Financial_Times_Asia_-_April_6_2020

Monday 6 April 2020 ★ FINANCIAL TIMES 17

achieve the inflation target in the

medium term.

We also create reserves when we

undertake operations that are also tem-

porary but are designed to have an

impact on monetary conditions in the

medium term. Quantitative easing,

where the BoE buys bonds, is one exam-

ple. QE increases bond prices and there-

fore reduces yields, which in turn lowers

borrowing costs and support spending.

The crucial point is that the MPC

remains in full control of how and when

that expansion is ultimately unwound.

The goal is to ensure that borrowing

costs and spending are consistent with

achieving the inflation target. If the

recent expansion of bond buying

appears to threaten that goal, the MPC

can react.

The BoE will not hesitate to take all

necessary actions both to support Brit-

ish businesses and households through

this period of uncertainty and to ensure

inflation is consistent with the 2 per cent

target in the medium term.

The writer is Bank of England governor

aim of paying for the government

deficit, as under monetary financing.

They are a consequence of independent

central bank policy actions to deliver

monetary and financial stability.

In the UK, central bank reserves are

created as a consequence of two broad

categories of action.

The first type is when we undertake

liquidity provision operations which are

too short term to have an enduring

influence on monetary conditions, but

nonetheless have a short-term effect on

the money supply. Examples of these

include our recent provision of liquidity

to the banking sector and purchase of

commercial paper in the new Covid

Corporate Financing Facility.

The BoE also works with the Treasury

to support the orderly functioning of the

gilt and money markets. Short-term

operations play an important role in sta-

bilising market conditions and counter-

acting any immediate tightening of

monetary conditions.

These have only a very temporary

effect on monetary conditions and are

not primarily tools that can be used to

individually accountable to parliament.

Our framework also recognises that

the effects of monetary policy on the

real economy are ultimately temporary.

Monetary policy cannot increase output

above potential in the long term and any

systematic attempt to do so would raise

inflation expectations, threatening the 2

per cent target.

The MPC controls the level of bench-

mark interest rates and can vary the

quantity of central bank reserves. Cen-

tral bank reserves are interest-bearing

deposit accounts held at the BoE backed

by the central bank’s assets, mainly

gilts.

Some MPC actions result in the crea-

tion of central bank reserves. But these

reserves are not being created with the

undermine a central bank’s ability to

control monetary conditions over the

medium term. Using monetary financ-

ing would damage credibility on con-

trolling inflation by eroding operational

independence. It would also ultimately

result in an unsustainable central bank

balance sheet and is incompatible with

the pursuit of an inflation target by an

independent central bank.

But the UK’s institutional safeguards

rule out this approach. Britain benefits

from a strong institutional framework

that allows the government and BoE to

work together to provide economic sup-

port in ways that deliver longer-term

stability and control of inflation. In

monetary policy, that framework has

several important elements.

The law requires the MPC to deliver

price stability, which is defined through

an annual inflation target of 2 per cent.

The committee has a degree of flexibil-

ity in achieving this goal and must

explain itself if the target is not

achieved. The MPC has clear opera-

tional independence over how the infla-

tion target is achieved. Each member is

T

his is a time of great uncer-

tainty. The Bank of England

is doing all it can in this dif-

ficult environment to

reduce the disruptive con-

sequences for businesses and house-

holds and minimise longer-term dam-

age to the economy.

To that end, the Monetary Policy

Committee voted last month to increase

the bank’s bond holdings by £200bn to

support the needs of the British people.

Some external commentators are link-

ing this move to fears that it that it may

be using “monetary financing”, a per-

manent expansion of the central bank

balance sheet with the aim of funding

the government.

This type of reserve creation has been

linked in other countries to runaway

inflation. That is because it could

Bank of England is not doing ‘monetary financing’

Andrew

Bailey

Reserves are not being

created with the aim

of paying for the

government deficit

Opinion

H

igher status people are

healthier and live longer.

Yet the coronavirus pan-

demic looks like it delivers

an exception to the rule —

it is an equal opportunity infection that

does not pass over world leaders, senior

politicians and celebrities. As stock

markets tank, it hits wallets as well as

lungs.

