A slight change in focus can produce a profoundly different understanding

Covid-19: Where are we now?

Lockdown is easing and much of the burden of continued containment of the pandemic is being placed on rather vague test and trace procedures (in the UK). If you are in contact with an infected person you must self-isolate for 14 days from the last contact. The definition of ‘contact’ is interesting. Any contact within one metre for at least a minute qualifies. So walking by people is not contact. Being within 2 metres of someone for at least 15 minutes qualifies also. Travelling in any vehicle ‘near’ (?) someone that has tested positive qualifies as contact. There is no mention of mitigation if they or you were wearing a mask. The process for identifying contact is key and as yet unclear. One can see how an app would work if a working app is available. The message however seems to be don’t travel and don’t stand so close to me for any period of time. Social distancing remains. The implications for economic activity remain severe.

Optimistic stories about a vaccine periodically flare up in the press. However careful reading of the press suggests the vaccine outlook is not promising. A recent Guardian article was very depressing. I was particularly interested in the comment about the much hyped Oxford University vaccine which has been promoted as possibly being available in September. Apparently it does not stop monkeys catching Covid-19 but does protect them against pneumonia, a major, and often fatal, side effect of Covid-19. Useful but not quite a panacea even if it can be safely produced. Covid-19 kills in many weird ways.

A more recent article, again in the Guardian, is even more depressing. Many carriers of Covid-19 are asymptomatic. More important asymptomatic carriers appear not to develop many anti-bodies. This would render a vaccine useless on these people as it works by generating anti-bodies. This might still be ok if there is a safe and effective vaccine for people that could develop symptoms. The problem is that, based on recovering patients, anti-bodies may not be effective for very long and as yet no one is quite sure how effective anti-bodies will be. The magic bullet vaccine is some way off. I am not optimistic for one specific reason. Covid-19 is a corona virus and we have no vaccine for any other corona virus as far as I am aware.

In the absence of a vaccine test and trace is key to containment. Covid-19 is highly contagious and fatal to some people so identifying carriers and isolating potential carriers is the only effective way to contain whilst returning the economy to some level activity. However, being abruptly required to self-isolate for 14 days, especially if you live in a multi-generation household is very disruptive to the household and employers. There is only so much ‘normality’ that can return. Moreover, in order to avoid this disruption social distancing is advised which is more disruptive to the economy. The business models of all hospitality industries, transport industries, physical retail industries, sports industries etc all involve proximity. Capacity is reduced through social distancing and the business ceases to be viable.

It seems there are two things that can be done, in addition to the research on vaccines and treatments, to mitigate the problem. First massively expand the sustainable capacity of the health service. If prompt treatment is available then the fear of the disease is reduced, though never eliminated. The second is provide everyone with masks and insist everyone wears a mask in public spaces (though not necessarily in the open). A mask provides some protection from being infected by the wearer. If everyone wears one then it logically follows everyone has enhanced protection. The mask is not a panacea of course so social distancing is still required until incidence of infection is sufficiently low to justify relaxing the social distancing rule. Masks will help hasten and sustain this point.

The economic shock is unwinding much as expected. Unemployment levels are rising and will rise further as employment subsidies are withdrawn. Debt levels are rising and will weigh on businesses in the future. Government debt levels are rising and will weigh on future tax payers. Uncertainty abounds and cash accumulation is the preferred action of those that can accumulate. Cash needs to be stored somewhere safe and this is driving interest rates on safe assets into negative territory. There is arguably a shortage of quality assets and this may explain the mismatch between economy and some asset prices. Certain assets (technology, clean energy) are seen as benefiting the economic changes and are attracting investment. This does not mean the assets are not presently overvalued but it can explain the impressive performance of US stock indices that are relatively heavily weighted with such assets. Technology and clean energy stocks are quality assets but not simply at any price.

The concern is there will be a second wave of infections and fatalities in autumn and winter. The fear is this will require another lock down and another economic shock. It is unlikely the economic system could cope with another lock down. It has not yet coped with the present lock down. The US equity markets seem to be pricing the best case scenario, even allowing for the high technology and clean energy stock weight. It ain’t over…

On Stupidity

I came across the above quotation some years ago. I understand the context of the quotation and the sentiment it expresses. I have been known to utter similar sentiments. However, the use of the word stupidity has never felt quite right. It is unwise to allow people the excuse of stupidity. We can all forgive stupidity. I have moved to the view that there is no stupidity in the world only wilful ignorance. People are not typically stupid but often they choose to be.

The word stupidity is commonly understood as displaying a lack of good sense or judgement and possibly indicative of a lack of intelligence. It is understood as an intrinsic quality of the individual. As such it is a no fault quality. By implication no one chooses to be stupid. They just are. The vast majority of people show no evidence of a lack of intelligence or the intrinsic inability to make good judgements. Indeed some societies assume people typically are not stupid. One strong piece of evidence is the jury system. Randomly selected from the electoral register people are then required to follow a complex legal process and critically assess evidence. Quite challenging for people with limited intelligence and lack of judgement.

