We are fooling ourselves if we believe government policy amidst this financial crisis means that there will be a new wave of funding for the projects and goals we want to promote. Recessions mean we do not just talk about hard choices; we actually have to make them. The main political challenge facing us looks likely to be high unemployment. With rising unemployment comes job insecurity, higher probability of family breakdown, risks to social cohesion and implications for equality. We have very little time to get this right.
Moreover, much unemployment will be in financial services and high skilled manufacturing. The new unemployed will have high expectations of the help and service they receive from our job centres. We must meet those expectations.
In the last two recessions, unemployment reached three million. It may well double this time around and so reach the same level. If one of the worst case scenarios occurs, it could rise further. This is because at present businesses are being starved of credit as a result of the worldwide collapse in financial confidence and overall demand is also affected.
We are taking action in government to address this issue and more radical action is likely in the months to come. The forecasts for government borrowing will rise further. The government is trying to both help get credit markets working again and stimulate the economy. However, as tackling unemployment becomes our main political goal, we may find that trying to boost overall demand in the economy is no guarantee that more jobs will be created. The last recession was different, but for a time there was talk of a ‘jobless recovery’. That could happen again.
Increasing government borrowing to boost overall demand (eg via tax cuts or more government spending) is probably not what Keynes would have focused on except in a depression. As Pavlina Tcherneva, of the Levy Economics Institute, has shown, a genuine Keynesian solution would focus on raising demand for jobs.
Government should become ‘employer of last resort’, just as the Bank of England is lender of last resort. Government could employ people directly through dedicated agencies, working for start-ups or voluntary sector projects. Incentive schemes to encourage employers could also be considered. As the economy picks up, it will become worthwhile for people to leave government employment for higher paid work.
In this way, people keep their skills fresh and add to their experience. New businesses that need usually expensive labour can afford it. The voluntary sector will receive help at a time when giving is under pressure. And the economy will receive a growth boost.