance of small business debt may worsen significantly, the report highlighted.
The report suggests that although business debt vulnerabilities seem to have moderated after significantly rising due to the pandemic, they appear to be high relative to the historical change. For instance, vulnerabilities in the leveraged loan market have lessened since May, especially for the larger firms and for sectors that have been less hit by Covid-19 pandemic.
In addition, as households continue to report loss in earnings because of busines closures and rise in unemployment and job losses, household credit quality has been mitigated through new expanded programmes such as direct stimulus payments in the Cares Act, unemployment insurance, and resumption of economic activities, the report emphasised.
"Small businesses have been substantially more affected by effects of COVID-19, and strains associated with the performance of small business debt may worsen significantly” Fed Financial Stability Report. But it presents no data to drive home the point.https://t.co/LMqJnSf8hv pic.twitter.com/GdrR9FuOpB
— Adam Tooze (@adam_tooze) November 23, 2020
John Van Reenen
John Van Reenen, a professor at the London School of Economics and Massachusetts Institute of Technology (MIT), on a no-deal Brexit to be costlier in the long run than the economic damages caused by the Covid-19 pandemic.
Andrew Bailey, the governor of the Bank of England, stated that a failure to strike a deal before the Brexit transition expired in December would stress the London and Brussels economic partnership, leading to disruptions in cross-border trade and loss of goodwill.
While UK’s chancellor, Rishi Sunak believes that Covid-19 posed a greater threat to the economy than a no-deal Brexit scenario, a London School of Economics analysis has earlier predicted that the long-term economic effects of a no-deal Brexit could be two or three times greater than the pandemic-induced scarring over the long term.
— John Van Reenen (@johnvanreenen) November 23, 2020