As the pandemic rolls on globally I expect the next few months will provoke a kind of public ‘blame game’ in which the lockdowns – and those who ordered them – are held responsible for a world economic crash.
What worries me is that the debate has been reduced to two positions: either there’s a lockdown and lives are saved, but the economy is ruined; OR there’s economic activity, a few people die, and everybody else gets on with making money.
Aside from the selfishness of putting one’s own money and comfort before human life it is, of course, a false dilemma fallacy: the reduction of an issue to an either-or position between two options, which are presented as the sole choices.
Actually, the situation is nowhere near as simple. Covid-19 is brand new. That puts it in sharp contrast with the flu, which is well known and where risks can be properly calculated. Even the range of Covid-19 symptoms and effects need time to be discovered. There’s growing evidence, now, that it causes organ damage, even in mild cases. One report I’ve read suggests that kidney failure, later, is a potential – and potentially common – downstream consequence. As yet, nobody knows. Given this learning curve, the advice from most medical authorities to be cautious – meaning lockdowns – seems sensible.
Put another way, economies recover. But you’re a long time dead. Which way do people want it? Oh, that’s right, the people wanting prosperity don’t think they’ll get the virus, or maybe it won’t be bad for them. Well, good luck to them.
In any case, it isn’t an either-or calculation. A crash was coming anyway for other reasons, as I’ll explain. The actual calculation is not economic prosperity versus a few dead: it’s choosing how large the pile of bodies is when the crash comes. In other words, a downturn is going to happen anyway. Why? Let me explain.
A temporary halt to an economy, an ‘exogenous shock’ in economic parlance – carries a swift recovery. However, that’s only true if there’s nothing else going on. And, unfortunately, there is.
First off, two generations of ‘globalisation’ and ‘outsourcing’ production to other countries has meant that supply chains and industrial production are closely interlinked. A country such as New Zealand – which locked down hard and has (so far) squashed the virus – was always going to suffer from this issue anyway, lockdown or not. In New Zealand’s case, the fact that a significant part of national income derives from tourism compounds the problem. But you can’t blame the government for closing the borders. Everybody else has too – the tourism industry was going to disappear no matter what the New Zealand government did.
There’s also a much deeper structural problem that’s been around a while and was going to hit us sooner or later, virus or not. A good deal of global prosperity in the past couple of decades has come through turning money, of itself, into a commodity. A vast range of terms have been invented to describe this ‘market’ and its transactions, in which even debts have been bought and sold. Of course it’s gossamer-fragile, reliant on skeins of transactions that depend on each other and on confidence that what’s being paid for the commoditised money is sustainable. If there is a hitch anywhere in the system, everything starts falling over.
This system – which has long entwined itself into the developed world via neo-liberal deregulation – has been ready to crack for a while. It was the cause of the GFC, a dozen years ago, at which point the world seemed headed for a second Great Depression. That was averted because one nation after another released ‘stimulus packages’ – in short, purchased their way out of it. But that didn’t fix the structural problems that had caused the issue in the first place, and there is only so far this issue could be kicked into the future.
What this means is that the V-shaped economic effect of a lockdown will likely turn into a more complex collapse for reasons that have less to do with Covid-19 and more to do with the structure of the world economic system. This was going to happen anyway: if the trigger wasn’t a pandemic it would have been something else – even a loss of confidence, which was part of the reason why the GFC happened back in 2007-10.
Of course, you can be sure the lockdowns will be blamed for the whole problem and the governments who imposed them duly punished. I find it extraordinary to think that, in return for actively caring for the lives and well-being of their people, governments around the world risk being voted out because they’re then blamed for an economic crisis that was on the cards anyway. But there you are.
Copyright © Matthew Wright 2020