Healthcare companies are working

hard to develop tests, deliver them for

free, and invest in the rapid develop-

ment of a vaccine. In the US, an outra-

geously expensive industry is showing a

kinder face. In the UK, an underfunded

National Health Service is struggling

with an onslaught of cases.

Perhaps Covid-19 will reverse the

rising inequality of recent decades. If so,

these effects of the virus are unlikely

to last. Historical evidence from earlier

epidemics shows that, in the early

stages, when diseases are new or poorly

understood, the rich and powerful are

not exempt. Over time, that changes.

In early modern England, plagues and

epidemic diseases were still a frequent

scourge. Life expectancy fluctuated

wildly, dipping sharply when smallpox

or plague swept through the country.

Life expectancy at birth was much the

same in 1800 as it had been in 1550.

For most of this time, the aristocracy

did no better; dukes and their families

lived about as long (or short) as their

tenants, labourers and servants. No one,

rich or poor, understood how to avoid

the plague nor how to protect them-

selves from smallpox.

A key change came with variolation —

an early form of protection against

smallpox — and later with vaccination.

Inoculation spread down the social

ranks, starting with the royal family. It

trickled down into the general popula-

tion much later and more slowly.

Dukes began living longer in the

second half of the 18th century, but

the modern increase in general long-

evity did not begin in earnest until

the 1850s. The rich and powerful did

better, once they figured out what to

do — or someone figured it out for them.

Since then, the better health of the

rich is documented in anecdotes and

in national data. The gravestones in

a Glasgow cemetery are bigger and

more ostentatious when the dates

show that the corpse reached old age.

In recent years, as national life expect-

ancy stagnated, mortality in England

rose in the more deprived areas of

the north and has fallen in the more

affluent south east.

Contemporary Americans in their

40s live more than 15 years longer if

their tax returns show an income in the

top 1 per cent compared with those in

the bottom 1 per cent.

Since the mid-1990s, the educational

gap in the age of death has widened.

What Anne Case and I have called

“deaths of despair” from suicide, drug

overdose and alcoholic liver disease rose

across the US from 65,000 in 1995 to

150,000 in 2018, abetted by the wide-

spread use and abuse of OxyContin and

other opioids. Almost all of the increase

has been among less-educated Ameri-

cans. A four-year college degree has

been a nearly infallible certificate of

exemption.

Over the same period, a sixfold

increase in share prices as measured by

the S&P 500 disproportionately bene-

fited wealthier Americans, who are

more likely to own equities, either

directly or through pension plans.

Meanwhile, average hourly earnings for

ordinary workers, adjusted for infla-

tion, are barely above 1970s levels.

Will the coronavirus pandemic

reverse these trends? The data are only

partially available. Testing in the US and

UK has been woefully inadequate.

Perhaps coronavirus today is like

smallpox or the bubonic plague in

Europe before those diseases were well

understood and treatable. This virus is

new, no one has immunity, and apart

from self-isolation, we are about as help-

less today as the Italian city of Pistoia

was in 1630-31, when it locked the gates

against the encroaching plague and

expelled foreigners. Of course, its mon-

eyed merchants still insisted on a tem-

porary opening to all comers to facilitate

the export of its wine. Some businesses

executives are pressing hard for an early

end to social distancing.

But 400 years have made a difference.

The coronavirus’s RNA was decoded

quickly — we will not have to wait centu-

ries for a vaccine or a treatment. Yet the

odds are that once we know how to con-

trol it, not everyone will benefit equally.

I am perhaps too cynical, but I suspect

that once the pandemic is over, US drug-

makers and hospitals will be more pow-

erful and wealthier than ever.

Perhaps not. If Americans are out-

raged by charges for treatment or by

preferential treatment for a few, they

may at last demand community control

over healthcare. In the UK, outrage over

the damage done to the NHS by years of

paring down services to boost efficiency

will make it harder to underfund the

service — at least for a while.

The writer, a Nobel laureate, is the author,

with Anne Case, of ‘Deaths of Despair and

the Future of Capitalism’

In history, plagues tended

to make societies more

fair but this pandemic

may be an exception

We may not all be equal in the eyes of coronavirus

business

Rana

Foroohar

Angus

Deaton

I

talian unification hero Giuseppe

Garibaldi is said to have declared

during the decisive battle at

Calatafimi: “Here we make Italy or

we die”. The current fight over how

the EU will pay to stop coronavirus can

be summed up as: “Here we make

Europe or Europe will die.”

