The IMF Blames the Coronavirus for the Economic Crisis – Who Is Really to Blame?

The IMF presented the report World Economic Outlook for 2020. In a nutshell, its meaning boils down to the fact that the coronavirus epidemic has ruined the economy of the whole world, and the only hope for its salvation is a vaccine.

In the meantime, it is not ready, we need to increase social spending (so that not everyone dies of hunger) and for some reason invest in green energy – probably to breathe clean air before death.

What to do if there is no money for such investments? It is obvious – take out a loan from the IMF. It would seem: so why then analyse this report in detail? And afer that, first of all, the coronavirus is only an accelerator of the economic crisis, but not its cause at all, and secondly, the IMF experts do not claim that a catastrophe happened to everyone.

The world is falling, China is growing

The report is accompanied by a remarkable table with data on the growth/fall of GDP in the world’s largest economies in 2020. The forecast for 2021 is not very interesting, since it is based on the hope of defeating covid, i.e. it is more like a prayer than a scientific construction.

What do we see this year? The biggest drop is in “advanced economies” (it sounds as absurd as “advanced socialism”, but this is the IMF’s wording). The “developed” as a whole — 5.8%, and the “underdeveloped”, in the sense of “developing” – 3.3%. Spain (-12.8%) and Italy (-10.6%) are a disaster.

Given that the youth unemployment rate in Spain has reached 50% in recent years, the prospects for the population of this country with such a drop in GDP are dim. The siesta lasted longer than usual. Great Britain and France are not far behind (-9.8% for both), and this is no longer a romancero with castanets, but the locomotives of the European economy. The main Euro locomotive Germany in comparison with them still somehow holds, if, of course, this word can be called a drop of 6%. Horror in the recently rapidly developing India (-10.3%). Trouble in Mexico (-9%) and South Africa (-8%), however, there has been trouble for a long time.

Brazil sank by 5.8%, with far-right President Jair Bolsonaro telling everyone that socialists Lula da Silva and Dilma Rousseff were solely to blame for Brazil’s poverty. It’s unclear what might fall for the Middle East’s top democrats from Saudi Arabia, but oil sheikhs have lost 5.4% of GDP this year. Despite political differences, the US and Russia are close at their economic peak (-4.3% and -4.1%, respectively). But someone in the list of “minuses” is missing. Indeed, where is China? It managed to grow by 1.9%, even though its economy suffered a terrible fall during the severe coronavirus lockdown of the first half of the year. Of all the countries whose GDP changes were indicated by the IMF, this is the only country with growth.

It turns out that the most terrible forecasts have come true – the Chinese economy has finally surpassed the American one in terms of volume ($24.2 trillion against $20.8 trillion). This is not surprising, because China has become the first trading partner of almost all major countries in the world. Its GDP grew by 4.9% in the third quarter of 2020. It seems to be not so much compared to previous years, but, firstly, coronavirus, secondly, China no longer has a low base effect, and thirdly, all the others are falling. In addition, China’s industrial growth in September was 6.9%, which is quite comparable to the pre-crisis pace of 2019. The volume of exports also increased by 10%, i.e. China is capturing new markets, which means that someone is losing them. And this “someone” does not like this state of affairs. But what can be done if, according to forecasts, China will overtake the US this year in terms of spending on science and research/development? And this is not just a bell, but a tocsin in terms of the fact that the time is approaching when the armies of these countries will become technically comparable.

The IMF explains the rapid recovery from the crisis of the Chinese economy by refering to effective methods to combat the spread of coronavirus infection. If for the entire period of the pandemic in the US there were 8.3 million cases of infection (2.5% of the population), in Brazil – 5.3 million (2.4% of the population), in Russia – 1.5 million (1% of the population), and in Spain – 1 million (2.1%), then in China just 91,000 people, or 0,006% of the population, has caught it.

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However, IMF experts do not explain why China was able to implement these effective measures, and the leading “developed” and “developing” countries could not. Moreover, the IMF for some reason does not offer to use the Chinese experience to save the world economy. What does it propose?

The IMF frightens

In the short term (if the pandemic suddenly ends), experts predict a recovery of global GDP in 2021 at the level of 2019 with an almost imperceptible growth of 0.6%. At the same time, they expect an increase in the unemployment rate in all countries, regardless of the type of their economies. In the medium term, the growth rate will slow to 3.5%, which for people will mean a decrease in the average standard of living across the planet.

