Coronavirus: to save businesses, we should pioneer an unusual kind of insurance

The COVID-19 outbreak has triggered a collapse of revenues in sector after sector: transport, hotels, restaurants, tourism, recreation and culture, consumer durables and numerous others.

This economic shock, equivalent to a 10% or greater contraction in demand worldwide, is larger than that which triggered the 2007-09 global financial crisis.

In a rare professional consensus, economists of all schools agree that a major fiscal stimulus is required to offset this collapse in spending – and governments are acting accordingly. In the US, Steven Mnuchin, the treasury secretary, has obtained congressional approval for a US$2 trillion (£1.7 billion) stimulus that includes a US$500 billion (£426 billion) fund to support American businesses and plans to hand out thousands of dollars to households around the country.

Read more about retrospective insurance

Rishi Sunak, the UK chancellor, has announced that the UK government will pay 80% of the wages of employees who would otherwise be made redundant, adding an estimated £78 billion to the measures he announced previously. In Germany, the cabinet is aiming to mobilise €500 billion (£463 billion) of state funds – 14% of GDP – to rescue companies hit by the outbreak.

These measures are welcome but imperfect. For example, the UK plan to pay workers’ wages will not cover enough company overheads to prevent a large number of bankruptcies and lay-offs. Besides this, the UK government is also considering bailing out certain struggling companies, such as IAG, the owner of British Airways. This raises the prospect that taxpayer money will again be used to bail out wealthy corporations while the little people are left with the crumbs from the table.

For the full article – by Professor Alistair Milne, visit: The Conversation.


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