The reason is simple. A nation is more

than a set of economic treaties: it is a set

of shared values and the promise to

stand alongside one another. Garibaldi

unified Italy politically, but the nation

was made in the trenches of the first

world war. On the slopes of Monte

Grappa and the banks of the Piave River,

there were no Sicilians, Milanese or Nea-

politans: they were Italians defending

their common soil and succeeding

against the odds. It is solidarity in the

worst moments that cements a nation.

A successful and long lasting union,

like the US, helps its members in need.

When New Orleans was hit by Hurri-

cane Katrina, the initial faltering

response horrified the nation. Congress

then sent $71bn in aid, equivalent to

more than a third of Louisiana’s gross

domestic product. It did not content

itself with waiving a balanced budget

clause and allowing the state to plunge

into debt. Other US states did not com-

plain Louisianans were lazy and corrupt

or wasted money on drinks and women,

as the former head of the eurogroup of

finance ministers, Jeroen Dijsselbloem,

infamously said of southern Europeans.

That $71bn was not charity, it was

solidarity based on a common sense of

nation. A recent paper shows that the

willingness of Americans to volunteer

in the second world war was directly

linked to the help their families received

during the Great Depression. John F

Kennedy could inspire Americans ask-

ing what they could do for their country,

because they knew well what their

country had done for them. But what

has the EU done for Europeans?

If you belong to the fortunate few, the

EU has been a fantastic deal. Your sav-

ings are secure in a sound currency, you

can travel without a passport, you can

even send your kids to some of the best

universities in the world at the low fees

offered to the locals. But what about the

workers of southern Europe, who have

no savings, who cannot afford to travel

abroad, whose kids barely finish high

school? What has the EU done for them?

At the moment, the EU is a little more

than a geographic expression with a

common central bank. A pan-European

national sense is so absent we could not

even agree on the heroes to put on our

banknotes. In the future, euro bills

might have a portrait of Mario Draghi,

former central bank governor. But cur-

rently these banknotes feature non-ex-

istent buildings: we could not even agree

which nations’ landmarks should be

represented.

Six years ago I begged Italy’s then-

prime minster Matteo Renzi to use his

huge political victory in the European

Parliamentary elections to push for an

EU-wide unemployment insurance pro-

gramme. Sharing the risk of idiosyn-

cratic shocks makes perfect economic

sense and is not the type of transfer jus-

tifiably feared by northern Europeans.

It also makes perfect political sense. The

unemployed who receive a cheque with

the EU symbol on it will start to appreci-

ate what the EU does for them. Unfortu-

nately, Mr Renzi did not pursue the idea.

Anti-EU sentiment only grew.

Jean Monnet, one of the EU’s founding

fathers, used to say: “Europe will be

forged in crises.” The pandemic is the

biggest crisis since the second world

war. If the EU is not forged now, it never

will be. The good news is we have started

to see some action. Brussels has pro-

posed a new short-time unemployment

insurance programme to help EU coun-

tries most affected by Covid-19. The bad

news is that it is not really insurance but

a loan, limited in quantity and scope.

The EU is playing with fire. It is

Europe’s last chance. Either the EU

shows itself willing to provide substan-

tial help to member states in trouble or

it has no reason to exist.

The writer is a professor at the University of

Chicago Booth School of Business

EU must forge

a national sense

in this crisis

or it will die

Luigi

Zingales

At the moment, the bloc

is little more than a

geographic expression with

a common central bank

municipalities to build their own sys-

tems, like the 1935 Rural Electrification

Administration programme that trans-

formed America’s heartland and

increased productivity for decades.

Costs should be shouldered by the pri-

vate sector too. Public debt may seem

not to matter now, but it will someday.

Facebook, Amazon, Apple, Netflix and

Google — the so-called “FAANG” com-

panies — are the heaviest generators of

internet traffic, and have far higher

profit margins than telecoms. Already

brimming with cash, they will emerge

from the crisis even richer and more

dominant than before.

If there was ever a time for a digital tax

on the data wealth that these companies

currently harvest for free, it’s now.

If we allow another financial crisis to

pass without forcing the richest compa-

nies to do their part for the national

interest — and that means more than

delivering toilet paper — we will see a

further erosion of trust in both the pub-

lic and private sector. That is something

that we truly cannot afford.

