Mike Hosking: No need for coronavirus economic panic

Author
Mike Hosking,
Publish Date
Wed, 4 Mar 2020, 3:40PM
(Photo / AP)

Mike Hosking: No need for coronavirus economic panic

Author
Mike Hosking,
Publish Date
Wed, 4 Mar 2020, 3:40PM

The Chief Economist at Kiwibank sounds of a slightly nervous disposition. He wants the government to use its "huge war chest” to help our economy during the virus.  

He wants tax breaks, or as he put it, money. He wants the government to give us money.

Two things just initially. One, it's not wise to sound quite this nervous at this early stage. And two, the upside is, we are far from alone in this and as such, given it’s a global issue, there is nothing as powerful as self-interest to see us all through a crisis. I think ultimately it'll all work out fine.

The mad headlines still persist. One said the virus is spreading nine times faster outside China. That might be true, but only because within China the numbers have curtailed away dramatically. When you start with a tiny base, being able to spin a dramatic headline isn't hard.

There was also the article saying the human race isn't anything special therefore isn't immune to destruction. Good times.

If nothing else, we are learning some hard lessons about ourselves. The media have a lot to answer for, and too many fail miserably in their jobs and are in the business for the wrong reasons. There are no shortage of alarmists with fantastic conspiracy theories, and there are too many panicking who think bottled water is an answer to everything.

Back to the economist, when he says give us money, does he mean Hong Kong style? Just hand out cash and we all go shopping?

The problem for the government, of course, is they are limited.

Firstly, who do you help? And in what form? Welfare, obviously, if things get really ugly.

But do you help all businesses? And to what extent? Do they need to have a direct connection to China? Do you help a university with the ability to weather a storm versus a small time crayfish exporter who'll go to the wall?

And if you decide to help, what sort of help? Write their tax bill off? Is it retrospective? Or current? Or do you help them re-establish a market into next year? Do you keep advertising for Australians to come and holiday and if so, for how long? Do you give everyone tax cuts? And if you do, what if they don’t spend it?

The breadth of potential intervention is as long or as short as a bit of string, and is fraught with complexity. And that's before you get to the fact the money is coming from somewhere, and right now the government doesn’t have any. They're already borrowing, and as cheap as the interest rate may be, it's still someone else's money.

And if we are in the market along with every other country that’s failed to run a surplus, it’s a crowded field, so liquidity might become an issue. And we are to have to pay it back one day.

Unlike the Christchurch earthquake, we don't know how much of an emergency this is. The government then borrowed big because it could see what it needed, and what it was buying.

What's the formula this time?  My sense right here, right now, is for most, it's way too early. These are tough, uncertain days, but they're still early days.

Holding your nerve is a skill, hopefully not missing in this government.