The World of Money and Finance after Covid -19- A Layman’s View By Wilbur Fletcher

General Statement

The Covid-19 pandemic crept upon the world of finance and money earlier this year like the proverbial thief in the night.

In order to keep their economies going and limit severe disruptions, governments in the major western countries have had to take actions which would most probably be strongly resisted in normal times.

In recent times, governments had a hands-off approach to the running of the economy. It was a case of small government, not big. Covid-19 appears to have changed all that.

The question now is what will happen after covid-19. What if changes which were meant to be short-term prove successful and popular? What if the slow-down allows time for reflection and the opportunity is taken to redress some perceived prevailing ills in the economy. What if more government participation in the economy is no longer taboo.

The purpose of this presentation is to share thoughts with the Aurora MoneyTalks group, initiate discussion and see where it takes us. The writer is not a financial professional.

So, the question is: what will the world of money and finance be like in 5, 10, 15, or 20 years’ time; what difference will policies brought in to deal with Covid-19 make? Clearly, we won’t have a definitive answer; there are too many variables and too may complete unknowns. We continue nonetheless in hope that something useful may be uncovered in our search

Discussion is based on what has taken place in the major western economies.

Focus will be on:

Money and finance problems brought about by the Covid -19 crisis
Government, business and worker response
Remedial action and predicted outcomes
Lessons from the past – for purposes of comparison

Hope is that there will be at least a few points raised for further thought.

Covid-19 and Western Governments Economic Intervention

The governments of the main western economies – Canada, the U.S, the EU, and the UK – have intervened extensively in their economies to deal with the Covid-19 crisis. To the casual observer of a certain age or a little older this has come as a great surprise. Previously the talk had been of small government, de-regulation, trickle-down economics, and let the market decide. Covid-19 has changed all that.

The following are examples of government intervention in these economies:

Furloughing - Canada Emergency Response Benefit in Canada and similar schemes in all the other countries. Up to 80% of salary is guaranteed in Germany for maximum of two years.
Payment to stay at home to look after family member, e.g., The Canada Recovery Caregiving Benefit.
Commercial and Domestic Rental support
Business support of all forms including loans, grants, and tax deferrals
Increased Infrastructure spending
Mortgage and Rent deferrals
General sales tax reduction
‘Eat out to Help Out’ initiative - UK government pay 50% of family restaurant bills in month of August
Work From Home Directive – to control spread of Coviv-19
Travel to Work Encouragement – to boost city centre commercial activity

If these measures prove successful in the longer term will there be more and more government intervention in these economies?

[Source: IMF website: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#C]

Lessons From the 1980’s - Historical Comparison

Can any comparison be made between past economic conditions and the current situation brought about by Covid-19?

The early 1980’s was also a time of economic turmoil and makes for a good point of reference with today.

The more deep-seated problems as seen by governments and business leaders were largely the following:

- high wage and prices inflation

- high interest rates – at times topping 15 % in the UK and 20% in Canada

- Inflexible working practices and excessive trades union power

- inefficient government corporations

- Archaic, uncompetitive manufacturing practices

Notable confrontations between government and business on one hand and workers on the other were the air traffic controllers strike in the U.S. and the coal miners’ strike in the UK. Canada, luckily, was spared national confrontations of such magnitude.

It was the era of Thatcherism and Reagonomics. As far as government and business were concerned the following measures had to be taken:

- inflation had to be beaten

- trade union power had to be curbed – the miners were defeated and the air traffic controllers were summarily fired

- Industry had to be made to compete with their more nimble foreign rivals – thus the birth of globalization

- large, cumbersome government-owned corporations had to be privatised

It is argued that the outcome of some of these remedial measures was something of a mixed bag.

Some long-term results were:

- lower inflation

- low interest rates

- weakened trade unions

- wage stagnation for lower- and middle-income earners

- reduced home affordability for new entrants to the housing market

- reduction in manufacturing in most western economies.

The slowing down of the economy during the Covid-19 crisis has provided time for reflection. Will the opportunity be taken to correct perceived ills?

Predicting Outcomes

What will the world of money be like in 5,10, 15 or 20 years from now? In particular, what effect will policies undertaken to deal with the Covid-19 pandemic have.

Let’s make the assumption that the pandemic is substantially overcome after 2 years. What will the world of money be like in, say 15, years – picking a more specific time. Which of the covid-19 policies will have a lasting effect.

Will government intervention in day to day life be more acceptable if it proved successful during the covid-19 crisis

Life would have slowed down somewhat in the peak of Covid-19 allowing time for reflection. Will the opportunity be taken to correct some prevailing economic ills or imbalances such as:

- Home ownership for first -time buyers
- CEO/ average worker income imbalances
- Entry level employment for young graduates
- Wage inflation for middle income earners

Will more working from home lead to a glut in city centre office space which will then be converted into housing

Travel and Transportation: What will the airline industry be like in 15 years time? Will it recover to pre-covid-19 levels? This clearly depends on whether foreign travel be more popular or less. How will domestic travel and transportation fare. Will the cruise ship industry ever be the same? If there is less foreign travel, who will be the losers and winners?

Sports and physical recreation: If more people are working from home will there be more active participants in sports. Will there be an increase in spectators at sports events? Will there be a boost in cinema and theatre audiences with housebound workers seeking change of scenery?

Some constants: In Looking forward certain matters can be picked out as constant – e.g. shelter, food, housing – they will always be needed. When it appears so tumultuous to predict what the financial world would be, we can always go back to these. They are constants which will always be needed – just a matter of degree.

The Great Unknowns: Going back 40 years, very few would have seen coming the economic growth of China or the commercial influence of the Internet. Will there be anything comparable in the next 15 or 20 years? Matters of this nature cannot be predicted – but are always possible.

Leadership:This is always a sensitive issue. It is likely that world leaders in both government and business will more and more be products of U.S.business schools – irrespective of whether or not they study in America. They will speak the same language – literally or figuratively or both. What will this mean to the world of money and finance?

Internet: The simple question is – will there be more of it or less in daily life, or will the pendulum swing back towards the human touch.

The Environment: This subject is always going to be topical for years to come. Will any other mining industry follow coal into disrepute as far as environmentalists are concerned? If so, which, and what will it mean in the world of money and finance?

These are some factors which are likely to influence the world of money and finance in the not too distant future. Of course, there are may others. The big question is which are likely to make an impact.

Summary

Governments all over have acted to minimise the effects of Covid-19 on their economy. What long-term effects will this have?

Factors taken into account in this assessment are:

Whether or not policies adopted during Covid-19 crisis proved successful and are retained
Extent to which perceived imbalances in the economy will be identified and corrected
Essential goods and services – that irrespective of changes, the need for items such as shelter, food and clothing will remain a constant
The environment: will any part of the mining industry lose favour among environmentalists in the way coal mining has and how would that affect the world of money and finance
Leadership in government and business: Similarity in education and training of world leaders is likely to increase, which means communication and understanding is likely to improve
Great Unknowns: The commercial use of the Internet and the industrial rise of China were unforeseen before they have crept upon the world. Could the world be broadsided by any similar surprises in the next few years?

These are some of the consideration taken into account in visualising the world of money and finance in the short to medium term. Any prediction can only be vague; there are too many factors to consider and there are likely to be complete unknowns.

Nonetheless, there are still benefits in undertaking this enquiry. Two points stand out in looking ahead at the world of money and finance after Covid -19:

The significance but unpredictability of government economic policies, cultural attitude towards the environment, and world leadership
The need for the essentials - shelter , food and clothes - is always a constant.