• Privacy policy
  • T&C’s
  • About Us
    • FAQ
  • Contact us
  • Guest Content
  • TLE
  • News
  • Politics
  • Opinion
    • Elevenses
  • Business
  • Food
  • Travel
  • Property
  • JOBS
  • All
    • All Entertainment
    • Film
    • Sport
    • Tech/Auto
    • Lifestyle
    • Lottery Results
      • Lotto
      • Set For Life
      • Thunderball
      • EuroMillions
No Result
View All Result
The London Economic
SUPPORT THE LONDON ECONOMIC
NEWSLETTER
The London Economic
No Result
View All Result
Home Business and Economics

The Chancellor has picked the wrong moral hazard

Rishi Sunak has two competing moral and economic issues at play, but has he picked a fight with the wrong one?

David Sefton by David Sefton
2020-04-29 19:36
in Business and Economics
FacebookTwitterLinkedinEmailWhatsapp

There is a creeping suspicion that the Chancellor may have waged war with the wrong moral hazard in his bid to keep the economy afloat during these turbulent times.

Murmurings amongst the Tory ranks has led him to adopt the stance that he should not be wasting taxpayer money on propping up bad businesses.

At the weekend he explained that this was an important factor behind the structure of the government’s schemes: “We should not ask the ordinary taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses that in some cases may have very little prospect of paying the loans back, and not necessarily because of the impact of the coronavirus”.

His view is supported by most Tory MPs, but are they right?

Two competing moral issues

In fact there are two competing and incompatible moral and economic issues at play here:

First, is the one expressed by Sunak, namely that the government should not overrule the market by propping up failing companies. 

There are obvious practical objections in being guided by this policy at the moment. 

All businesses are reeling from an unprecedented and unexpected economic collapse, with Office for Budget Responsibility, the UK’s spending watchdog, which said that GDP would fall by 35 per cent in the second quarter. 

The contraction also includes structural dislocation as some sectors are affected more by the lockdown and will continue to be affected by social distancing even when the lockdown can be eased. 

RelatedPosts

Trump unveils $499 gold mobile phones for ‘real Americans’

No ‘millionaire exodus’ as a result of Labour policies, study finds

Shops could be forced to accept cash in future

Liverpool to introduce tourist tax from June

In this situation, how does anyone tell what is a deserving small business and which should go to the wall?  It is an impossible task.

Preserving the economy and people’s livelihoods

But more fundamentally, there is a contrary moral and economic imperative at work here, which is to preserve the economy and people’s livelihoods. 

To do so has intrinsic worth, but is also critical to how quickly and successfully the economy can recover.

As explained in an earlier article here, every business that closes has a wider effect on the economy as suppliers lose demand and workers become benefit claimants. 

This death spiral effect will be the cause of much suffering and regret if we allow it to take hold. 

Therefore, on this imperative, the government should do as much as it can to enable all firms (“good” or “bad”) to survive until such time as normality resumes and the market can once again decide.

Further, in normal circumstances, when a business fails, the employees look for new jobs or start new businesses and the suppliers look for new customers.  Patently that is much more difficult to do at the moment, hence another reason not to allow companies to fail.

Do not allow companies to fail

So, if there are competing imperatives, which is the more important?

It is obvious: due to (important and correct) government restrictions and policies the macro-market of the economy is not functioning in a normal manner, and so jobs and businesses must be preserved.  If the price of this is that the odd “bad” company buys a few extra months of survival then so be it. 

Better that, and a stronger economic future for the country, than thousands of businesses and millions of workers are sacrificed on the altar of an over-rigid market theology.

Related: These are the companies profiting from the COVID economic collapse

Tags: headline
Please login to join discussion

Subscribe to our Newsletter

View our  Privacy Policy and Terms & Conditions

About Us

TheLondonEconomic.com – Open, accessible and accountable news, sport, culture and lifestyle.

Read more

SUPPORT

We do not charge or put articles behind a paywall. If you can, please show your appreciation for our free content by donating whatever you think is fair to help keep TLE growing and support real, independent, investigative journalism.

DONATE & SUPPORT

Contact

Editorial enquiries, please contact: [email protected]

Commercial enquiries, please contact: [email protected]

Address

The London Economic Newspaper Limited t/a TLE
Company number 09221879
International House,
24 Holborn Viaduct,
London EC1A 2BN,
United Kingdom

© The London Economic Newspaper Limited t/a TLE thelondoneconomic.com - All Rights Reserved. Privacy

No Result
View All Result
  • Home
  • News
  • Politics
  • Lottery Results
    • Lotto
    • Set For Life
    • Thunderball
    • EuroMillions
  • Business
  • Sport
  • Entertainment
  • Lifestyle
  • Food
  • Travel
  • JOBS
  • More…
    • Elevenses
    • Opinion
    • Property
    • Tech & Auto
  • About Us
    • Privacy policy
  • Contact us

© The London Economic Newspaper Limited t/a TLE thelondoneconomic.com - All Rights Reserved. Privacy

← WHO puts global networks on alert over rare illness in children ← Trump sets out to do the impossible
No Result
View All Result
  • Home
  • News
  • Politics
  • Lottery Results
    • Lotto
    • Set For Life
    • Thunderball
    • EuroMillions
  • Business
  • Sport
  • Entertainment
  • Lifestyle
  • Food
  • Travel
  • JOBS
  • More…
    • Elevenses
    • Opinion
    • Property
    • Tech & Auto
  • About Us
    • Privacy policy
  • Contact us

© The London Economic Newspaper Limited t/a TLE thelondoneconomic.com - All Rights Reserved. Privacy

-->