After Covid-19 – humanity at the crossroads

One of the ironies of the past few months, for me at least, has been the way most western governments have – after two generations of hands-off, market-driven neo-liberal indifference at the plight of the people – suddenly ‘switched on’ old-style Keynesian support systems. The fiscal faucets have opened, and money is pouring into the economies of nations that, one after another, have been forced to lock down their populations against the pandemic.

I confess that after two generations of neo-liberalism, I am cynical about the motives. It is just possible that governments around the world have genuine care for the people in their policy-making. I can think of one that does. But for the rest – well, I doubt it. I suspect the main reason why one government after another has been forced to engage in support packages despite still, for the most part, having an ideological foundation in hands-off neo-liberalism, is that failure to support the people will, ultimately, also damage the big businesses to which most governments pander.

In a sense, this sudden burst of government largesse – ‘crisis capitalism’ – is explicable in those terms. Fiscal spending can, to some extent, ward off economic downturns and keep corporates profitable, by supporting economic activity among the population.

The question is whether a ‘let’s fix this and get back to business as usual’ approach is actually the way ahead? Two generations of neo-liberalism haven’t produced wealth and prosperity for all. It has served, instead, to enrich a very few, to fuel the growth of mega-corporates, and to disempower those without money. It has also promoted a culture of consumption, driven by the concept of limitless expansion, that seems out of place on a planet with clearly limited resources. Nor is it the ‘level playing’ field imagined. An unbridled ‘market’ – meaning the net sum of many individual behavours – reflects human nature in specific ways and, as we have seen of late, can too easily become unbalanced. This has happened before, of course, when capitalism in its current form first emerged from the late eighteenth century. There are reasons why the nineteenth century was called the ‘age of revolution’, and why twentieth century regulations existed.

Of course none of these issues have been produced by the Covid-19 crisis: the issue with neo-liberalism being an unsustainable approach that has apparently reached the end-point has been around for years – ever since the General Financial Crisis (GFC) showed up the hollowness of the concept. Much of the prosperity of recent years has rested not on real productivity, but on systems that emerged with the lifting of regulation, which allowed unbridled lending. The money created by these loans, which are made to people who (usually) can’t pay them back, was used to buy fixed assets such as houses – on mortgage – along with consumer products, and so found its way into the pockets of the large corporates and their shareholders.

Such an edifice is, of course, a house of cards. It’s already collapsed once, during the GFC. Now it risks collapsing again if anything disrupts the cash-flows on which it rests. And, of course, the virus lock-downs are that disruptor. Big time. An analysis I saw by Goldman Sachs indicated that the US economy might suffer a 24 percent decline in GDP during the second quarter of 2020 alone – noting that there are some months’ lag in the system.

Giving that a bit of historical perspective, remember the Great Depression of the 1930s – the economic bogey-man that was remembered by two generations as a horror time of poverty, hunger and hopelessness? In the US, it began with an 8.5 percent decline in US GDP across fiscal year 1930. That was enough  And it’s around a third of what is now forecast for second-quarter 2020 alone. The New Zealand case, which I looked into for a historical paper on the Great Depression that I wrote back in 2009, showed similar figures.

Now, to be fair, this the lock-down hit is what’s known as an exogenous shock – that is, something outside the economy. It is going to be relatively transient. Whereas the Great Depression of the 1930s was a structural outcome of longer-term trends at that time. I won’t explain that here – I did in that economic history paper, go check it out – click here for the PDF.

Nonetheless, the lock-downs are still an economic sucker-punch against economies that float on complex and gossamer-fragile skeins of debt, conceptual ‘money products’, and belief in value by ‘market traders’ whose actual behaviour is similar to that of reef fish, starting at shadows. The edifice is largely supported by cash-flows from the employed. Now, I’ve seen arguments suggesting that the cost of a shut-down isn’t worth the damage the loss of cash flows would do. In Britain, early arguments proposed letting the disease rip; and Sweden has gambled that their society can apply proper self-discipline and contain the pandemic without locking down. However, to me all this is specious. We’ve become too accustomed to reducing human life to monetary terms, which has been one of the cornerstones of the extreme neo-liberal corner into which the world has currently backed itself.

Actually, what financial price can you really put on human life and well-being? This is something that transcends money, that transcends profit-margins, that transcends stock prices. A lock-down will save lives. The end. That makes it a no-brainer. Furthermore, the counter-factual modelling that I’ve seen suggests that an uncontrolled pandemic outbreak would actually cause more – and longer-lasting – damage to an economy than a preventative lockdown.

