The rapid spread of COVID-19, or the coronavirus as it is commonly known, has heightened economic fears and anxiety around the world.
On Thursday March 12, US stock markets saw their biggest single day losses since Black Monday in 1987 and three days later the Federal Reserve announced that it would be cutting its benchmark interest rate to effectively zero and restarting its Quantitative Easing program. With businesses and whole cities shut down for the foreseeable future, a full-blown financial crisis is not out of the question and many analysts now see a recession later this year as an inevitability.
As was the case during the last major financial crisis 12 years ago, the Trump administration appears to be considering and readying a wide range of government interventions to prop up collapsing markets and failing industries. For instance, with eerie echoes of George W. Bush’s failed 2008 economic stimulus package (which included a tax rebate), President Trump initially suggested an stimulus package that includes a payroll tax break. Subsequently, an economic relief bill was negotiated between the Congress and the White House that includes unemployment insurance and virus testing, among other measures. Direct public bailouts for airlines, oil companies, banks, and other corporations hardest hit by COVID-19 appear to be all but certain if economic conditions continue to deteriorate. Already, many observers are expecting the administration to move quickly to bail out heavily indebted shale companies imperiled by the drop in oil prices.
Despite more than 10 years of reflection and analysis of the 2008 financial crisis, it appears that policymakers on both sides of the aisle have learned very little and are reaching for the same old playbook of corporate bailouts, messy backroom dealings, and asset price inflation. For instance, during a Democratic presidential primary debate on Sunday night, Joe Biden (who was as Senator during the 2008 crisis and Vice President in its immediate aftermath), stated that the 2008 bailout had been a success because the economy had been “saved” and the banks paid back the bailout funds with interest.
However, simply bailing out failing industries with no strings attached and restoring the status quo of an increasingly financialized form of crony corporate capitalism (where profits are privatized but risks socialized) isn’t the only option. During a time of crisis, government interventions backed with public funds could, and should, be used to assert more democratic control over economic decision-making and reshape economic approaches and institutions to respond to pressing public needs. As Dante Dallavalle and Christian Parenti recently put it, “the real economy needs help in the form of popular debt forgiveness, green public works, free higher education, and significant socialization of health care.”
In this case, any government interventions should be predicated upon making the urgently required transition to a post-fossil fuel economy and society. Rescued or subsidized institutions (especially oil companies, airlines, and the banks that finance them) should be put under public control as part of an emergency climate transition plan. Once in public control, these institutions should be wound down or converted in alignment with a green industrial strategy that breaks free from the extractive business model that continues to fuel climate catastrophe and keep the American economy hostage.
The lessons of 2008
When the financial system collapsed at the end of the 2000s, policymakers responded with an escalating series of public interventions. Between September 2007 and January 2008, the Fed slashed its federal funds rate five times (ultimately the rate reached near zero percent by the end of 2008). When this failed to arrest economic concerns, President Bush signed into law a stimulus package containing a tax rebate and the Federal Reserve began making more aggressive interventions into the financial markets (including purchasing toxic debt and bailing out the investment bank Bear Stearns). This was then followed with even more direct action including, ultimately, the nationalization and quasi-nationalization of several companies (including Fannie Mae, Freddie Mac, AIG, and General Motors), bailouts of hundreds of banks through the TARP program, and the injection of trillions of dollars of new money into financial markets through Quantitative Easing.
Despite the extensive nature of the government’s interventions, and the enormous public cost associated with them, very little was changed with regards to the structure and purpose of the country’s economic system. In fact, if anything, the episode further entrenched financialization, corporate power, and fossil-fuel dependence. For instance, many of the too-big-to-fail banks are now even bigger, and have, since 2016 (the year of the Paris climate agreement), poured well over US$500 billion into fossil fuel projects. Moreover, economic inequality has risen to levels not seen since the Gilded Age, the racial wealth gap is getting worse, and greenhouse gas emissions remain unacceptably high.
In 2008 and 2009, we missed a golden opportunity to reshape and restructure our economic system. Instead of supporting homeowners and working people who saw their jobs and life savings evaporate, the government bailed out the financial sector and their wealthy investors. Instead of using strong regulations to re-shape the financial sector for a generation (as President Roosevelt did with Glass-Steagall, which separated commercial and investment banking, and other legislation after the 1929 crash), the government passed a relatively weak financial reform law (Dodd-Frank) that made few, if any, structural changes to the sector. And instead of using public ownership of, and influence with, financial institutions to catalyze an energy transition, the government quickly turned control back over to the private sector and allowed them to get bigger and continue their risky, extractive, and speculative behavior.
We cannot afford to make the same mistakes again. With some of the key institutions responsible for the climate crisis struggling to keep their business afloat, now is the time to act decisively. From fires in California to flooding in the Midwest to COVID-19 itself, we are already starting to get a preview of how destabilizing and damaging climate change will be. What is more, as central banks across the world are becoming increasingly aware, the stranded assets of fossil fuel companies (those reserves that simply cannot be exploited if the world is to avoid catastrophic levels of warming) pose a massive financial risk to the world economy.
During this, or any future, economic crisis, public support and funding to stricken industries must be conditioned on public ownership and control within the overall perspective of a Green New Deal and a just transition for workers and communities affected by the required shifts to renewable energy and less carbon intensive modes of transportation and production. This means not simply injecting public money into banks, oil and gas companies, and airlines in order to stabilize and resurrect their existing business so they can continue financing, extracting, and burning fossil fuels at a pace that will blow our chances of keeping temperature increases below 2 degrees Celsius by 2036. Instead, government interventions should ensure that such businesses are resolved or transitioned in an orderly fashion based on the imperative of rapidly reducing greenhouse gas emissions and resource intensity, along with mitigating the impacts on frontline groups, displaced workers, and disenfranchised communities.
Equally important, once public control has been extended over these companies and sectors, and corporate power displaced, we should ensure that those most impacted are at the forefront of the decision-making processes around transition and conversion strategies. This approach centers the knowledge and experience of workers and local communities and is the mirror opposite of the last-minute layoffs, facility closures, and evisceration of pension and healthcare obligations that occur when the private sector decides to restructure. After all, to overcome the climate crisis we need to transition as fast and as equitably as possible, and that means leaving no worker or community behind.
For decades there has been intense discussion and speculation about what the tipping points would be that trigger the transformative changes in our environmental, economic, and social systems to ensure the continued flourishing of human civilization in the long term. Perhaps one of those moments is unfolding before our eyes as COVID-19 threatens economic stability across the globe. Confronted consciously and strategically, this crisis could become an opportunity to break out from our carbon-dependent economy and create the pillars of an economic system focused on a vision of long-term sustainability and shared prosperity for generations to come.