Does the huge surge in US unemployment claims announced on Thursday mean that we are doomed to endure the 30% unemployment of which the Federal Reserve Bank of St Louis has warned?
The answer is no. How high unemployment rises will depend on how quickly we ramp up testing and the provision of protective equipment, enabling us to determine when and where it is safe to return to work.
But early evidence on the ability of countries like the US and UK to roll out tests and protective gear is not heartening. It’s not too early, therefore, to start worrying about how sky-high unemployment will affect our economies and societies.
In one scenario, the crisis will foster support for strong leaders who can issue strict directives and enforce them by any means necessary. We have seen how China, under President Xi Jinping, was able to lock down Wuhan, limit mobility, and contain the coronavirus (for now). We have also seen how the crisis encourages identity politics – how President Trump uses it to justify his xenophobic tendencies. We have seen how the crisis breeds nationalism, as countries close their borders and prohibit exports of medical equipment, and as international groupings like the G20 blow hot air.
These same reactive instincts were evident in the 1930s, the last time unemployment approached 30%. The role of unemployment in the rise of authoritarian figures like Hitler is disputed, but the most recent research suggests a link. There was economic nationalism, in the form of trade wars, and the political nationalism of the American aviator and aspiring presidential candidate Charles Lindbergh, now conveniently visible on the small screen. There was Oswald Mosley’s antisemitism. There was the harassment and deportation of Mexican Americans, including even hospital patients, by the Los Angeles welfare department and US Department of Labor.
If ever there was a circumstance suited to rehabilitate experts and encourage respect for politicians who defer to them, this is it
But there is also a more hopeful scenario. Authoritarian leaders don’t like bad news, which they tend to suppress, sometimes at cost to themselves. One hears about rumblings of a backlash against Xi and his minions for having clamped down on news of the virus, thereby putting China at risk. Trump may similarly end up paying a price for having suppressed warnings from his own Department of Health and Human Services. If ever there was a circumstance suited to rehabilitate experts and encourage respect for politicians who defer to them, this is it.
In the extreme, one can imagine the crisis pounding the last nails into the coffin of the Thatcher-Reagan revolution. The idea that government should divest itself of its equity stake in essential infrastructure has already been abandoned, in Britain in the case of the railways and in the US, prospectively, the airlines. Old shibboleths about the need for budget balance and austerity have gone by the board. We are experiencing the most vivid possible reminder that the private sector, charitable bodies and local government alone can’t be relied for essential services. They can’t even be relied on for an adequate supply of testing swabs, the Trump White House, no less, having organized a military airlift of these last week.
Related: A shutdown – but not for government: how US federal employees provide vital services
These are the same realizations, it can be argued, that gave rise to the New Deal in the 1930s and the Beverage Report in 1944, which created a very different social, economic and political order than existed before.
The transformation may not be as dramatic this time. Even if unemployment rises to Depression levels, it can come back down quickly with medical mitigation and support from fiscal and monetary policies. The latter have been primed much more rapidly than in the 1930s. Measures to prevent bankruptcies and bank failures are being rolled out faster. Basic support for households is being provided through direct payments to taxpayers, expanded unemployment benefits, and grants to employers who avoid layoffs. All this might be thought to diminish the likelihood of a radical social and political realignment.
Ultimately, it was national security that begat social security
But it was not just high unemployment that led to the welfare state, the mixed economy, and more expansive government. In addition, it was the second world war and the realization that national security, even national survival, required shared sacrifice, and that public support for those who sacrificed was a necessary and appropriate quid pro quo. The Beveridge Report that created the British welfare state was a product of not just the 1930s but also of the second world war. The GI bill that expanded opportunities for education and homeownership for Americans was similarly a legacy of the war. Ultimately, it was national security that begat social security.
Boris Johnson has vowed that “we must act like a wartime government”. Donald Trump insists that he is a wartime president. If fighting the virus is indeed a battle tantamount to war, then the legacies of these politicians and the attitudes and values of their successors may turn out rather differently than they currently expect.