There's nothing like a crisis to turn conventional wisdom on its head.
Now, almost six months into a global pandemic, policymakers and health experts are still grappling with the basics of how to contain the virus, let alone eradicate it, as fears continue to mount on how best to limit the economic fallout.
For most leaders, there is a clear and distinct trade-off between delivering current generations from a deadly disease and imposing a crippling debt burden on our youth and their offspring.
It's a terrible choice for which there is no right answer. While Prime Minister Scott Morrison has presided over one of the world's most successful containment programs, Treasurer Josh Frydenberg has fronted the biggest economic bailout in the nation's history.
Unlike the health component, however, the economic largesse has an end date: September 30. "Australians know there is no money tree at the end of the parliamentary garden," the Treasurer told the nation last week.
Except there is a growing body of thought that argues the Treasurer is wrong, that governments do have the ability to fund deficits forever and that it is wrong to raise debt to fund excess government spending.
The money, they argue, merely should be created by the central bank.
Sound outlandish? Maybe, but it is undeniable that everything we have come to accept about how our world is being managed is about to change.
Prepare for bigger government
Economics lies at the heart of almost every conflict in human history. The rise and fall of empires like Rome were driven by a thirst for wealth and power and the later abuse of both.
The Great Depression of the 1930s changed our world. It led to a disastrous global military conflagration and spurred a new way of thinking as to how to manage the economy. Austerity had made the crisis worse and in the aftermath of the war, UK economist John Maynard Keynes's thoughts that government should boost spending in tough times and reduce it during booms became the overarching philosophy in the developed world. By the 1970s, however, as inflation and unemployment soared — something that never was supposed to happen simultaneously — a new philosophy took hold.
Championed by American economist Milton Friedman, the economic mantra was all about small government, lower taxes, reduced spending, deregulation and privatisation.
The free market should determine our destiny, he argued, and any tinkering with the economy should be via interest rates and independent central banks such as our Reserve Bank. The wealth will trickle down.
That's been the dominant philosophy ever since. Until now.
The dirty little secret of central banks
You may not realise this, but for half a century now, our leaders have run Western economies based upon a nasty and inhumane principle. They've convinced themselves 5 per cent of the workforce always should remain unemployed and they've manoeuvred interest rates to ensure that's the case. Why, you ask? Well, because a jobless rate lower than 5 per cent would spark inflation. Or so they've believed. To make it sound more palatable and less cruel, they've condensed it down to an acronym called the NAIRU or the Non-Accelerating Inflationary Rate of Unemployment.
Rather than concern themselves about trying to have as many people gainfully employed as possible, they've focused on inflation and nothing but inflation as politicians regularly took aim at "lazy" welfare recipients.
The Reserve Bank of Australia (RBA) is an outlier in this regard. While most central banks concentrate only upon inflation, the RBA has a mandate to maintain "full" employment. But in reality keeping prices stable has been its primary aim and its definition of full employment has been, you guessed it, 5 per cent out of work.
The wheels began to fall off these theories, and global economic management, after the financial crisis in 2009. Interest rates were hacked to zero and, in some cases, into negative territory. We were assured businesses would take advantage of low rates to borrow and invest and hire workers.
Except it didn't happen. While corporate debt ballooned, most of the cash was handed back to shareholders. The cheap cash, instead, spawned a global stock market boom that accentuated and accelerated the widening gulf between rich and poor. Like shares, property prices skyrocketed.
At the same time, the austerity programs forced upon countries across Europe backfired. The recessions were prolonged, unemployment extended and suddenly, political upheaval spawned a rise of ultra-left and ultra-right-wing movements.
The jobless suddenly matter
Unemployment is now well above the NAIRU. Forget 5 per cent. For that matter, forget the 6.2 per cent the Australian Bureau of Statistics published last week.
This graph, from investment bank UBS, calculates an effective unemployment rate of almost 12 per cent if you take into account the fact that half a million Australians gave up looking for work altogether last month. And that 12 per cent doesn't include the 6 million Australians on the JobKeeper program.
And if you had any doubts about the speed and severity of the downturn, if you take employment as the primary measure of the state of the economy, this graph, again from UBS, highlights the extent of the monthly drop and just how far it exceeds anything we've seen in recent history.
Can the Government ever turn off the tap?
So what happens on September 30, when the Government winds back the support mechanisms, if the economy still hasn't recovered? It's the same day the banks turn off the loan support for around 424,000 customers.
Pressure will build on the Federal Government to continue the support given interest rates, now sitting just above zero, no longer can help.
The problem is, while the Morrison Government may have temporarily abandoned its decades-held belief in small government and spending restraint, it still clings doggedly to the principles.
That's when the pointy-headed debate among economists will ramp up.
The Monetarists — those who cling to the failed policies of the past 50 years — have already started to argue that central banks should throw caution aside and plunge deeply into negative interest rates to spur the recovery. US economist Kenneth Rogoff fired off the opening salvo last week.
Head of the US Federal Reserve Jerome Powell put that idea to the sword last week and our own Philip Lowe, the RBA chief, has vowed never to walk that path.
At the other extreme are those pushing what's known as "modern monetary theory". A government with its own central bank has the ability to create and spend as much money as it wants, they argue. Like Keynes, they argue government spending and taxation are the best tools to manage the economy. Unlike Keynes, they don't believe in balanced budgets over the longer term. Deficits don't matter.
The Keynesians will argue that withdrawing support would be catastrophic and the Government should continue spending and raising debt to cover the cost, to keep the nation on a fiscal lifeline.
Oddly, support for this course recently sprang from an unusual corner. Former prime minister Tony Abbott, the man who coined the term "debt and deficit disaster" as a hugely successful 2013 election meme, only to then blow the deficit out and almost double national debt, argued life should have greater purpose than mere economy.
Writing in The Australian, Mr Abbott said rather than withdrawing the payments, he'd rather turn them into a wage subsidy. Until a year ago, that kind of talk about a universal basic income was roundly dismissed.
"I'd make it about improving society rather than improving the budget," he wrote.
"Eventually the budget will improve because people will earn their pay [and won't need subsidies] and people will choose their job [and won't just stay where they were allocated]."
Few would have predicted just a few months ago that we would be in this predicament. Even fewer would have foreseen a Coalition Government closing the economy and plunging into debt to save jobs and keep the country afloat.
While the future remains uncertain, there seems little doubt COVID-19 has hastened a revolution in the way we think, live and manage our lives.
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