A Chilling Question Ahead

Over the last few days, I found myself at times mentally thrown in the middle of Ridley Scott’s movie Black Hawk Down(2001), overwhelmed by a deluge of unfriendly pieces of information, longing for the temporary ceasefire offered by the weekend. It has been another violent week.

Articles comparing the current times with past events such as the Great Financial Crisis (economic seizure), the 1987 crash (one-day fall in the stock markets) or even the Great Depression (market volatility) abound. There is one particular aspect, however, which represents a significant difference between this crisis and most others in modern times: There is no one to blame. No greedy speculators or financial institutions, no malevolent terrorist organization, no carefree ‘peripheral’ European country. Furthermore, all social groups are equally vulnerable worldwide from a medical point of view.

The lack of interference from moral considerations is helping unlock the situation in record time. It makes it possible to define the issue as a purely technical one from an economic point of view: given the impact of life-saving social distancing measures on economic activity, how to ensure that good companies and their employees make it through the storm so that they be ready for the eventual recovery to avoid deeper, longer lasting damages to the global economy? The answer must rely on a targeted and effective fiscal response, with a supporting role for monetary policies. There actually is a financial solution to the economic problem as governments around the world have repeated it time and time again this week.

This being said, whereas the costs of unconventional monetary policies are largely hidden (misallocation of resources), those related to extreme fiscal policies express themselves in higher government debt-to-GDP ratios and larger budget deficits resulting from increased interest payments. These financial considerations have been put on the backburner during these times of emergency. They will in due course come to the fore. Who will pay the already gigantic and further growing bill?

Health has thankfully prevailed over financial considerations to date. As the economic pressure rises every day, nations may eventually have to deal with the ultimate utilitarian question: if the morally right course of action is the action that produces ‘the greatest happiness of the greatest number’, what is it, in our case? I am afraid the moral considerations which have been absent to date might come back with a vengeance – and with an unpalatable inter-generational flavor. The economic consequences from COVID-19 will ultimately depend upon the way this question is answered.

For now, it seems to me that acknowledging that institutions and individuals have suffered a serious shock to the system is important. In addition, new, largely improvised work conditions come with a number of constraints. Losses in productivity are unavoidable, and seeking to compensate for them through increased work hours is a recipe for disaster. This whole affair has started like a sprint, but it is morphing into a marathon. The right work pace must be found to achieve resilience at the corporate and individual levels.

Great things can be achieved under difficult circumstances. Shakespeare famously wrote ‘King Lear’ and ‘Macbeth' under quarantine. Since both his characters go mad, it may not be a constructive example. Isaac Newton put himself under self-quarantine in the countryside and produced some of his best work. There, he contributed to the Age of Enlightenment which saw the rise in the application of the scientific method, with its reason and rationality, to the social, political, and economic worlds. He actually contributed to sowing the seeds of the moral theory of modern utilitarianism which could well raise a chilling question for the world in the coming months.

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