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Things are moving quickly now, with the virus, and on the policy side. It has been impressive to see the explosion in wonk activity: people drawing on their particular areas of expertise, churning out plans to manage surging unemployment, panicky markets, businesses pushed to the brink, and, of course, the epidemic itself. It’s too much to keep up with, honestly, even for someone whose job is to keep up with this stuff. It is bigger and bolder and more creative than anything we saw during the global financial crisis, which was itself a far more intellectually invigorating moment than anything I, at least, had seen before.
Governments themselves are responding faster, too. It’s a matter of necessity, of course. As fast as the progression of the GFC felt to those living through it, it crawled by comparison with this. The housing market peaked in early 2006 or so, the first hiccups in the financial system came in the summer of 2007, and the most intense phase of the crisis began in the fall of 2008. Three months ago, on the other hand, no one had any inkling that something troubling might be in the air other than a few doctors in Wuhan. One month ago, American stock prices were just a tick off their all-time highs. And now here we are.
The public-health measures announced so far have been extraordinary: nationwide lockdowns, the idling of the peacetime economy and the beginnings of a mobilization of production in service of the health effort. The economic measures too. Britain announced on Friday that the government would cover 80% of the wages of any worker furloughed as a consequence of the crisis. America has been slow to react, but the relief package now being negotiated in Washington could be as large as $2 trillion, or about 10% of GDP. During the GFC, central banks moved faster and more aggressively than any other part of government. They’ve outdone themselves this time around and then some. And there is considerably more radicalism to come.
Why has there been such a profound difference in the reaction to coronavirus, in contrast to the response to the GFC? The obvious urgency is clearly part of the answer. It took a very long time for those in charge to understand how defaults on subprime mortgage loans could do massive damage to the whole of the world economy. Ben Bernanke reckoned that subprime problems were contained in May of 2007. In the summer of 2008, when the US was already in recession, the Fed continued to project that the economy would expand in 2008 and 2009. No such illusions are possible now. Large parts of the world economy are going to be shut down for months. The collapse in economic activity will be unlike anything any of us has ever seen.
But that’s not the only reason things are different. The GFC, while frightening, was a familiar enemy. We were caught off guard, having been lulled into believing that nothing like the Depression could ever happen again. But once the nature of the beast was identified, policymakers were able to dust off the relevant script and read from it. Don’t let the banking system collapse: check. Don’t sit idly by while demand plummets: check. Far too little was done, but governments succeeded in preventing a Depression, and they did so because we had faced a Depression before. What we are facing now, in contrast, is something completely new and unfamiliar. Responding, to some degree, is a throw-things-at-the-wall-and-see-what-sticks kind of thing.
The response is also different because the intellectual climate is different. The GFC hit societies in which policy thinking had been compressed into a pitifully small range of acceptability. That compression has come undone. The inadequacies of the response to the GFC prompted a wave of new policy thinking. The weirdness of the global economy—very low interest rates and inflation, stubbornly low wage growth, high levels of inequality, and other things—helped heterodox thinkers to get more of a hearing and expanded the set of ideas that orthodox wonks were allowed to consider. And the circle of people empowered to shape policy grew substantially larger. There are actual factual social democrats sitting in Congress, proposing legislation that gets taken seriously. And there are economic nationalists and xenophobes occupying some of the most powerful policymaking positions in the world. And so everything from Modern Monetary Theory to corporatist crypto-fascism is on the menu. Experimentation, furthermore, is enabled by the removal of other sorts of guardrails: norms of governance and respect for the rule of law, which have eroded one small bit at a time in governments across the globe in recent years.
It is absolutely necessary to move quickly and radically to limit the damage done by this pandemic. I am grateful that so many clever people are working so tirelessly to design policies which can provide rapid relief to people falling ill or losing jobs. And I’ll admit it, and I think I’m probably not alone: I initially found the turning of the policy wheels to be just the littlest bit thrilling. Not to say that the short-run economic or health consequences of the pandemic aren’t a terrible thing to face. But changes to the system which once looked impossible to achieve increasingly seem within reach, maybe even inevitable. It is just possible to imagine badly needed changes—mandated paid sick leave, the end of the employer-based health insurance system—becoming reality. Something like a universal basic income, the fantastic underpinning of a techno-utopian future, may well emerge as a means to protect people against the economic damage wrought by the pandemic. In Europe, reforms critical to the further integration of the euro area, like mutualisation of sovereign debt, might make the leap from politically impossibility to absolute necessity. You can see people dare to dream bigger dreams, too. If these things are feasible then why not others as well? If local economies are destroyed and in need of rebuilding anyway, why not rebuild them in zero-carbon fashion? Suddenly, our constipated political systems...aren’t.