“The pandemic will reverse the progress made since the 1990s in reducing global poverty and increase inequality. This year, the incomes of nearly 90 million people could fall below the extreme poverty level of $1.90 a day,” the report said.

IMF experts predict an increase in accumulated public debt. This debt will only be compounded by a lower tax base due to falling production volumes. Countries will experience long-term damage due to “the depth of the recession and the need for structural changes, which will have a sustained impact on potential output”. In Russian, this means that companies will go bankrupt, monopolies will absorb small and medium-sized businesses, and crowds of people will lose any hope of finding work at all.

By the summer, unemployment in the world’s most powerful economy, the US, had jumped to almost 15%, and in some states (Nevada, Michigan, Hawaii) it exceeded 20%. The head of the US Federal Reserve, Jerome Powell, recently predicted that unemployment in the US could reach 30%. For comparison, the maximum unemployment rate during the great depression in 1932 reached 25.5%, and this was a disaster. So the true reasons for the BLM movement are hardly to be found in the murder of a particular black citizen.

And the IMF predicts a significant slowdown in scientific and technological progress.

But again, all these horrors can be even worse. “However, the risk of worse growth outcomes than projected remains sizable. If the virus resurges, progress on treatments and vaccines is slower than anticipated, or countries’ access to them remains unequal, economic activity could be lower than expected, with renewed social distancing and tighter lockdowns. Considering the severity of the recession and the possible withdrawal of emergency support in some countries, rising bankruptcies could compound job and income losses. Deteriorating financial sentiment could trigger a sudden stop in new lending (or failure to roll over existing debt) to vulnerable economies.”

It may be possible to introduce an effective vaccine in the relatively near future. However, one should definitely not expect “equal access” to it. So yes, the current economic crisis is likely to be worse than the previous one. Especially, as we understood, for the poor.

“Consequently, emerging market and developing economies, excluding China, are projected to incur a greater loss of output over 2020-21 relative to the pre-pandemic projected path when compared to advanced economies. These uneven recoveries significantly worsen the prospects for global convergence in income levels”. “Not only will the incidence of extreme poverty rise for the first time in over two decades, but inequality is set to increase because the crisis has disproportionately affected women, the informally employed, and those with relatively lower educational attainment.”

Can something be done about all this? The IMF believes that it is theoretically possible, and even lists its proposed measures in the section “economic policy priorities”. How realistic they are in the current economic system, judge for yourself.

1. Increase taxes and take out loans to finance the increase in potential output. These debts are supposed to be repaid by a future increase in the size of the economy and the growth of the tax base. In theory, yes, but in practice, who will buy manufactured goods during a crisis if the essence of the crisis is that people can’t buy what they have already produced?

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2. Invest in health, education, and highly productive infrastructure projects to reduce the economy’s dependence on carbon-based energy sources. This is great, but it is not clear how schools, hospitals, and roads can reduce their dependence on energy sources. It is logical to assume that it is the presence of such sources that allows you to maintain schools, hospitals, and roads.

3. Social payments to the most vulnerable groups of the population, who are more likely to spend their disposable income than wealthier citizens. I.e., they offer to give money to the poor, who will spend it on products produced in the implementation of #1. This is reasonable to a certain extent, but contradicts the basic neoliberal economic theory of the IMF. Is the IMF changing course to Keynesianism?

4. Poor countries should be given cheaper loans and debt restructuring. Here, the IMF is talking to itself, so let’s see what it actually does. However, he has no way out – without restructuring, payments will simply stop for lack of money. And here it will be possible to declare a default at least 10 times, money will not appear from this.

5. Accumulate funds for anti-crisis spending by “cutting wasteful and insufficiently targeted subsidies”. This clause, especially in Ukraine, must be read as the need to deprive part of the population of social benefits. This, of course, does not correlate with item 3.

6. Consider the possibility of increasing the progressiveness of taxation in relation to better-off and less affected by the crisis citizens, as well as changing corporate taxation so that companies pay taxes commensurate with their profitability. That would be very good, but the main question is who will consider this possibility. After all, the governments of the countries just consist of such “relatively wealthier citizens”.

7. Provide vocational retraining to enable workers to seek employment in other sectors. The laid-off workers will need expanded income support during the retraining and job search periods. Great, what sectors can they move into, especially in poor countries that live off one or two sectors? In the case of Ukraine, these are ore mining, metallurgy of the first processing and grain farming. There are not enough vacancies there.

