Where is the strategic grip to get people back to work?

Alliteration is a good way of adding force to an argument and making audiences sit up. That is why Sajid Javid advised people not to cower from Covid. They sat up alright, especially the snow-flakes who now often dominate public debate. Accused of insensitivity and cruelty, Javid felt obliged to apologise. But he had a point. As we cannot hope to eliminate Covid, we have to learn to live with it, while accepting that some people will die of it. After all, we do not lock down motor vehicles every time there is a road accident. There are predictions that this winter will see a lot of deaths from flu. It would be possible to respond to that with an influenza lockdown. It would also be crazy. Life has to go on. We cannot live in quarantine. 

That said, it is possible to sympathise with officialdom’s anxieties. As of today, the figures for new cases, deaths and hospitalisations suggests that herd immunity, vaccinations and a less life-threatening strain of virus are all helping to bring the situation under control. But suppose that were to change? Can anyone rule out the possibility of a Covid mutation packing a Spanish flu punch, against which the existing inoculations would be ineffective? In public policy, it is often wisest to prepare for the worst, on the assumption that what can go wrong will go wrong. This time, we just have to hope that cautious optimism will be vindicated, that Sajid Javid in pre-apology mode was correct: that cowering would be the wrong call. 

But there are no guarantees. “Follow the science” said Boris Johnson back in the early days. Especially to those of us who know nothing about science, that seemed a simple precept. Not so. Which science, which scientists? In retrospect, it seems likely that all the lockdowns were uneasy compromises between those who wanted them to be harder and quicker, as opposed to the advocates of herd immunity. Crises often have messy outcomes, a point that seems to have escaped those who have reported on David Cameron’s dealings with Lex Greensill.

Even before Covid, ministers were keen to improve the system of supply chain finance, so important for SMEs which are a vital component of economic growth. Jeremy Heywood, one of the ablest civil servants of recent decades, had observed Greensill in their days at Morgan Stanley and recommended him to Whitehall. Surely everyone believes that governments can benefit from outside expertise.

Fast forward to Covid. The Treasury is haemorrhaging cash, the growth-rate has been hit by a torpedo and many small businesses are under threat. It was vital to ensure that the proceeds of QE should reach the firms which needed it. Through gritted teeth, the various reports have acknowledged that Cameron did nothing wrong. Perhaps there should have been more formalities, but in the early months of 2020 there were priorities more important than formality. There is no suggestion that David Cameron exercised undue pressure. It may even be that his principal contribution was inspiring a sense of urgency. If so, that was wholly desirable.

Apropos messy outcomes, as the situation seems much less serious than it was when the Prime Minister nearly died, there is much less excuse for mess. But what is the Government’s policy on the “pingdemic” and on vaccine passports? If ministers contradict one another, and indeed themselves, from news bulletin to news bulletin they will forfeit authority just when they need it. As so often with Boris Johnson, where is the strategic grip?

It is needed on Covid, to encourage the country back to work, to encourage life back to normality and to deal with the hardest problem of all. How can we reconcile the irreconcilables: economic growth and low inflation? We need economic growth and the signs are encouraging. Whether as workers or consumers, the British people do not appear to have lost their animal spirits, and this is abetted by the current monetary regime. But as Nigel Lawson once said, there are risks from too much of a good thing. If the massive monetary creation under the auspices of QE turns into jobs and output, all will be well.

There is bound to be a spike in inflation, but if Chancellor Sunak can retain credibility and reassure the markets that spikes are temporary, we need not give way to anxiety. At some stage, the public finances will have to be stabilised. Nor will we have a healthy economy until interest rates creep up. Money should have a price. But what if inflation appeared to be out of control? If that were to happen, forget creeping. Interest rates would be leaping up, threatening the country with stagflation, and a Labour government.

So what will happen? Yet again, there is no consensus. Some economists are arguing for lock-down, regardless of the consequences for growth. Others believe that there is enough herd immunity in the British economy to ensure that inflation can spike without becoming endemic. If that turns out to be true, so-called modern monetary theory (MMT) will be vindicated. If the pessimists are proved right, the modern monetary theoreticians will look like neo-Keynesians on hallucinogens. 

We may be over the worst on Covid. But its economic and monetary consequences will now move centre stage. At the core of government, they will need strong nerves, and luck.