The issue is what next? Back in the fourteenth century, the Black Death provoked a major socio-economic system-change across Europe. Old-style feudalism, basically, ended on the back of it because the loss of population (about a third) gave the surviving peasantry increased negotiating power. Covid-19 won’t provoke such a death toll, but of course the modern economy is far more fragile. So what will happen now when the lock-downs end, when the pandemic subsides, and when people start looking to the future? As I see it, there are three ways ahead:

  1. Allow Atlas to shrug. Let the Second Great Depression happen without taking any action and carry on with neo-liberal globalism. Let the rich continue siphoning money off a poor who are now utterly impoverished, hungry and devastated.
  2. Engage in a mix-and-match outcome in which governments pour money back into their economies (which, arguably, might provoke fixed-asset inflation, such as housing), but retain neo-liberal systems otherwise.
  3. Take the opportunity to pause, think, and develop a balanced form of capitalism that moves well clear of neo-liberal excesses; that supports those whose misfortune is no fault of their own; that is long-term sustainable; that has enough controls in place to curb extremes; and which also nurtures and rewards enterprise and individual effort.

Now, it seems to me that (1) would provoke uprisings; while (2) is where various governments around the world have already gone, including by effectively nationalising the bond markets (ie: by having central banks buy up the debts raised to provide the support money). Some governments have been leaning towards (3), but haven’t been able to lean far because, after two generations, extreme neo-liberalism has gained a significant voice.

Will any of this happen? Will other options be pursued? I don’t know. Humanity stands at the crossroads – this is obvious. And I hope that governments around the world show themselves able to make useful choices. Ultimately, economies are not about money; they are all about people.

Thoughts?

Copyright © Matthew Wright 2020


23 thoughts on “After Covid-19 – humanity at the crossroads

    1. Thanks Ron – glad you liked the article. I’m putting my thoughts together to extend it – possibly a book, though who knows where the publishing world will be in a few years? We’ll see.

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  1. A beautifully written assessment but I am surprised that one possible future has been omitted. The fourth way, I might even call the Fourth Reich, is the fascist control by the group of industrialists who seem to already have total control over the so called democratic governments. This allows them to go on exploiting the working class as never before. With the added measure of the electronic neuro-mesh being installed world wide using 5G techniques, they have a world sized brain that gathers every detail and disseminates orders. In fact this present exercise in control shows that it will succeed.

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  2. Reblogged this on Musings and Wonderings and commented:
    Thanks for a well written article and I would like to believe we are on the cusp of something better, more egalitarian and fairer to all. However, my pessimistic side kicks in here when I read about the current bonuses being paid to executives while employees are being laid off with little if any benefits from the company. Then it appears our government is willing to assist those same companies to keep them in business? I fully believe executives should be the first to feel the pain plus any compensation to Board members in these circumstances should be curtailed. Just wonder if any government anywhere even considers such an option? I do believe it is time for a huge economic shift as the inequalities currently existing need to be erased.

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    1. I have to say I agree: I think neo-liberalism has reached its use-by date. The end-game of a process that shifted wealth from the poor to the rich always was going to come sooner or later. It’s happened before: it’s why mid-nineteenth century Europe fell over. The problem, as always, is that such systems have significant momentum. On the other hand, I think change will eventually come if for no better reason than that generational shifts always infuse new approaches, sooner or later, and society alters its views organically.

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    1. Thanks. I hope so too. I know that current economic teaching basically focuses on the fact that economies are, indeed, human constructs. It’s a major shift away from the way the field was taught in the 1980s, and a good thing too.

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  3. In England, our extreme right Tory government has suddenly adopted socialist practices. The NHS has been devastated by a decade of austerity the Tories initiated, but now they’re suddenly championing the staff and making them our as heroes. Our PM was in intensive care, until the other night, with coronavirus.

    Meanwhile, the homelessness crisis (caused by austerity and the housing crisis) has suddenly been approached by the Tories. The homeless have been found accommodation and are indoors and safe. Whereas previously they just ignored the issue.

    And furlough is supported by government support wages and other initiatives. For the first time in a decade, the Tories look like they give a toss about sects of society other than the superior rich people.

    But I think we’ll come out of it and they’ll use the handling of cornonavirus (which was badly delayed here, and has not been handled at all well) as propaganda. And the tabloids will just peddle the Tories as heroes of the nation. And the tabloid readers will lap it up, as always. A read of The Sun here is like looking at Nazi propaganda.