But I am increasingly uneasy. We have no choice but to do everything we can to help. But I’m not sure we’re thinking of all the problems we might face. I’m not sure this is going to go the way we think it’s going to go.
Like many of you, I’ve been obsessively reading twitter and occasionally and feebly tweeting out my own disjointed thoughts. Earlier this week, I wrote:
One thing that lots of people, on Twitter at least, seem not to have grasped yet is that getting through this is going to be far more a matter of the strength of the social fabric than the cleverness of our policy interventions.
Adam Ozimek, a very good economist, stand-up guy, and small businessman whose Lancaster, Pennsylvania bowling alley has been shuttered by the pandemic (click here to support him with the purchase of a gift card) responded to my tweet:
I live in a community with good social fabric, trusted leaders, and a very charitable population. None of that will help us that much if half our small businesses fail. We need clever policy interventions desperately
Of course he’s right: the health of the community, in many different ways, will be adversely affected by the collapse of small business, and if policy can limit the economic damage then the people of Lancaster will be far better off than they otherwise would be.
But listen. The first thing we all need to understand is that no matter how hard we work on our policy response, it will be flawed. And the second thing we all need to understand is that even if the response were somehow perfect, our communities face a wrenching, traumatising, social shock of a magnitude very few of us have ever experienced. We need to be honest about this. It is still possible that we limit the initial spread of this virus to just a small share of the population. Even so, many of us will get sick, and many of us will lose someone that we know. All of us will be cut off from our normal way of life for much of the year—and dramatically so for at least a few months. There will be periods of intense social stress. And after the worst has passed, things will nonetheless be very different than they were before: locally, nationally, globally. This will leave a mark. It’s going to test us.
Now if you assume that the strength of a nation’s social fabric is a given, something deep and unchanging, then there isn’t much point in worrying about it. You help where you can and hope that when the time comes our communities hold together and our people look out for each other. But I don’t believe that it is. A strong society is one with lots of social interconnections, and in which people’s behavior is shaped by concern for others’ welfare as well as their own. Think about the hoarding of toilet paper. I’ve seen economists discussing the phenomenon as a matter of individual rationality contributing to collective irrationality. There’s no need to hoard, but if each individual suspects that others may hoard then it makes sense to hoard, and so there’s hoarding. But what determines whether a community refrains from or engages in hoarding? It’s about mutual expectations, yes: I think you won’t (or will) and you think I won’t (or will) and so we don’t (or do). But what shapes and informs those expectations?
It might seem the flimsiest of things, but the answer will often be what people believe to be the socially appropriate response. Maybe I shouldn’t hoard because it’s unfair to others—it’s not the right thing to do. Maybe I should look out for the welfare of others in addition to my own. Maybe I have a social responsibility to contribute in this small way to the broader good.
Can we really expect people to feel such things and act on such things in a time of crisis? Don’t the videos of toilet paper melees speak for themselves? But of course we do rely on those other-regarding impulses. Do you think it is rational self-interest that keeps doctors and nurses in swamped hospitals treating sick patients even when sufficient protective equipment isn’t available? No, it’s a sense of obligation to other human beings, a sense of duty, the product of moral and ethical convictions. Convictions like those can also stop people hoarding consumer goods, and stop bosses from laying people off when they don’t have to, and stop senators from abusing the public trust by selling their stocks even as they play down the severity of the encroaching pandemic.
Or they can be eroded to a degree that those things happen and, as they occur, further undercut the broad sense that we are all in this together. If everyone around me is selflessly choosing not to hoard, then I will find it easier not to hoard, both because I will feel less insecure about my own access to toilet paper and because it’s easier not to buck convention. If I choose not to hoard toilet paper but others do, I might feel a little less inclined to not hoard the next time around. And if everyone around me hoards everything, and if those in power obviously and repeatedly put their own interests ahead of the public’s, then I might reasonably draw the conclusion that old norms no longer apply and it’s every person for themselves. Other-regarding behavior, in any context, can and does erode if not looked after and nurtured.