8. Promote the redeployment of workers from sectors likely to face long-term reductions (travel) to growing sectors (e-commerce). And with whom to trade? Apparently, with those who will receive social benefits taken from loans and progressive taxation.

9. In order to preserve jobs, support viable but still vulnerable companies with a debt service moratorium and support in forms similar to equity. This is very interesting. This paragraph should be read as the salvation of bankrupt oligarchs through state investment in their enterprises. This is how Americans saved their banks after 2008. Keynesianism again as opposed to the neoliberal theory of the free market, but this is not the point, but that for such investments poor countries will have to fall into even greater debt bondage to the IMF.

Underconsumption or overproduction?

If we discard the purely propaganda points that sound like “take more loans from us”, the essence of anti-crisis measures boils down to the need to increase consumption, which, in turn, will launch production. This is the essence of the anti-crisis theory of John Maynard Keynes, who said that demand can be dispersed by increasing government spending and raising various payments to the population.

Sounds reasonable, but the problem is that these measures are just as market-based as the neoliberal ones. And it is precisely on Say’s law, which states that there is a buyer for each seller, which means that the economy always strives for a state of equilibrium and there can be no overproduction. If there were money, people would buy everything. However, in Das Kapital, Karl Marx clearly showed that the size of the mass of commodities in capitalist production is determined by the scale of production and the need for its constant expansion, and not at all by the balance of supply and demand, and certainly not by the needs of the population.

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In short, the capitalist produces for profit, not for the satisfaction of the consumer. Production expands as long as possible, and then the market overflows and paralysis sets in – nothing else is sold or bought. If the problem was only in “under-consumption”, everything could really be solved with so-called “helicopter money”. However, the fact is that crises begin just after a period when workers have a relatively large amount of money and due to the increased level of sales of their products, the capitalist “shares” with them a significant part of the profit.

“Such a period – from the point of view of these knights of common sense and ‘simple’ (!) human sense – should, on the contrary, postpone the crisis,” Marx writes.

So, the population has money, demand is high, and the crisis is still beginning. But the fact is that the worker always receives less value in the form of wages than he produces. The rest goes to the profit of the capitalist. But he, unlike the worker, does not spend all the money received on personal consumption (you can not simultaneously eat 10 meals, ride 15 yachts and live in 20 villas) and expand production. He puts some of it in a bank account as a treasure or puts it in a stock bubble. These funds are actually withdrawn from the real economy. I.e., a part of the goods produced, even if people have more money at a certain moment, or even less, there is always no one to buy.

This situation is temporarily smoothed out by wholesalers/distributors who buy goods from manufacturers and store them in warehouses, from where they gradually sell them at retail with their own mark-up. Everything goes well for a while, until the warehouses are full, and the manufacturer continues to produce, getting used to the fact that the wholesaler will buy everything from them. Once the warehouses are full, the prices of goods fall, the distributor is ruined, because he owes money to the manufacturer, and there is no place to take them. The manufacturer can’t produce any more, businesses stop, and laid-off workers are able to buy even less than before. The crisis that has begun is manifested not in a decrease in consumer demand as such, but in a reduction in the exchange of capital for capital, in stopping its reproduction.

Demand is not created out of thin air. You can print as much money as you want to distribute to the public. We can even hope that this will not cause hyperinflation if people buy manufactured goods with them. But where is the guarantee that they will buy it, and not put it in a pot? During the crisis, the poor will not start buying everything, but rather save a penny (which, however, will eat up inflation) for the future. Cultural factors also limit consumption. No matter how much money you print, you can’t make a Jew eat pork or a Muslim drink vodka. The situation with unemployment in the US and the most problematic countries in western Europe shows that there are no areas where you can quickly transfer a few million people who have lost their jobs. Dig and bury holes like under Roosevelt?

This is a myth, the US came out of the crisis thanks to the Second World War, and not labour armies and infrastructure projects. Raise taxes for the rich? But they are the ones who own the production facilities, and this will lead not so much to a redistribution of income (although to some extent), but to a continuation of the crisis in the industry. When the rate of profit decreases, they can either increase the exploitation of workers (the IMF asks them to reduce it, and where else to mock people), or close down (which only worsens the crisis), or fight with the same people for already divided markets. When states are involved in such a struggle, and they are necessarily involved in it, there is a non-zero probability of war.

Why is this not the case in China? The IMF only states this fact, but does not explain it. It is not really difficult to explain, but for such explanations in Ukraine, prison sentences have been given for several years.


Pavel Volkov

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