Twenty twenty, who won’t be happy to see the back of this one? The world learned a few lessons that we are unlikely to forget for a long time. Here are a some of the major changes that are likely to remain with us.
The Return of the State Part 1
This was the year of the State. It revealed to us just how much power the State has at its disposal. It also showed how much State power is conditional on buy-in from citizens. On the upside, the fact that the State could close the society and the economy down was essential to preventing more deaths.
The downside of this is when the State involves itself in people’s lives to such an overwhelming extent, it might get a taste for this sort of behaviour. There are clear civil liberties implications from lockdowns and although it is easy to dismiss the concerns of civil libertarians in the middle of a crisis, there are undoubtedly legitimate concerns about the extent of state power, where it ends and where the rights of the individual to live their life as they choose starts.
Democracy is a fragile flower. It is a system of checks and balances, obligations and responsibilities, and it’s as much about limits of power as the extent of power. The year 2020 revealed just what our State can do when faced with a challenge. For the future, this is both impressive and slightly off-putting.
Return of the State Part 2
This time last year, had you suggested that the State would order large parts of the economy to close down and then be in the position to pay the wages of hundreds of thousands of workers who found themselves at home and out of work, most would have thought you fanciful.
Even in March, there were economists and commentators questioning the wisdom of Covid payments. Quite what they thought might happen on the streets had you laid off hundreds of thousands without recompense is another thing, but what the Covid payment revealed is the silliness of economic dogma around fiscal rules.
The State borrowed money at lower and lower rates, as the ECB opened up the monetary spigots.
The magic of the bond market
This was also the year of the bond market. This market allows countries to borrow long-term, borrowing from a better tomorrow to pay for a straitened today. The year 2020 revealed the power of State borrowing. Indeed, some European countries have shown Ireland the way by issuing 100-year bonds at very low maturities. We should follow suit.
There is regularly a bias against borrowing in economic discourse which tends to see borrowing and saving through an almost Victorian morality lens, in which the borrower is in some way delinquent and the saver somehow virtuous. However, this is a highly myopic view of what economists call “intertemporal exchange”.
Borrowing between generations or between decades is the basis for our modern economy and is one of the extraordinary powers of money. Money allows us to imagine a future, put a price on it and ultimately embolden the dreamers who want to do something today but are held back by something so trivial as a lack of disposable income.
This year proved that the State can create real money, by issuing an IOU with a payback date years in the future. This is kind of magical.
New thinking on money
Speaking of money, 2020 also shows us that money is simply made up by the central bank. There is no limit to this. The ECB dispensed with its old rules and dogma, and the whirr of the printing press is now audible in the capitals of the Euro area, meaning that any infrastructure project we want to finance can be financed.
Whatever impediment we have for upgrading our public infrastructure, money is now not one of them. Official interest rates are negative and this means that in effect, fiscal and monetary policy are now one.
Since the beginning of the pandemic, the central banks of the world have moved quickly, abandoning dogma and creating a whole new paradigm in euro zone macroeconomics.
The end of the nine-to-five office
One of the lasting legacies of Covid will be a profound change in the way we work. Zoom as much as the disease itself has changed the way we feel we should work forever.
We get change when technology and culture merge. Technology alone is not enough. Zoom-type technology existed before Covid but the lockdown gave it the cultural impetus to become acceptable.
Face-to-face meetings will now be unnecessary in the service sector. People will not go back to the office Monday to Friday, nine to five. That world now seems silly, unproductive and frankly very 20th century.
People will work a blended week, maybe a day or two in the office and the rest from home. The implication of this for rents in our cities, particularly Dublin is obvious.
Rents will fall, commercial real estate will weaken and almost everyone will gain. Rents and commercial real estate is a cost to business, so any fall in these should be welcomed. This might be the single biggest change to the way we work in a century.
New urban design
With the end of the office comes the end of the commute. There is now a real chance that cities will be re-imagined, away from commercial development to more and more residential. Already, we are seeing suburban towns and former commuter towns reporting significant rise in footfall. This will remain the case.
Former commuter towns will become residential as people refuse to commute and our former cities, once thought of as commercial, will become residential. In addition, the cultural and entertainment offering of cities will have to increase because online shopping has been the major beneficiary of Covid.
Retail rents will fall dramatically too, meaning that our main streets will become much more varied, much less uniform and retail will be turned into cafes, restaurants, bars, theatres, cultural centres, museums and oddly enough, schools, playgrounds and small parks.
With Britain out of the EU, Ireland must think seriously about how to choose its allies within the EU, what happens if or when Scotland becomes independent and what to do about the increasing likelihood of a new constitutional dispensation on this island.
In the same way as the third decade of the 20th century was convulsive for Ireland, the third decade of the 21st century may turn out to be equally challenging – and 2020 was the year it all kicked off.