• Peter Lyons

Understanding an Economy at War.

This economic situation is extreme. It has been unfolding in real time which is unique except in war time. We are in a state of shock. There are two huge elements at work. One is the pandemic. The other is the economic implications.

Thomas Hobbes was an English philosopher in the 17th.century. He wrote about how easily societies can fall apart in extreme times such as the English civil war. How self interest can destroy a society during extreme times. People hoard, they panic buy, they fear for their own safety and survival. Some resort to violence. We need to avoid this worst case scenario. We have the leaders to do this. We have the resources. We need to understand what is happening to our economy


Huge chunks have been temporarily lost. This means a huge loss of jobs and incomes and output. But People need to understand they are not alone. It is not their fault. We can only deal with this together. Not alone. It’s not about winners or losers. This is about national survival and unity in an extreme time. If we fail to look after each other, we will all lose. .


We are at war as a nation. But unlike a normal war the enemy is not in front of us. It is among us and could be us if we allow that to happen. We must stick together yet apart to fight this pandemic plus its economic effects.


Here is some basics of how we can fight the economic battle. We are all going to take a hit. All of us. Don’t think you will come out a winner by smart investment or panic buying or hoarding or abusing the system. You will lose, and we will all lose.


We need to ensure that everyone has access to the basic necessities. These are food, water, electricity, communication and the roof other heads. Just the basics. . Lose the sense of entitlement. This is war. We fight it together or we all lose.


We need to put the financial sectors into partial hibernation. This is already starting to happen. A temporary debt holiday for those who have taken the hit. Remove the fear of debt for those who have taken the hit. The Reserve bank can create the money for the financial sector to partially hibernate during the crisis. There will be little inflation because there are few opportities to spend.


The money can be created by the Reserve bank, it is just computer credits created by a mouse click. But those most vulnerable need to have access to these credits to buy the basics. In extreme times the main function of money is to provide access to the basics.


The wage subsidy scheme was a great start. But it has a fundamental flaw for good employers. If employers have no income they are draining their capital by trying to look after their staff. This will make recovery much harder when this passes. If a business has lost its income we must put its staff on a Code Red benefit to meet their basics.


No one can be allowed to lose the roof over their heads during this war. Otherwise they becomeg a potential nomadic infection on others. Landlords with mortgages will be given a debt holiday. Those who rely on rents for living expenses can access the Code Red allowance. Otherwise it will be too slow and cumbersome.


We are at war. We are all going to take a hit. But we must ensure it is shared otherwise we will all lose. When a nation is at war it is about meeting the basic needs for everyone during the fighting. Those who seek to profit from the fighting are scum.


Those on the frontline in this war are healthcare workers, police, emergency workers., food producers, supply chain staff, Supermarket staff, Rest home staff. Amazing people who are stepping up.


We are being very well led compared to many nations. We produce our basic necessities as a country. We have a very large moat and pleasant climate. We can survive and function as a society. We must stick together otherwise we will make it much worse than it needs to be. The economic concept of self interest does not work, when a nation is at war.


There are key things we are about to realise about our cool little country. Our political leaders of all persuasions are competent and moderate. Our political differences are not extreme. When the shit hits the fan we ultimately unite. We can supply our own basic needs as s nation if we need to. Nothing fancy , but we can survive. Our small population allows for greater mutual trust and cooperation compared to other larger nations. . We can do this.


Peter Lyons (M.Comm) teaches scholarship-level Economics and has authored several New Zealand curriculum economic texts. His inspiration often comes after a dram of whiskey. Just one mind you. So if you're ever stuck in a room full of economists, grab the seat next to him. For a conversation peppered with wit, wisdom and weirdness.


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