A bean-feast in the making: stimulus packages and the global economy

Written by: (Contributed) on 28 March 2020 

In recent weeks the United States and two key allies have announced huge stimulus packages, ostensibly to deal with the effects of the coronavirus (COVID-19.

Two important factors, however, have to be considered when studying the developments.

Firstly, the economies of the advanced, industrial countries have been in serious longer-term decline, since well before the recent coronavirus pandemic.

Secondly, the US government and its allies were preparing measures through international financial institutions to artificially prop-up and stabilise their economies. Nevertheless, they continually refused to consider implementation of the measures.

 

From the earliest days of last year warnings about the declining state of the global economy fell upon the deaf ears of world leaders, despite the US and its two key allies dropping down tables of countries listed by GDP growth rates to:

                                                           US – position 103
                                                          Australia - position 110
                                                          UK – position 155. (1)

 

Evidence of their standpoint can be found from publications issued by the international financial institutions they control. It was announced in January, 2019 that 'the world is at risk of a sharp downturn' by the International Monetary Fund (IMF) which stated growth had slumped from:

                                                          3.7 per cent - 2018
                                                          3.5 per cent – 2019. (2)

 

The same report also stated that the 'global expansion is weakening and at a rate that is somewhat faster than expected'. (3)

 

A World Bank report, furthermore, issued a similar warning the same month to that of the IMF, saying 'global growth is expected to lose momentum this year'. (4)

 

The trends of declining global growth rates have to also be viewed in the context of longer-term developments, which can be easily verified:

                                                        1961 – 4.32 per cent
                                                        2018 - 3.03 per cent (5)

 

The economic decline was not, however, even, being all the more dramatic in the advanced, industrial countries which had hidden behind the growth rates of other countries in South Asia where they averaged 6.77 per cent and East Asia and Pacific regions which recorded an average of 4.21 per cent. These figures reveal the real state of growth in the advanced capitalist economies compared to world growth:

                                                          2017     2018     2019     2020
                   World                              3.8        3.6        3.2        3.5 (projected)
                   Advanced Economies     2.4        2.2        1.9        1.7 (projected) (6)          
                                                     

Economic studies of Australia, historically a relatively strong economy, likewise established that the economy had been seriously under-performing. During the period July 2017 to January 2020, while the annual general trend was an average decline of 0.85 per cent, the economy had actually further dropped from 0.6 per cent to 0.5 per cent. (7)

 

The reports, nevertheless, fell upon deaf ears. Despite their rapidly declining economic positions, the US, Australia and the UK have remained important financial hubs for the global economy. The interests of those who hold class and state power have been well served and able to accumulate even greater wealth as they have flung capital to the four corners of the globe in search of ever higher returns for shareholders and speculators. The fact many of those whom they exploit reside in the developing world, where social safety-nets provide little assistance and support is not a matter for concern. The squalor for which they are responsible is almost beyond belief; but as those concerned cannot see it from the luxurious balconies and patios of their places of residence, it does not cause much concern.

 

Vast disparities of wealth accumulation between countries has been accompanied by similar divisions within countries.

 

The Credit Suisse 2019 report, for example, stated while global wealth had grown by 2.6 per cent during the year, it was not, however, equally distributed. Common-sense considerations include those of any Australian worker and their counterparts elsewhere who have long become accustomed to declining living standards and economic sacrifice. Most Australian workers have not seen a wage increase of 2.6 per cent in many years. A major feat for their trade-unions has been to merely safeguard existing terms and conditions of employment with successive rounds of Enterprise Bargaining Agreements (EBAs) in the face of  the increased powers of the corporate sector and compliant government departments which seek to maximise profit. Days of wage increases above and beyond questionable government defined cost-of-living thresholds appear confined to the annals of history.

 

The recent period has been marked by huge accumulation of wealth, at the expense of the poor.

 

The Credit Suisse report actually found the lower half of all global wealth owners accounted for less than one per cent of global wealth; the richest ten per cent, by contrast, owned 82 per cent of wealth, the top one per cent owned 45 per cent. (8)

 

All that glitters, however, is not gold.

