There are two problems when it comes to assessing the economic impact of the coronavirus. The first is that the word “recession”, in its ordinary usage, is good only for textbooks and not for practical policy-setting. And the second is that the crisis we’re facing is of such a nature, and magnitude, that regular words and concepts are of very little help.
About a month ago economists started telling us that South Africa was “on the verge of a recession”. What they meant by this was that we had experienced a full quarter of negative growth and that it was looking like the next three-month period would end with a similar result. In other words, come the end of March we will have experienced two consecutive quarters of decline in GDP and then we would be “officially in a recession”.
With all due respect, that framing is seriously daffy. You can see the value of the term for theorists looking at historical data, and patterns — but to trot it out in public, as a cause for current dismay, or concerted action, is profoundly unhelpful. The right time to tell us we have a problem is not after four or five months, but when that problem first arises — as it’s only on that basis that we can actually do something about it.
I appreciate that might be easier said than operationalised, but the way things are working at present I see no utility at all. “Be miserable people, you’re deep in a hole” is not the kind of guidance you want to hear from on high. Not ever.
So much for your common-or-garden recession. For the corona-based one we probably need a new word entirely, and certainly need a new conceptual framework.
We’re not talking, after all, about a cyclical or episodic fall-off in activity, we’re talking an actual cessation, enforced by government diktat, for an indeterminate length of time. The only obvious analogy is a war economy, which is, by its nature, one in which the ordinary rules of commerce are formally suspended. There are differences of course — confinement to home is not the same as conscription to the front — but what characterises both situations is the shared understanding that there is a greater good to which market forces have to yield.
Some activities have to be stopped altogether, while others might need to be ramped up considerably — and in that situation it is manifestly unfair, and untenable, to not ensure that the consequences (negative and positive) are equitably shared. If all restaurants have to close, for example, and plastic factories have to go into face mask manufacture, in overdrive, it makes no sense at all to allow the regular conventions of supply and demand to hold sway.
This crisis defies conventional treatment, not only on account of its unexpectedness and scale but also because, as is the case with war, we don’t know when or how it will end. The challenge here is immense and unprecedented — but then so is the opportunity. The system as such isn’t equal to the task — not the market and not the laws that undergird and legitimise it — and that makes this an ideal time to recalibrate the basic social contract. Nationally and internationally.
In looking for a new formula we could do worse than start with the richest man in the world, Bill Gates. No, not because his status gives him any special claim on our attention, but because a dispassionate examination of what he has done and said in his life provides a useful working template. Here’s my (necessarily abbreviated) summary. Numbered for ease of coherent pushback:
- Gates is a standout example of the combination of science and self-regard that defines modernity. The system, the enterprise-society framework, has profited him lavishly — inordinately — but it has also driven a breathtaking advance in terms of overall human flourishing. The Left rages today, rightly, about the billion-plus people who live in what we define as poverty, but they give too little credit to what has been achieved and too much credence to our better natures. There is still much wrong with the world, but it’s grossly dishonest, and destructive, to deny, first, that much progress has been made; second, that socialism has been tried and found wanting; and, third, that part of the problem is our seemingly incurable capacity for taking things for granted.
- Gates is willing to share, abundantly and systematically. My own view is that the rules of the game — the unstated rules of distributive justice — should not allow individuals to amass the kinds of fortunes that are characteristic of our era. I’m not sure how this is best achieved — there is plain value in having enterprising people continuing to do creative things, in all kinds of ways — but even as we strive to come up with a better blueprint, the Gates Foundation can serve as a model of thoughtful mitigation. Yes, it will rankle, for many, that he’s got so much money to begin with, but then again he didn’t inherit it, or accumulate it in a nefarious way, and the world (or its leading specie at any rate) is measurably better off than it would have been if he hadn’t been born, or done his thing. Ditto his fellow “filthy rich” types like JK Rowling, Leo Messi, “Bono” Hewson etc.
- Gates told us (in a 2015 Ted Talk) that the corona crisis was a near inevitability, and he will doubtless shortly tell us, if he hasn’t done so already, that we’ll be hit again, harder, before long. Covid-19 can be called a “black swan”, just, but the next one won’t be thus classifiable. We now know, for sure, that we’re facing two colossal challenges — both invisible and both potentially apocalyptic — and that means we have to find solutions that are, at once, ingenious, inclusive and involving. Fortunately, even in the darkness of this current crisis, there are some very encouraging signs. There are scientists coming up with brilliant new treatments and new ways of making things (ways that will mitigate if not reverse the degradation of the natural environment). And at the same time there is a rising groundswell of support for a new geo-economic order; one born of a recognition that we’re all in this together and that if we carry on consuming and producing (and reproducing) at current rates things are going to end very badly indeed. Here’s hoping that those who get to lead the rearrangement are pragmatic rationalists rather than sanctimonious Utopians.
- Gates gets luck. Listening to him talk it’s impossible not to get the sense that he’s dead smart and perfectly alive to the fact that not too much separates him from those in the dirt-poor places to which the Gates Foundation channels its money. He’s proud of what he’s achieved, to be sure, but I’ll wager half my annual income that he fully appreciates the import of the ultimate aphorism: “Love your neighbour; mind that she doesn’t suffer too much. Do it for the sake of your conscience but also the sake of your neck.”
- Gates was born into the era of gung-ho American capitalism. It was also though, paradoxically, the age when the top marginal tax rates were set at just over 90%. I’m not saying he’d favour a return to those levels today, especially given what a hash many governments have made in apportioning the revenues they get in, but I’m pretty confident that he gets the logic of welfarism and also, critically, of a (truly) universal basic income.
Orthodox economics doesn’t have the language for the situations we’re currently confronting, or for the quandaries they will shortly throw up. Even if the virus is eliminated fairly quickly, there will be tens of thousands of business casualties and tens of millions of layoffs, at least. There is no way that conservatives will be able to pin the blame on the victims themselves, and no easy way for the courts to fairly adjudicate the deluge of “force majeure” cases. If it goes on long enough there could even be mass insurrections — but the one inescapable outcome is a massive spike in all forms of debt. This is already being authored, in different forms in different jurisdictions, but no matter which forms it takes it cannot but involve a reckoning. Or, rather, a series of reckonings.
In the worst-case scenario, there will be whole towns, or even countries, facing mass immiseration, and it’s not clear that the IMF or the World Bank will have nearly the funds to offer them all the chance of redemption. Hopefully, though things won’t get quite so bad — and in that case, there will be an opportunity for an epoch-defining social compact. I’m not qualified to speak about the ideal mechanics — I’m not an economist — but I do have a pretty clear idea as to the policy essentials.
Crudely speaking, what needs to happen is that the really rich need to carry the costs, at all levels, in all domains. Not because they’re to blame for what’s happened, or because their wealth is ill-gotten, but because that’s what the logic of the situation dictates. The burden has to fall somewhere and it’s them — not working people, not the state, not future generations — who are optimally placed to bear it.
Here’s the moral arithmetic:
- The rich will still be rich afterwards, though less so than before;
- The (freeish enterprise) system itself will endure, with increased credibility and resilience;
- Those who are taxed in this way (ambiguity intended) will enjoy the profound satisfaction of knowing that they’ve made a significant positive impact on world history; and
- They could win the genuine and enduring gratitude of ordinary people (and, just possibly, a small segment of the progressive intelligentsia).
I’m good for 10% of my annual income. This year and next. You? DM
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