If one substitutes the phrase wilful ignorance into the above quotation in place of stupidity then it is much more effective. No one forgives wilful ignorance. Nor is it possible to overcome wilful ignorance by reason or force. Irrefutable facts can be wilfully ignored. It was I suggest wilful ignorance that Bonhoeffer was lamenting and not stupidity. The problem is that his distinction between malice and stupidity becomes void. One motive for wilful ignorance could well be malice.

Wilful ignorance arises when individuals consciously proceed on assumptions they know to be false or fail to attend to facts that would render them false. In contrast self-deception (or delusion) arises when individuals believe unverified (and indeed unverifiable) assumptions with complete conviction. It is a much more serious condition and probably qualifies as some form of psychosis. Self-deception is not as common as some might imagine. At some level of consciousness individuals know their beliefs are unverified and open to challenge. Wilful ignorance is on this view first cousin to living a lie.

The reason for focusing on wilful ignorance is because it emphasises the choice element and hence the ethical responsibility for what one assumes to be true. You could check against available evidence, logic, or even the perspective of others, in order to test your assumptions. If you choose not to then you are culpable for the consequences of your assumptions. Ignorance is not much of defence under law. If you buy goods in a pub that turn out to be stolen goods you are guilty of receiving stolen property whether you ‘knew’ the goods were stolen or not. If you comply when someone insists you pay for goods in cash, at some level you know there may be a questionable motive. Wilful ignorance is ever present.

Wilful ignorance is sadly a habit for the vast majority of people. Politicians that habitually dissemble are ‘trusted’ because what they are saying is what we want to hear. They speak to our fears and prejudices and their voices resonate with ours. Wilful ignorance. We repeat gossip because it serves our petty advantage. It empowers us. Wilful ignorance. We judge people based on our prejudices because it reinforces our greater entitlement. Wilful ignorance. There is very little stupidity in the world. Indeed there is very little self-deception. The world is however mired in the swamp of wilful ignorance.

Negative Nominal Yields

The UK has just issued 3 year gilts at – 3 bp. Buyers are paying the UK government to 3 bp to hold their money for them for 3 years. Buyers are paying 3 bp for the privilege to lend money to the UK government for 3 years. Sounds bizarre and judging by the comments on the FT article covering the story it is totally doing everyones head in. First, note negative nominal yields have been around in other currencies for some time. Second, negative real yields have been with us forever. So why should negative nominal sterling yields generate such excitement?

The UK government is a AAA credit. In fact it is better than AAA. It will be able to repay all nominal debt and it will repay all nominal liabilities. So if you are a large holder of sterling cash (£100 million) and need somewhere to keep it for 3 years, lending to the UK government is a good plan even if you have to pay something for the privilege. Where else are you going to park the cash?

If you place it in a bank there is some risk you will not get it back. Only £85k of a bank deposit is ‘insured’. A deposit is the safest way to keep money in a bank but it is not 100% safe. If the bank fails you would lose all but 85k. Moreover banks charge business customers fees and if you have a large amount you may well be classed as a business customer. Indeed many retail accounts now charge fees and pay no interest. This is the same as a negative nominal yield.

You could buy a very large safe and keep it there. Quite apart from the money laundering questions you might need to answer one day when you access it, keeping money in a safe is not costless and it pays no interest. The safe costs money and you must insure the safe. So once again you have a negative nominal yield. It will be more than 3 bp I suspect!

How do you make money in bonds if yields are negative asked one uninformed comment? If you hold to maturity you will lose 3 bp. However if yields fall, say to -5 bp, the you can make a profit by selling the bond. Prices move inversely with yield. The fact of negative bond yields makes little difference to bond trading except that bond prices are more sensitive to yield changes (convexity).

Negative nominal yields are conceptually an extension to negative real yields. If inflation is low it becomes difficult to push real yields lower without moving to negative nominal yields. For years zero was assumed to be the lower bound but it never was. In brief periods in the post-war period some countries had negative interest rates. The problem is people forget that money is also a store wealth and like all wealth, storage is costly. If you can store £100 m with perfect safety for 3 years for less than 3 bp it is worth considering. But I suspect you cannot…

The Cummings Deflection

Listening to the media one could be forgiven for thinking that Boris Johnson has been taken hostage by Dominic Cummings. The warm, cuddly, loveable, ( apparently doable) Bojo is being manipulated by this evil man. Cummings and his acolytes, according to the media, has taken over SAGE and is running science policy. Poor old Bojo (lovable, cuddly, doable, Bojo) is an innocent victim if the media are to be believed. Do me a favour, Jon!

