Tuesday, March 24, 2020

Why are Western Politicians Destroying the Economy?

An economic cataclysm has been unleashed upon the world by Western politicians and bureaucrats. Unbelievably, economic activity in the West has slowed to a creep, as entire populations have been confined to their homes for weeks, if not months. As a result, millions have had their lives turned upside down. Most entrepreneurs and self-employed have had their livelihoods jeopardized.

The EU economy may shrink by 5% according to the ECB, and similar figures are forecast for the US. The economic devastation wrecked upon Western economies by governments will have consequences for many years to come. It will inevitably lower the quality of life of European and US citizens for a long time, impacting their health as well

It is important to understand that this disaster is not the result of the Coronavirus pandemic, which is a public health problem, but of overzealous government officials reacting to the pandemic. The Coronavirus pandemic itself seems just slightly more severe than the seasonal flu, which kills hundreds of thousands of people every single year globally, without any particular political reaction. As with influenza, the mortality rate of Covid-19 is close to zero in children and very low in healthy adults. And as with the flu, Covid-19 has a non negligible death rate for the elderly and those with a history of illness, as the case of Italy clearly shows. The pandemic in itself does not thus warrant anything close to the unprecedented authoritarian measures that have been taken by most Western governments.    

The question then begs : why the hysterical reactions to the Coronavirus from Western politicians, bringing the entire economy to its knees and severely curtailing the fundamental individual freedoms of millions of citizens? Of course, there is the usual incompetence and herd behavior in the political leadership of many countries to be reckoned with. But other reasons exist for this disastrous and irresponsible behavior. Here is a list of probable ones. 

Firstly, politicians have generally little understanding of the free market. Steeped in administrative and policy thinking, most politicians have never worked in the private sector, nor studied market economics. They do not understand nor appreciate the possibilities of the unhampered market economy, with its unfathomable amount of daily exchanges, its myriad commercial relations and its never-ending adaptation to surrounding conditions. Further, in their political power logic, it is counter-intuitive for politicians to rely on Adam Smith's "invisible hand" for solutions. This is not new; it has always been a typical trait of politicians and bureaucrats. The political reactions to the Coronavirus pandemic has just dramatically confirmed this truth yet again.

Politicians also, naturally, make political calculations; having reelection constantly in mind, they do not want to be held responsible for anything that goes wrong. In a crisis, they always prefer to act than not to act; all else being equal, to show that they tried something. At least then they cannot be accused of idleness, negligence, shortsightedness, or callousness. However deleterious their actions, politicians generally are not held accountable and can present themselves as heroically standing firm in dangerous times, acting forcefully and with determination. An example of this was President Roosevelt's harmful economic policies during the Great Depression and WWII. 

Thirdly, politicians sometimes rely too much on scientists, who generally have no training in social matters at all. Even more so than politicians, scientists often have great difficulty in grasping the concept of spontaneous order of the market; not surprisingly so, being followers of the rigorous scientific process. Albert Einstein's frankly embarrassing economic proposals is a famous example of that. But where the politician is at least fully aware of the subtle grey shades of policy making and the fine balancing act of satisfying various stakeholders, the scientist generally means well but sees the world in black and white. 

Thus, if a scientist is asked how to stop the spread of a pandemic, he or she would probably answer that the best and most efficient way is to order the strict confinement of the entire population to their homes for weeks. This is what the France's influential "Conseil Scientifique" has recommended, and it may well be true, from a purely scientific point of view (although that is open to debate now). The problem arises when politicians enthusiastically follow such opinions without considering them in the light of their political and economic consequences. The first two reasons mentioned above may explain why politicians tend to place too much trust in scientists: firstly, politicians are not familiar enough with market economics to fully grasp the  consequences of acting on such scientific advice, and secondly, it may be in their interest to act on such advice since to do something - anything - is key. 

A fourth reason why politicians have acted so recklessly to counter the Coronavirus pandemic is certainly the pressure that they are under. In times of (perceived) crisis, they are looked up to for guidance, if not for orders to follow, by an unwitting and politically uneducated electorate. But the pressure comes not only from the people, which perhaps is normal in a democracy, but also from foreign politicians. No leader wants to be outdone by his foreign colleagues and be left with the weakest plan to address the crisis. In this case, the UK's Boris Johnson and Sweden's Stefan Löfvén have been slowly bowing to precisely this external pressure to act. 

But the strongest pressure on governments probably comes from the media, in particular in the current times of pervasive internet and social media. Politicians are now constantly scrutinized and held responsible in a way that they were not just a generation ago. Further, mass media is prone to dramatize and exaggerate events, as this makes for better ratings, but also because journalists are not virologists. Mainstream media often tends to misinterpret and simplify the facts, inadvertently or not. An example of this is the mortality rate of Covid-19, which is constantly reported to be much higher than it is, because only declared cases are used (CFR). More generally, the prevailing attitude from the media is that everything must be done to save a small minority of the entire population today, even if that comes at the price of future economic pain for tens of millions of people. This is the classic socialist and interventionist dilemma: where does it stop? In a world of scarce resources, how much taxpayer money should be spent by the State to save one life?    

As a final reason, it is necessary to entertain a darker and more cynical explanation for the political reaction to the pandemic: power in a time of crisis. The State never misses a chance to increase its power. Crises are considered great political opportunities, and have thus been used countless times in History by rulers. This was the case during and after WWI, WWII, as well as after 9/11 with the passage in Congress of the Patriot Act. But this is also true of smaller crises, like the current Coronavirus pandemicThe economic stimulus packages that are now being proposed will again benefit corporatist bankers, like it did during the financial crisis. This is why the big banks have been the first calling for and cheering more "economic stimulus", since they stand to immediately benefit from such "government aid".

That most Western governments have now decided to emulate the Chinese dictatorship in imposing a severe lockdown of society, should be a wake-up call for those innocent souls who still think, even with the showtrial of Julian Assange, that the West still protects individual freedom. A dangerous and frightening political evolution is on the way in an already fragile political and economic system. The political consequences of the generalized confinement of millions of people in the US and Europe will have long-lasting consequence to the balance of power between State and society. Though the Western "Liberal Democratic" order was never really one except in name, it is clear that a decisive step has now been taken. 

This politically triggered economic crisis could then also lead, hopefully, to a clearer understanding among the population, that constitutional changes are due in many countries, in order to limit the powers of executive branches everywhere. Let us hope that will be the lesson learned by the millions confined to their homes by the arbitrary will of the State.