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Getting the economy wrong

The defining characteristic of the neoliberal global economy is that nobody is in charge.  Decades of deregulation in the years since Margaret Thatcher and Ronald Reagan came to power has resulted in a state of “depolitisisation,” in which governments have retreated from activities deemed to interfere with “the market.”  Even the creation of currency – a privilege that states have reserved to themselves down the ages – has been privatised and handed to commercial banks… a major cause of the financial meltdown in 2008.

Depoliticisation was a based on a myth – the erroneous idea that “the economy” is some distant, cloud-shrouded land where people like Rishi Sunak, Andrew Bailey, Christine LaGarde and Jerome Powell live.  We mere mortals are assumed to live somewhere else.  And in matters economic as in matters spiritual, we little people are assumed to require a priesthood of neoclassical economists to translate the econometric commandments handed down from on high.

The reality, of course, is that the economy is everything that we do.  Even such basic activities as eating and sleeping involve mind-numbingly complex webs of economic transactions.  The place where (street sleepers excepted) you sleep had to be bought or rented.  The transfer of money from buyer to seller or from tenant to landlord had to be facilitated by a bank or building society which, in turn, had to be connected into the national and international central banking system.  The bed that you sleep on was made somewhere else; quite possibly in an entirely different country.  Getting it from the manufacturer to your home depended upon an international transportation network of aeroplanes, ships, trucks, trains and vans.  Even this does not tell the whole story, since the bed maker had to call on the same transport system to bring together the various component parts and raw materials required to manufacture a bed.  If your bed frame is wooden, then in part it depended upon an increasingly international timber industry; if metal, then the global metal industry.  The sheets, blankets, duvets, etc. which keep you warm at night are the product of similar processes, as is the bedside lamp, the alarm clock, the curtains, windows, wardrobes, etc.

For better or worse, just about everything we do in the developed western states depends upon these complex webs and supply chains; even though we are blissfully unaware of them most of the time.  Only when the system is shaken by a major event like a war, financial crash or pandemic do we begin to understand just how much complexity our lives depend upon.  This is because complexity and vulnerability co-exist on the opposite end of a pole to simplicity and resilience.  In a simple system, things are either done locally or they are not done at all.  There are few specialisms.  Each person can be redeployed to any of the jobs which need doing.  And redundancy is built-in.  For example, several crops might be grown – some for warm and dry weather, others for cold and wet weather – to ensure a sufficient harvest irrespective of the weather.   The trouble is that this is an inefficient and expensive way of doing things.  It is always more efficient to specialise in one thing and then trade with someone else for the things which are lacking.  And in the course of the last half century, we have taken this to extremes by creating a truly global network of specialisations and web of trade that all operates on a just-in-time basis.

Crucially, complexity is a one-way game.  Physicist David Korowicz explains it this way: imagine that all of the computer chips manufactured in the last ten years had a design fault which caused them all to fail.  The result would not be a return to the economy of 2010.  Rather, such an event would trigger a cascading collapse in which every process that depended upon computers to operate would fail.  Indeed, the ensuing economic freefall might be unstoppable since the technologies that made life bearable thirty or fifty years ago only exists in museums today.  Even the fantasy that we might go back to some pre-industrial idyll collapses when we ask how many working horses and oxen are available to us (the answer is no more than a couple of hundred kept alive by hobbyists).  Britain has fewer horses of all kinds – including tiny children’s ponies – that there were heavy working horses at the start of World War two.

Modern tractors and farming machinery are far more efficient than horse-drawn ploughs and carts.  But – as with the bed you sleep on – they depend upon that easily-ignored global network of economic activities and systems.  The electronics were built in one part of the world, the engine parts in another.  The metals and plastics involved in the manufacture were extracted and processed in an entirely different region of the planet.  The final parts were (to avoid tariffs) imported to an assembly plant, where they arrived at the right time and in the correct quantities to be moved directly from truck to production line.  Even the delivery trucks have been made efficient by having driving teams in which one driver sleeps while another drives so that the truck itself never stops.  But underpinning the entire system is a liquid which is as essential to the global economy as blood is to a human body: diesel fuel.

In pre-industrial economies, horses and farmers are powered using a proportion of the food produced.  Another fraction of the food is needed to exchange for equipment like ploughs and harnesses, and for the efforts of the various specialists (blacksmiths, farriers, millers, etc.) who maintain the local farming system.  In the modern global economy, the energy provided by diesel fuel does away with a large part of this local activity… but only at the cost of increased vulnerability to shocks in the wider economy.

When the Great Depression hit the USA after the 1929 Wall Street Crash, a quarter of the American population worked in farming.  This provided a degree of resilience which prevented widespread starvation.  Even if workers couldn’t secure a cash income, they could always trade work for food.  Today, just 1.3 percent of the US population works directly in farming.  In the UK it is just 1.1 percent.  In the absence of our complex just-in-time global food supply chains, the majority of us would simply starve to death.  Even those who manage to supplement their diet with a small amount of garden or allotment-grown food would only survive for a few extra weeks (assuming their food wasn’t stolen by someone bigger and tougher).

It is for this reason that we need to break out of the current pseudo-moral arguments about if and when we restart the economy.  Such arguments are based upon the misunderstanding that the economy is the same as the banking and financial sector – the claim that anyone who is concerned about the economic impact of the measures taken in response to the SARS-COV-2 pandemic is somehow “putting corporate profits before people’s lives.”  Typical of this way of thinking is the recent article by Siva Vaidhyanathan in the Guardian:

“[O]n Tuesday Trump announced that he wanted all US business back to normal levels of function by Easter, 12 April. ‘This cure is worse than the problem,’ Trump said.

