Coronavirus: Conservatives ride big government to rescue

If capitalism is so good, why does it need socialism to save it every decade?

Donald Trump signs the US coronavirus stimulus relief package on March 27. Picture: AP

One never thought books might substitute for the discus throw at the Olympics. Or that they could describe perfect parabolic arcs as they reach dustbins on the footpaths of New York, Washington and London.

Books with arresting titles, too, gold embossed on leather binding. Here comes Friedrich Hayek’s Constitution of Liberty, of which Margaret Thatcher had said, banging it on the table: “This is what we believe!”

Just as the Austrian’s warnings of a “road to serfdom” crash into the garbage bin there comes thudding earthward Milton Friedman’s Capitalism and Freedom. The wisdom of the Chicago School is quickly followed by Ayn Rand’s Atlas Shrugged and The Fountainhead, which hit the bins and with them the romantic ideal of government with only one function: enforcing contracts.

Has any earlier time witnessed such an overnight junking of ideology?

“The state is swelling,” remarks The Economist, for 180 years the most consistent advocate for trusting free markets. Swelling indeed, with congress’s $US2.2 trillion ($3.6 trillion) rescue package inspiring President Donald Trump to quip: “I never signed anything with a T on it.”

It will soon be a reflexive flick of the wrist, with the deficit now likely to clock in at $US4 trillion, compared with the previous high of 2009 under Barack Obama of a trifling $US1.4 trillion.

The state grows during crisis and never retreats. There is no hint of a road map back to fiscal caution, even a decade off.

French President Emmanuel Macron declares no firm will “face the risk of bankruptcy”. None? Not even mismanaged outfits about to expire before the crisis? The dirigiste notion of a grand state suckling all its pups runs like a mother lode in France, back to Jean-Baptiste Colbert ruling the finances of Louis XIV. This old instinct, in the current emergency, seems set to relegate Macronian reform.

Denmark looked an outrider with its early commitment to pay 75 per cent of private sector salaries within three months — splashing 13 per cent of GDP, in a blink of an eye — except that British Prime Minister Boris Johnson and EU partners quickly caught up, with Macron to spend 20 per cent of his country’s GDP on a rescue equal to the economy of Portugal. Britons will be awash with the largest fiscal free-for-all since 1992, occupying territory, advised The Guardian, that no chancellor has dared approach for decades.

A Republican administration might assume ownership of America’s domestic airlines, certainly if the alternative is to watch them go bankrupt and disperse their 500,000 employees. But if Washington can own 18 airlines, nurture them and aim to sell them on a rising market then the same case might be made for America’s cruise line industry, with 250,000 workers.

Indeed, what section of the economy would be excluded from emergency nationalisations? Congress won’t resist, rather cheer them on, Mitch McConnell as much as Bernie Sanders. Even Depression-era president Franklin Roosevelt, who had the power to nationalise the banks in 1933, chose not to.

There are precedents in the car and finance sectors for Washington buying stock and selling it in recovery. But what if events keep intruding — such as the next virus, not released in the wild meat corner of the Wuhan markets but, say, emerging from the melt of permafrost in Siberia? The electorate may grow comfortable with government spending at 50 per cent of GDP instead of about 35 per cent. And for those whose jobs have been saved, comfortable too with state ownership and the security that goes with it.

If capitalism is so good, why does it need socialism to save it every decade? Surely a question to be asked by families who’ve watched the carnivals on Wall Street — the share buybacks, mad borrowings, asset inflation — while their own real wages have remained frozen.

To be sure, old state-dominated economies were not ideals of justice — French train drivers able to retire at 52 or the privileging of unionised pockets in newspaper printing or state-owned ship builders. These put paid to the dreams of Fabian socialism. The Thatcher-era impulse to wipe it away was timely correction to a lazy expansion in the role of the state.

The centre-left modernisers of the Clinton-Blair generation respond smartly with their Third Way, although it’s not just the ties of friendship and patriotism that compel me to say the Hawke-Keating achievements were more original and brave.

But now it’s conservatives themselves junking Bill Clinton’s 1996 observation that “the era of big government is over”. Johnson this week even contradicted a famous Thatcher dictum when he stated “there really is such a thing as society”.

The diminished band of small-government advocates now face fiscal commitments bigger than any made outside war, and debt and deficit as far as anyone can see with no exit strategy. In truth they had been losing even before the crisis.

US Republicans such as senators Marco Rubio and Josh Hawley were redefining their party as pro-big government. They want a Republican Party open to entitlement expansion and protection of workers. They were no more economic libertarian than Johnson, their trans-Atlantic ally, re-elected in December on a manifesto that his Chancellor confessed had the most expensive policies in history.

Turned on its head is Ronald Reagan’s mockery, “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.’ ” It has given way to a greater wisdom. When something akin to a massive natural disaster strikes a country, help from the state is precisely what people want.

In this climate, Rand’s “the virtue of selfishness” sounds grotesque and the same for Reagan’s comment in his first inaugural that government’s the problem, not the solution. Right now, a powerful state directing action is what we need.

Bob Carr is the longest-serving premier of NSW and former foreign minister of Australia.