[email protected]

society functioning over the past few

weeks. Imagine if it went down the next

time around.

There are several challenges to

installing universal broadband in the

US. Coverage is currently provided via a

patchwork of local monopolies.

In addition, a dysfunctional political

economy is at work: state politicians in

hock to large companies can prevent cit-

ies or rural areas from accessing public

funds to hire competitors to build out

networks. In recent years, private com-

panies in the telecoms and tech sectors

have opted to do share buybacks rather

than invest in costly infrastructure.

But money shouldn’t be an issue here.

Even before the coronavirus crisis, the

Federal Communications Commission

had allocated $20bn to broadband

expansion, on top of hundreds of mil-

lions from the Department of Agricul-

ture. More cash will very likely be allot-

ted in a future stimulus bill. This could

be used to prompt telecoms providers to

keep workers on the job and employ

more to build new services and improve

existing ones.

Money could also be given to local

resilient kind of broadband connectiv-

ity, would focus on the kind of work that

can be done soonest in the midst of a

pandemic, namely large scale, pro-

tected, outdoor projects.

It could employ and deliver needed

services to some of the most vulnerable

Americans. Only about half of those

with incomes of $30,000 or less have

broadband at home. Nearly 68 per cent

of those live in rural areas. Others

include urban poor who can’t afford the

$72 national average cost for the inter-

net (it’s more than $100 in many cities).

Many people who cannot work from

home are falling into poverty, and chil-

dren who cannot access virtual curric-

ula are falling behind in school. This is

nothing less than a national security

issue. The internet is almost the only

thing that has kept the economy and

estate, and many parts of the travel and

tourism sector, won’t come back any-

time soon — if they come back at all.

These areas were among the strongest

job creators in recent years. In the last

US jobs report, issued before the virus

hit, restaurants were the second fastest

growing category. But now we’ve come

through a second record week of unem-

ployment claims, and Congress is busy

trying to craft yet another multitrillion

dollar stimulus package.

Legislators are rightly discussing sup-

port for everything from greener forms

of transport such as passenger rail, to

highway and bridge repair. As everyone

knows, America’s infrastructure is woe-

fully inadequate, and money for major

public spending programmes has never

been cheaper. But there’s also a case to

be made for a public works programme

that would make high-speed fixed

broadband an essential infrastructure,

just like water or electricity.

Let me be very clear: a major infra-

structure spending programme isn’t a

substitute for short-term emergency

aid. Millions of individuals and small

businesses will need debt write-offs

(and not just loans), as well as grants

and other cash infusions over the next

few weeks and months.

Even so, unemployment is likely to

remain elevated for a year or more, until

a vaccine can be developed and normal

travel and labour patterns resumed.

A broadband infrastructure pro-

gramme would kill several birds with

one stone.

For starters, a “big dig” to install

broadband fibre, the most robust and

A

lmost nothing is growing

these days, with one excep-

tion: internet use.

Over the past few weeks,

we’ve seen the sort of

uptick in broadband usage that you’d

expect to see over the course of years.

Italy, Spain and the UK have all had

high double-digit increases in traffic. In

the US, data usage via the cable com-

pany Comcast is up 32 per cent nation-

wide, and by over 60 per cent in locked-

down cities. Verizon had a 75 per cent

increase in gaming traffic in just one

week in mid-March.

No wonder network latency, or the

time it takes for data to travel, is a major

issue. New York, San Diego, San Jose and

Houston are all experiencing declines in

download speeds. Just try watching a

Netflix or Amazon video after dinner

and you’ll see what I mean.

With bricks and mortar businesses

closed, and ecommerce booming,

there’s little doubt that the transition to

a digital economy will be dramatically

sped up by coronavirus. The richest and

most powerful tech companies, from

Amazon to Google, will undoubtedly be

even stronger post-crisis than before.

Meanwhile, entire sectors of the econ-

omy, including retail, commercial real

The US needs

a broadband

big dig

The internet has almost

solely kept the economy

and society functioning.

Imagine if it went down

APRIL 6 2020 Section:Features Time: 5/4/2020 - 17: 25 User: nicola.davison Page Name: COMMENT USA, Part,Page,Edition: USA, 17, 1