In the present crisis precipitated by the Covid 19 virus there is an elephant in the room. It is a type of Utilitarian argument that the political considerations of the strategy that should be enacted – irrespective of the scientific advice – should be driven by the interests of the greatest number. In its harshest interpretation it would advocate continuing life as normal and accept that the sacrifice be borne by the oldest in society, who are most susceptible to the disease. Not only have they lived a full life in a time of unparalleled peace and prosperity, they are economically inactive for an increasingly long proportion of their lives with increasing longevity and, moreover, make a disproportionate claim on the health services. This is a harsh but non-trivial argument; the lockdown presently enacted across most of the developed world and the economic measures taken to mitigate the financial hardship potentially brought about by closing down almost all economic activity, will have a long-lasting impact particularly on the young, greater than the financial crisis of 2008 according to most analysts, with record levels of unemployment after the collapse of many businesses, and a deflationary cycle that will further depress supply and demand. Who can calculate the societal damage and even loss of life among people in their prime that this may cause?
The epidemiological case is clear cut, that for any population, for an epidemic of a novel virus to be brought under control herd immunity must be achieved, brought about either by major exposure to the disease or by immunisation. This means that when around 40% of the population have been exposed, survived and developed resistance, then the transmission rate falls below 1 and the disease is no longer epidemic, as those who have not been infected are far less likely to meet anyone who is currently infectious. The arguments in the scientific community with regard to Covid 19 are over the degree to which there has been widespread asymptomatic exposure, which might mean the fatality rate is much lower than the statistics for hospitalisation suggest, and whether exposure brings permanent resistance. Sweden is one of a few countries that is banking on the creation of natural herd immunity, while most countries are imposing draconian controls to slow the spread in the hope that a vaccination will be found. There is understandably concern that in following the example established in China, that we are seeing the end of free societies as we have known them, although I will offer an alternative interpretation.
Utilitarian arguments often play a part in political calculation. Politics is not fundamentally science-driven and many times it is not fiscally-driven either, although both these play a role in policy-making. But politics, as the saying goes, has to take into account the possible and what is likely to make the greatest number happy or, at least, the fewest unhappy. Almost always, though, political decisions reflect a deeper set of assumptions derived from fundamental values and worldview. There is always risk in political decision, no more so than at a time of crisis like this, when there is little precedent, imperfect knowledge, inadequate infrastructure and unknown outcomes. Unless they are pathological or dominated by ideology, leaders who have to make these decisions are very conscious of the risk, to their political futures to be sure, but also to their countries’ immediate and long-term futures. Here I think is the fundamental difference with the Chinese Communist Party, which has acted instinctively to protect its existing power and prestige. The leaders of the free world, by contrast, have gambled on the future and in the goodness, resilience and creativity of the people.
It is an extraordinary fact that the world economy for the past decade or more is resting on massive debt. Some have likened it to walking along a cliff edge: manageable as long as you don’t look down. The financial crisis of 2008 was caused by somebody looking down. The global economy is essentially free-floating, any attempt to anchor this to some standard, such as the price of gold, having been abandoned. A system called fiat currency operates in most countries, being based not on the supposed value of some commodity such as gold, silver or oil, but on the legitimacy and stability of the political system in that country. This has an advantage from the perspective of governments in that it allows them to borrow more than they hold in tangible assets such as gold, on the basis of goodwill. However, it means the economic system is susceptible to loss of trust. The financial markets chart what is essentially the levels of optimism and pessimism in the system. The injection of money into the economies of countries such as the UK, USA, France and Germany to tide over the businesses and citizen during this unprecedented economic closure take the levels of debt to new heights. The only foreseeable means repay this debt in the present economic paradigm is a generation of penury.
Today, at least until the present crisis wiped away almost all other considerations, one of the great preoccupations among economic theorists, was the expectation that AI (artificial intelligence) and the automation of many professions as well as manual jobs, would create a workless workforce and precipitate social turmoil. One can foresee the scenario in which the Coronavirus epidemic and the economic shutdown could prematurely bring this about. A common response to this scenario has been the advocacy of some form of Universal Basic Income (UBI), and some are seeing in the present fiscal stimulus its precursor. I have previously argued against the idea of UBI as one that removes the sense of worth we gain from earning a place in society, supporting a family and the causes we choose, saving for something special and supporting society in general through our taxes. I want to turn that around now and float a hypothesis that the basis of the economy moving into the future will be the value of the people themselves. There is a theoretical underpinning for such a hypothesis in institutional value theory and I believe that might it be being instrumentalised in the present crisis.
While one can argue the strategy that governments have chosen to pursue in limiting the impact of the virus, given that decision they have had little choice but to go the route of an extraordinary fiscal stimulus and, in the case of America, direct cash payments to citizens. The alternative could have been the widespread breakdown of social order. The hypothesis is that by choosing to suspend economic activity to protect the elderly and vulnerable, against the short and long-term economic interests of society, governments have implicitly instituted – whether knowingly or not – a new social contract with their people. Rather than viewing the people primarily as having potential or actual economic value, they are acknowledging that their lives are multi-dimensional and are constituted primarily in the relationships they have and the values they derive from them. The implicit assumption is that this will constitute the bedrock of the future economy. That is an enormous risk, although one could argue that that trust is already being validated by the enormous number of people volunteering to look after vulnerable neighbours and, in the UK, volunteering to work with the health services.
If this hypothesis is anywhere near correct, the global pandemic could be the catalyst for the often-touted end of capitalism, at least in the form we have seen until now. At root has to be a changed conception of citizens from being economic units to being valuable in a multi-dimensional sense and the wealth-generating standard on which the entire economy is based. Then rather than AI undermining the economic value of the workforce, it becomes the extension to their wealth-generating status and can unleash a new era of post-industrial creativity.