China’s economy shrank 6.8% in the first quarter of 2020, official data shows, the first such decline since at least 1992, when Chinese publication of GDP records began. The historic slump in the world’s second largest economy has prompted the government to issue free shopping vouchers, in an attempt to incentivise consumer spending.
The state’s preference for vouchers in favour of cash speaks to officials’ concern about consumer priorities and attendant behaviour in a post lockdown environment, which might be analogised as Milton Friedman meets John Maynard Keynes.
Creating and distributing ‘free’ money, by helicopter or other means to revivify consumer demand, as propounded by Milton Freidman, can only achieve its desired effect if the impulse to save such additional funds can be overcome. The Covid 19 pandemic and concomitant global economic distress has focused individuals’ attention on the fragility of their financial arrangements, prompting significant shifts in attitude towards personal balance sheets. The necessity for a financial buffer to ensure economic survival has lead to an en masse pivot away from infinite consumption toward frugality and capital accumulation, manifesting Keynes’ ‘paradox of thrift’ (the rise in individuals’ savings concurrent across the population during recessions, leading to a fall in aggregate demand and a consequently deeper decline in economic growth). The issuance of vouchers to coax consumer spending demonstrates government apprehension in regards the velocity of money (the occasions an average unit of currency is used to purchase goods and services within a defined period of time).
Despite the easing of restrictions in China, the lack of pharmaceutical treatments or vaccine prophylaxis for novel Coronavirus has elicited a logical caution amongst the populace. Even free consumables offer few attractions if contracting a potentially deadly virus is the true price. A conundrum the entire world faces simultaneously.
Stephen Cherry. 4th May 2020.
BROAD SPECTRUM 