In the UK system all executive power is vested in the Prime Minister. The PM selects the cabinet, his advisors, and makes all decisions. He may delegate these decisions. That is his prerogative and decision. He may take advice but he need not heed. His executive power is bounded by constitutional arrangements and a need to defer to parliament. However, if he has a majority in parliament, and he has a very large majority, he has all the power he needs to do exactly as he pleases. Only the Conservative party can remove this sitting PM and that would be a very big event.

One can only conclude that the media focus on Cummings is playing into a deliberate strategy to deflect criticism away from Boris Johnson for decisions that are his, and his alone. This ploy was used by Blair via Campbell, the latter playing the role of bête noire in that regime, and to some extent Peter Mandelson (though someone close to Blair once told me that Peter was in fact “a nasty of piece of work”). The media busied themselves attacking Campbell and Mandelson whilst Blair won three terms.

The trick is probably obvious to psychodynamic psychologists. All ‘bad’ news and events are projected into Cummings or hapless cabinet members whilst all ‘good’ news and events are are projected into lovable, cuddly, doable, Boris Johnson. The voting population disassociate all the problems and machinations from the face of the Tory party, the PM, and associate them with others. The PM, who has made ALL decisions, is left clean and untouched and able to appeal to the voters. The PM remains very popular despite the fact that the management of the Covid-19 crisis in the UK has been less than perfect. The blame of course lies with everyone but Boris Johnson. It is a neat trick.

The Cummings deflection however is only possible if the media play along. Either journalists are particularly stupid or complicit. The correct way to to deal with these deflections is to bring them back to the source of the decision; the PM. If Cummings is influencing SAGE it is because Boris Johnson has asked him to do so. Every piece of coverage should end with ‘ and why has Boris Johnson asked Cummings to act in this way?’. Cummings would not be doing anything his boss did not endorse.

The stupidity of the media is as nothing compared to the stupidity of the electorate, of all Party persuasions, as evidenced by the fact that this shallow and obvious trick seems to work. This is of course part of the behavioural science that has entered the political world. It did not originate with the Tories (in my view, it began with Blair). However they have elevated it to an art form. Intelligence has many aspects, not the least the ability to learn. The Tories have learned well. Perhaps those that oppose them need to wake up and smell the coffee. My earlier blog entitled ‘Voter Manipulation’ has already highlighted what needs to be done.

Changing Physical Social Relations

Some time in the early 1960s there was a typhoid panic in the UK. It was attributed to corned beef imported from Argentine by Fray Bentos. I never ate corned beef again. Indeed I never ate anything marked ‘Fray Bentos’. It is amazing how long a trail traumatic events can leave. There was a state shift in my behaviour. It was a directly related to a health scare, an exogenous shock to my world.

Covid-19 has all the hallmarks of an exogenous shock to the global human system. This may sound odd since it is probably originated in some human activity. We do not know with certainty from where it originated. For Covid-19 to be exogenous it need only be possible for a pandemic to happen again whatever human society does. I think we can safely say this is the case. Social relations may thus change in a permanent and fundamental way as a result of this global pandemic.

Human society is characterised by its physical social nature. We congregate. We herd. We swarm. We congregate to produce, to eat, to have fun. Congregation is efficient. Mass transit is cheaper per passenger. The whole economic and social system is characterised by human grouping behaviour. This may now change. Physical social distancing may now become ingrained in our psyche. Masks and gloves may become a daily routine.

There has been a great fuss made of the Burqas. In part this was simple prejudice but there is also a cognitive aspect. It obscures the physical image (which is the whole point of course) and this can be unsettling in a sociable society. Imagine a world in which everyones face is obscured by at least a face mask and perhaps even goggles. It presents a new challenge to facial recognition software. It presents a new challenge to law enforcement and monitoring. It presents a new challenge to mating rituals. It presents a new challenge to body language which is pervasive and used unconsciously by all humans. It is a very different world.

The pandemic has also highlighted the unequal nature of social relations. The importance of low paid and low status workers was laid bare. The fact that such workers are less able to protect themselves because they cannot work from home has been graphically demonstrated. People living in high density, multigenerational homes have emerged as very vulnerable. People living in care homes have emerged as forgotten. I have heard care homes referred to as God’s waiting room but this is no longer remotely humorous. It would appear to be how society views such members. The general disregard for the old and frail has been rather shocking.

The pandemic appears to have legs. There is little prospect of a usable vaccine or treatment on the horizon. For many infection means a serious risk of death. If this stretches into 2021, which horribly looks likely, then the trail of significance may be at least as long as my typhoid shock. And then there is the possibility of other pandemics. Restrictions at airports, ports, rail stations may become common place. Physical spacing on boats, trains, and planes may change. The desire for personalised transport may surge again. People may live with permanent stockpiles of essentials. People will seek distance not closeness.