What does any of that have to do with the wonkery underway in Washington and other places? Well, one important question is: are we making policy as if policy is something that is *done to* people to get them to behave the way we want them to, or are we making policy as if it *relies on* society to collectively and conscientiously produce good outcomes? You might ask why anyone would opt for the latter. Surely if things can be done that keep society functioning while minimizing the risk that individual selfish morons screw it all up then we should do that, because there are individual selfish morons. Look around.
You opt for the latter, because the former is based on a misunderstanding of how society works. It’s the misunderstanding that has undercut well-intentioned policy responses to many recent crises. Like when the Bush administration encouraged Americans to respond to the attacks of September 11th by going about their lives as normal, traveling and shopping and so forth. Or when the Obama administration did its best not to ask too much of the financial sector as it worked to navigate America through the GFC, for fear that going too hard on bankers would undermine the real economy. There were reasons for doing these things. But the give-no-more-than-you-have-to approach to crisis fighting undercut the sense that collective sacrifice and solidarity are things that matter.
I’ve been thinking about the Depression and the Second World War, and the conscientiousness with which society and business and government recognized the importance of individual effort on behalf of the public good. We don’t have to be naive about this history; there were obviously companies and politicians who rejected any notion of solidarity, and many individual Americans who surely resented the hardships imposed on them, from rationing to military service. We don’t need to pretend that the country can Come Together now as it has Come Together in the past. We can be realistic.
But when you think about the expansions of the social safety net in the 1930s and 1940s, there was a clear logic to them, based on a collective understanding of the fact that there’s a lot of potential hardship in the world, and that keeping society from falling apart in the midst of it all takes some solidarity. That demanding that people fend for themselves is a road to ruin. Society settled on a social compact which recognized not just the obligations of the government to working and fighting people, or of business to employees, but of all of us to each other. That’s the thing; a social safety net isn’t about abandoning personal responsibility. It’s about recognizing our mutual obligations.
And so when, for example, I see proposals to send government checks to people as a means to limit the economic damage done by the pandemic, I have mixed feelings. On the one hand, this is good policy. It’s justified on all sorts of grounds and the sooner we do it the better. We don’t need to target them or attach work requirements or anything like that. Give people money.
Yet on the other hand—when I wrote about universal basic income programs pre-corona (and yes I realize emergency checks are not the same thing as a UBI but bear with me) I generally argued that they couldn’t work without some corresponding social evolution. A basic income needs to be paired with a revised understanding of what it means to be a contributing member of society. That understanding is partly about legitimizing the payments themselves: such that richer and poorer people alike see that the money isn’t simply a bribe to keep the downtrodden quiescent. But it is also about cultivating a sense of social responsibility among those receiving the money: encouraging people to see in the payments an acknowledgement of mutual responsibility. So while some people would inevitably take their check, order take-out, and veg on the sofa, others would see in the money a recognition of their service in various capacities and a prod to keep up the good work: to look after older and younger family members, to volunteer in the community, to develop one’s talents, to start a business, and so on.
We don’t need people out and about now. We don’t want them to go shopping. But it would be awfully nice if any checks we send were perceived to be something more than just aid, more than just a convenient way to prevent vast numbers of landlords and lenders from defaulting. They should also represent a recognition of our collective responsibility to care for others, to take others’ welfare into account. Because we are going to need that, badly, in the months ahead.
We don’t speak or think in those terms much anymore, certainly not in the wonk community. But all the complex systems that keep the modern world functioning—all the plumbing that threatens to break under the stress of the pandemic and which is now being targeted by a thousand policy proposals in a thousand white papers—are embedded in a supporting social foundation made of trust, public ethics, solidarity. If the plumbing works but the foundation cracks, then we are all in very serious trouble indeed.
I’ve been writing the column as usual, on an array of coronavirus-related topics. Here’s the most recent one, on recoveries from very deep economic downturns, and here’s the one before that, on the very long-run effects of pandemics. This...might be how the column goes for a while, so if you have interesting pandemic-related economic questions you’d like answered, do send an email or a tweet.