 

It has also been known within the closed circles of decision-makers in international financial institutions such economic systems and their relations with those who they exploit are unsustainable. They cannot last forever. The corporate sector, for example, has also required stability in order to plan financial outlay, and recent developments have shown concern for political instability. 

 

For some years international financial institutions have, therefore, been formulating massive economic rescue packages to prop-up and stabilise major western economies. (9) Even as late as last year, however, the US, Australian and UK governments refused to accept the need for economic stimulus packages. Suddenly, however, in the face of the coronavirus the three governments have clamoured to implement huge packages:

                                                          US – US$2.2 trillion
                                                          Australia – A 189 billion
                                                          UK – Euros 360 billion.

 

The so-called coronavirus rescue packages have also been topped up by local secondary subsidies which include the Steven Marshall Liberal government in South Australia adding a further A$650 million through a Jobs Rescue Package. The state government in NSW, likewise, added a further A$2.3 billion local package to safeguard jobs in Sydney. (10) Details and specifications of both state initiatives have not been particularly forthcoming.

 

Elsewhere, however, it has been interesting to note how the British government prioritised allocations of their rescue packages to provide US$7 billion for self-employed and business 'vulnerable people' while only US$500 million, one-fourteenth of the former, has been allocated for 'the welfare state and a hardship fund for local authorities'. (11)

 

The US, Australia and the UK have also, in reality, shut down, with little hope of re-opening until toward the end of the year or even 2021, with serious curtailment of basic civil liberties for ordinary people. In Australia, government statements have announced closure of state borders and further threats of possible containment of whole areas. People have been advised to stay at home, while social gatherings subject to limitation of small numbers of people. Those in control of class and state power have assumed almost absolute control, with the Australian Defence Forces and the Reserves placed on standby for rapid intervention into civil affairs if, and when, required.

 

Following announcements of rescue packages by governments, as if co-ordinated by invisible hands from elsewhere, the Trump administration issued a media release stating the 2020 G7 summit at Camp David would be cancelled due to fears of the coronavirus and would only take place by video-conference. (12) 

 

Less than a week later, however, the White House issued a further media statement stating 'we have to go back to work, much sooner than people thought', and that the country must be 'opened up and just raring to go by Easter'. (13) The health considerations of ordinary US working class people appear to not have been a priority matter for the Trump administration; it was, nevertheless, something which 'Pentagon chiefs said they expected the virus to continue to take its toll on the country for months'. (14) Once the stimulus package has been implemented, ordinary workers would appear an expendable item for Trump's America which is more interested in maintaining and increasing profits of the corporate sector than general health considerations.

 

The position of the Trump administration has also been accompanied with a torrid stream of abusive allegations toward China, adding to an already tense diplomatic relationship between the two world powers. The positions of the Australian and British governments have been more guarded although unlikely to be much different to the White House. Political leaders in both Canberra and London have rarely, if ever, been known to openly criticise their US counterparts.

While it would be not in keeping with serious studies of this period to point to simple conspiracies, the three governments have seized upon the recent pandemic as a matter of political expedience. We should, therefore, be on our guard about the real agendas of such questionable people:
                                    
We need an independent foreign policy and socialism!

 

1.     Wikipedia: List of countries by real GDP growth rate, 2018.
2.     IMF issues warning, news.com.au., 22 Jaqnuary 2019.
3.     Ibid.
4.     World Bank Warning, Biz News, 9 January 2019.
5.     Macrotrends, World GDP Growth Rates, 1961-2020.
6.     Macrotrends, World GDP Growth Rates, World Economy; and, Table One, Overview, World Economic Outlook, IMF, July 2019.
7.     Australia GDP Growth Rate, 1959-2019, Trading Economics.
8.     Editorial, Wealth Report, 2019, Credit Suisse.
9.     The contributor, in discussion with management of the company he is employed by, and a well-placed US source.
10.   Billions added to jobs-save actions, Australian, 27 March 2020.
11.   UK stimulus package, The Business Insider – Australia, 12 March 2020. 
12.   Trump fires back, The Weekend Australian, 21-22 March 2020.
13.   Trump urges everyone back to work, Australian, 26 March 2020.
14.   Ibid.