To combat the effects of what started out as a medical crisis and turned into an economic one, governments and central banks from all around the (especially Western) world have manifested a clear desire to throw the proverbial kitchen sink at the problem right from the beginning. Among other things, with the United States setting the tone when it comes to the idea of mailing checks to the average citizen directly despite it being run by a Republican administration.
If everyone else follows suit, would we not risk ending up with a fairly ironic status quo, a status quo which revolves around there being more capitalism in China than in the West? In other words, socialism with Chinese characteristics might no longer seem all that much like socialism when compared to what is shaping up to be a new paradigm among Western nations… is this not a distinct possibility?
As far as both questions are concerned, the answer is a nuanced yes.
Nuanced because China itself is most definitely no stranger to the idea of aggressive monetary as well as fiscal policy. As the first country hit by what ended up being a COVID-19 pandemic, the Chinese authorities did not hesitate when it came to providing adequate liquidity on all fronts. As such, it would be a bit hypocritical to paint a picture of China somehow being this ultra-conservative (from a monetary/fiscal policy perspective) entity, in contrast to the “economically decadent” West that is in the middle of an unprecedented (in terms of scale) currency debasement scenario.
That is most definitely not the case.
In fact, pretty much all countries have embarked on a journey involving what used to be considered ultra-aggressive monetary policy several years ago and in the aftermath of the 2020 pandemic, the market demanded strong fiscal stimulus as well. How did it demand this? Simply by not adequately responding to “central banking only” solutions such as lowering interest rates and monetary easing or, if you will, making it clear that stronger medicine than what was prescribed after the Great Recession would be necessary this time around.
Therefore, the correct question is most definitely not “Which countries are more responsible?” but rather “Which countries are less responsible than others?“ because therein lies the previously mentioned nuance: figuring out what the lesser of all evils is in an unprecedented scenario involving what used to be considered nothing short of monetary as well as fiscal recklessness.
Taking a few steps back and referring to one of the US policy choices, more specifically the idea of mailing $1,200 checks to the average individual in an effort to help people get through tough times and the cessation of economic activity when it comes to a wide range of sectors, it is time to spot the elephant in the room: the fact that the first steps toward a type of Universal Basic Income are being made.
Of course, the idea behind the UBI concept revolves around giving citizens a “bare minimum” amount of money each month without asking for anything in return, with the main hope being that if we as a society enable the average individual to stop worrying about meeting basic necessities, we empower people and encourage them to channel energies toward more and more positive rather than strictly subsistence-oriented activities.
Again: the main idea revolves around not just a “one-off” check being sent to everyone but rather about making this habit a permanent policy choice. We are most definitely not there yet but at this point in time, pretty much any reasonable market observer can notice a pattern. For example, here is the US one: lowering interest rates to 1% to combat the effects of the Dot-Com Bubble bursting, lowering interest rates to zero and injecting as much as $85 billion per month into the financial sector to combat the effects of the Great Recession and at this point, lowering interest rates to zero and injecting liquidity in the financial sector as well as “real” economy to combat the effects of the 2020 pandemic.
In the European Union and Japan, interest rates even went negative after the Great Recession but despite country-to-country differences in terms of manifestation, the overall trend should be crystal-clear: with each economic calamity, the market demands an ever-increasing “dose” of stimulus and therefore, a more than compelling case could be made that it is only a matter of time until UBI-like measures become the norm.
It remains to be seen what the implications will be as far as China is concerned.
On the one hand, it can choose to join the proverbial party of countries out-bidding one another in terms of aggressive policy choices in light of the fact that there is ample “everyone is doing it” as well as “we didn’t start it” justification to go around. On the other hand, it can also attempt to brand itself as the lesser of all evils, not necessarily by implementing hawkish policies (it is very unlikely that countries would risk embarking on such a contrarian journey) but rather by attempting to always be one step behind in terms of aggressiveness.
Needless to say, we are living in unprecedented times. Had an economist even suggested the idea that an UBI-like measure would be implemented by the right-leaning Donald Trump Republican administration, the person in question would have risked nothing short of public ridicule. Yet here we are in 2020, with the unprecedented being essentially embraced as status quo and fear determining everyone from Keynesians to libertarians to look toward the authorities for salvation. To put it differently, measures consistent with the Bernie Sanders or AOC manner of seeing things a couple of years ago are considered mainstream in the Republican camp and for this reason only if nothing else, perhaps the most common sense conclusion would be this: in 2020 and beyond, it might not be the worst idea in the world to expect the unexpected and hedge accordingly, as complex as the endeavor may seem. Of course and as always, the ChinaFund.com team is here to help with just that.