    Very odd times. I just hope something positive comes out of it. Perhaps a few more people will learn to realise that vast wealth and mindless individualism really isn’t the way forward.

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    1. I fear that the momentum of the past two generations will take a while to dissipate. The wheels fell off with the GFC, back in 2007-10, but the neo-liberal edifice has been skidding along the road anyway and becoming more extreme as it does so. That drift of normal – the way that an extreme is reached, normalised, and then another extreme found – to me usually betrays an ideology that has hit ‘use by’ date. What I hope is that things aren’t too badly broken when it finally bursts, as history tells me it will.

      I have to say that I am quite glad I am not in Britain just now. (My family, by and large, were Londoners and from Kent – emigrated to NZ directly after the First World War, so I suppose I could thank the Kaiser for my being in NZ…) It intrigues me that the two original doyens of neo-liberalism – Britain and the US – apparently remain the most unrepentant advocates of it. And that, I fear, will also be shown up by the pandemic, tragically. I think NZ only just dodged that bullet: successive governments here, since 1984, have been just as bad and it was only the coalition that came to power in 2017 that has really started to shift things. Even then, they’re prisoners of the electoral cycle and the necessary steps towards a different approach – small, halting just now – could so easily be undone.

      Mars starts to look like quite a good place to be just now, I suspect.

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      1. From what I’ve read here, the NZ leadership has gone well with the coronavirus issue.

        As for England, well. Sums up Tory rule over the last 10 years. So it wasn’t a big surprise.

        I’m not sure if I’d want to be in the US just because of the healthcare issues. But otherwise, there are liberal states to go to. And avoid the worst of Trump’s oddness. I think it’s pretty obvious he has a narcissistic personality disorder. But his behaviour always amazes me.

        I’d be up for Mars. Or Jupiter.

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  4. Thanks, Matthew. Great analysis. All we can do is support movements towards your third option, and attempt to overcome the interia that will inevitably try to track back to business as usual. Courage, mon ami! The Berlin wall did fall.
    Will reblog. Deserves wider circulation.

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    1. Thanks for the reblog! I certainly hope that, at the very least, the current situation will force world governments to step back and review their approaches. Maybe even soften them or change them. We’ll see, I guess. First step is to get through the immediate crisis, which will be difficult enough.

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  5. Powerful analysis, Matthew. I’ve got fingers and toes crossed for option 3 but…I fear the effects of cultural inertia and our nostalgia for pre-pandemic times. I fear we’ll forget the downward trajectory we were on and remember only the Apple iPhones and all the other goodies we used to have. And I fear that corporations won’t give up their power without a fight. -sigh- I fear that in many parts of the world, we’ll slowly slide into option 1. I hope I’m wrong.

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    1. I have to agree: I think option 1 is where the world will go in the immediate, purely because of the scale of inertia of the system. Still, on the plus side, the last major paradigm shift was the First World War, which destroyed the ‘old order’. And it took until around 1945 for things to really shake down after that. So, fingers crossed, a generation will probably see things settle out. The problem is living through the period until then. Sigh…

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      1. -nods- A generation. We’ll be ancient, if we’re lucky, and our kids will be ‘getting on’. Let’s just hope that Climate Change gets sorted at the same time. At least we’ll have accomplished something. Gawd…so depressing.

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  6. Reblogged this on I can't believe it! and commented:
    Following covid-19 humanity has critical choices to make. A return to ‘business as usual’ does not seem to be a viable option to those of us who despair at the effects it was having – environmental, political and social. Matthew Wright gives here a great outline of the options facing us. Obviously, his third option is the only way to go.

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    1. Thanks for the repost. Yes, Option 3 is the way – the issue I guess will be whether anybody does so, and precisely how such an option might shape up. Societies, in any practical sense, tend to be messy.

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  7. Oh god, excellent article. Personally I doubt that any sort of capitalism would make for a happy, just world of plenty for all but I regret to say I have no alternative to propose. Personally, like Atlas, I have shrugged and retreated into my shell. And hope that Julian of Norwich was right.

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  8. Matthew I agree that the third option is the key to the best outcome for everyone. Humanity has far too long taken a back seat to monetary excesses. I also agree that we are definitely at a crossroads, it is time to put people first and turn our focus into finding ways to support the whole of humanity not just the greedy that are always benefiting from situations such as this.

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