The purpose of my blogs has been to try and highlight how this exogenous shock may trigger a state shift in global human society. None have quite made the point obvious. This blog I hope does. It is through a fundamental change in physical social relations that the Covid-19 event will cause a state shift. The above are just examples. Take any and follow through the possible implications. Physical distance, not physical closeness, will become the norm. Imagine what this will mean.

Exogenous versus Endogenous Economic Shocks

An exogenous hits a system from the outside. An endogenous shock is generated within the system. Both can be very severe but qualitatively quite different. Moreover despite similarities they may require a different response. It is important to identify the nature of the shock and recognise the different responses required. In order to illustrate I will use the existential threat of climate change. These points have been made in earlier blogs in a slightly different context.

The fact of climate change is not in dispute. There are those that still argue as to its origin and appropriate response. If climate change is natural (either through some process we cannot observe or volcanic activity polluting the atmosphere, say) it is an exogenous shock. The appropriate response is to adapt economic life to the change. This may involve expending a lot of energy including fossil fuel derived energy. If climate change is man-made and the consequence of C02 emissions generated by human economic activity it is an endogenous shock. Expending more fossil fuel energy may not be the correct response. Changing energy use seems the best response. The Covid-19 shock may even provide valuable data in this respect.

In general if the system generates a shock it usually has mechanisms with which to respond. In the case of exogenous shocks it may not even know how to respond. Despite superficial similarities in the shock the correct response may be qualitatively quite different. This may be the case with the Covid-19 shock. Covid-19 may in fact be endogenous to the human system in so far as it relates to eating practices in China or perhaps is man made. History says pandemics will occur and there is not much the human species can do to stop them. The point is the consequences are exogenous to the economic system.

The 20072008 financial crisis was an endogenous economic shock. Assets bought as Triple-A proved not be. The distribution of said assets was also somewhat opaque. The cascade of defensive economic actions brought the global banking system to the point of collapse. Fortunately the system had institutions and practices that were familiar with banking crisis and appropriate action was (eventually) taken to stabilise the system. The financial market disruption impacted the real economy but once again appropriate action by central banks quickly recalibrated the system. A great deal of reform and adjustment also occurred to make the system less vulnerable to endogenous shocks.

The Covid-19 pandemic has overwhelmed global health practices and capacity and required that the economic world be stopped from spinning on its axis in order to slow down the spread. This is an unimagined response let alone unprecedented. Climate change protesters had suggested something similar in the not too distant past and were dismissed as cranks. The climate change protesters have got their wish albeit for an unrelated reason. The global economy has been stopped. The flow of revenue that is GDP has been permanently reduced by a large amount. The contractual liabilities that the GDP revenue stream services remain. Other things being equal many enterprises will fail because they cannot fulfil contractual obligations, leading to a loss of potential GDP. New enterprises will eventually emerge and grow and GDP will grow, but from a lower base.

An uncoordinated and somewhat haphazard national state response has emerged which has attempted to minimise the loss of GDP potential. It has done so by redistributing the current GDP loss. Some has moved to future tax payers through increased state debt. Some has been moved onto creditor balance sheets. Ultimately the lost GDP will be reflected in asset values. There is no way of offsetting the lost GDP. It is gone. It does not matter what financial manipulation central banks and state treasury departments engage in people are not flying, eating in restaurants, drinking in pubs and so on.

Despite the efforts of national states potential GDP will be decline. In part this reflects the acceleration of structural changes already taking place. Oil to clean energy, physical shopping to online shopping etc. However, the decline part of the structural change will happen quickly and in size whilst the growth part will take a little longer. There is likely to be a high level of structural unemployment that will persist even when new industries start to grow. The reason is the new industries are technologically more productive and use less, more skilled, labour. There will be political consequences. The usual mantra of national states that they have to balance budgets and there is no money will no longer resonate with the electorate.

Perhaps the most important lesson is the importance of national health systems and the valuable and dangerous work they involve. Indeed many undervalued social roles may now be seen in a new light. It is unlikely the people in these roles will forget. Expect a rise of interest in unionism. Expect a rise of interest in expanding the power of unions. This exogenous shock has created waves that will resonate for many years to come. It is a state shift event. This is perhaps the key difference between endogenous and exogenous shocks. The former allow continuous evolution of a system whereas the latter often involves discontinuity and a jump to a different reality. It is in this light my previous blogs should be read. It is this that makes me cautious from applying the results of endogenous shocks to this shock.

Covid-19 and the S&P 500

The S&P 500 has rallied with quite remarkable aggression since the initial Covid-19 ‘dump’. The above chart suggests the bull-market mentality was barely dented by the initial collapse. