We can't let this economic crisis go to waste
The rapid spread of COVID-19, or the coronavirus as it is commonly known, has heightened economic fears and anxiety around the world.
On Thursday March 12, US stock markets saw their biggest single day losses since Black Monday in 1987 and three days later the Federal Reserve announced that it would be cutting its benchmark interest rate to effectively zero and restarting its Quantitative Easing program. With businesses and whole cities shut down for the foreseeable future, a full-blown financial crisis is not out of the question and many analysts now see a recession later this year as an inevitability.
As was the case during the last major financial crisis 12 years ago, the Trump administration appears to be considering and readying a wide range of government interventions to prop up collapsing markets and failing industries. For instance, with eerie echoes of George W. Bush’s failed 2008 economic stimulus package (which included a tax rebate), President Trump initially suggested an stimulus package that includes a payroll tax break. Subsequently, an economic relief bill was negotiated between the Congress and the White House that includes unemployment insurance and virus testing, among other measures. Direct public bailouts for airlines, oil companies, banks, and other corporations hardest hit by COVID-19 appear to be all but certain if economic conditions continue to deteriorate. Already, many observers are expecting the administration to move quickly to bail out heavily indebted shale companies imperiled by the drop in oil prices.
Despite more than 10 years of reflection and analysis of the 2008 financial crisis, it appears that policymakers on both sides of the aisle have learned very little and are reaching for the same old playbook of corporate bailouts, messy backroom dealings, and asset price inflation. For instance, during a Democratic presidential primary debate on Sunday night, Joe Biden (who was as Senator during the 2008 crisis and Vice President in its immediate aftermath), stated that the 2008 bailout had been a success because the economy had been “saved” and the banks paid back the bailout funds with interest.
However, simply bailing out failing industries with no strings attached and restoring the status quo of an increasingly financialized form of crony corporate capitalism (where profits are privatized but risks socialized) isn’t the only option. During a time of crisis, government interventions backed with public funds could, and should, be used to assert more democratic control over economic decision-making and reshape economic approaches and institutions to respond to pressing public needs. As Dante Dallavalle and Christian Parenti recently put it, “the real economy needs help in the form of popular debt forgiveness, green public works, free higher education, and significant socialization of health care.”
In this case, any government interventions should be predicated upon making the urgently required transition to a post-fossil fuel economy and society. Rescued or subsidized institutions (especially oil companies, airlines, and the banks that finance them) should be put under public control as part of an emergency climate transition plan. Once in public control, these institutions should be wound down or converted in alignment with a green industrial strategy that breaks free from the extractive business model that continues to fuel climate catastrophe and keep the American economy hostage.