“This is beyond immoral. It’s profoundly stupid. But this mode of thought is all too common among those who can’t see beyond their economic textbooks or their stock portfolios. And it has troubling intellectual roots.”

While I dislike finding myself in at least a degree of agreement with Trump, the choice between “the economy” and “human life” is not so simple as those who – one suspects – are only framing it as a moral issue because it was Trump who said it.  After all, having (at least) 6.65 million Americans ejected from their employment as households and businesses engage in varying degrees of “social distancing” is likely to result in life-threatening disruptions not dissimilar to Korowicz’s computer chip failure unless some serious mitigating action is taken for the long-term.

In the UK, we have already witnessed disrupted food supplies following the almost complete collapse of the wholesale supply chain which serviced the catering industry in hotels, restaurants and schools.  Last week it was eggs which were in short-supply.  This week, farmers are dumping milk despite a shortage of milk in the supermarkets, because milk truck drivers have been furloughed.  Less obviously – but far more dangerously – actions which are being taken by governments around the world today threaten huge food shortages in the autumn.  As Miles King at A New Nature explains:

“…as we all know (or almost all of us anyway) meat is not an essential part of our diet. We do have to eat fruit and vegetables though. And this is where it gets really tricky, because we import around 75% of our fruit and veg. Much of that comes from Spain, the Netherlands and Italy. So while we will have potatoes for a while (they were lifted last Autumn), we rely on imports for things like tomatoes, peppers, onions, garlic, lettuce, courgettes and cucumbers. Tinned tomatoes from Italy…

“Exports of fruit and veg from Spain rely on workers being supplied to the vast acreages of horticulture in southern Spain. Workers driven to farms in minibuses. Shared minibuses, full of Moroccan workers. Morocco is now also suffering a large CV outbreak. Morocco has closed its border with Spain.

“This is happening across Europe. Seasonal workers, which are the backbone of the food supply system, are unable to travel, or unable to work through sickness and self-isolation.”

Taking issue with the misleading mainstream media claims about panic buying, Bee Wilson at the Guardian asks:

“Have you noticed that one of the main features of panic buying is that it is always done by other people, and never by ourselves? It is a label we attach to others in order to make ourselves feel better about our own shopping choices. He panic buys. You stock up. I tirelessly provide food for my family…

“True panic buying – as in, cupboards full to the rafters with ramen noodles or packets of pasta – is actually much less common than we think. When market analysis firm Kantar Worldpanel looked at data from 100,000 UK shoppers in mid-March, it found that only 3% of the population engaged in full-blown panic buying. The rest of the increase in food sales over the past month – an extra £1bn in the first three weeks of March – could be explained by consumers adding just a few extra items here and there.”

The reality is that the shock caused to our complex and vulnerable food supply chains by government attempts to mitigate the impact of the pandemic was sufficient to empty the shelves.  And that is with most of the supply chains intact; or at least capable of being adapted to the changed conditions.  But much of the food we are currently consuming was grown before the economy went into lockdown.  It is the likely failure to grow – and trade – sufficient food this year which is truly life-threatening.  As Wilson notes:

“A much more serious issue on the horizon is panic buying not by consumers, but by governments. On 24 March, Bloomberg reported that some governments had started to put in place protectionist food policies as a response to the coronavirus pandemic. Serbia has halted exports of sunflower oil and Kazakhstan is no longer allowing wheat flour or carrots to leave the country. If such protectionism spreads widely, it could result in higher prices and shortages of certain commodities, particularly for a country such as Britain that is so heavily dependent on imported food…

“There have been cases of drivers making the epic journey back from Spain or Italy with lorryfuls of fresh food, only to be turned away at distribution sites in the UK because of fears that they might be bringing in infection. The rest of us should be grateful that, for now, there are still plentiful supplies of fresh fruit and vegetables in Europe, and drivers still prepared to make the trip and get it for us. But we need to stop taking this bountiful flow of food for granted…”

Food is just one critical system which is already being threatened.  Other critical infrastructure like electricity generation, fuel, water and sewage, healthcare and, yes, the banking and financial system are also at long-term risk of supply disruptions resulting from the measures taken to prevent the SARS-COV-2 virus from overwhelming those same critical infrastructures in the short-term.

Covid-19 is clearly a far greater threat than the mainstream media were claiming just two months ago (when seasonal flu was supposedly worse and in any case Covid-19 only killed old people).  Having failed to properly test, track and quarantine, and having under-funded their healthcare systems for decades, western states were left with little choice other than to impose “social distancing.”  And while states have taken action which gives the appearance that essential sectors of the economy are being protected, this is only partially true.  For example, the Road Hauliers Association (RHA) has urged government to change the rules which prevent furloughed drivers from engaging in casual work – the same rules that prevent furloughed workers from taking up seasonal agricultural work.  More worryingly, the RHA is concerned that the closure of the much larger non-essential part of the economy is making logistics unprofitable because trucks and vans are travelling with half or less loads.

Problems of this kind can be worked around in the short-term; particularly since governments are currently able to print and spend new currency at will.  Longer-term issues like food shortages, a collapsing oil industry and a bankrupted global logistic industry may well result in a bigger loss of life than the pandemic itself.  And so, while the decision to restart or not restart the economy is indeed a moral one, it is anything but as clear-cut as the superficial political debate implies.  Lives are going to be lost one way or another, whatever actions governments take.  And as we have found out to our cost already, the statistical modelling on which governments have been basing their decisions is wildly inaccurate.  And for what it is worth, the models used in public health are a damned sight more accurate than any model that an economist ever dreamed up.

As you made it to the end…

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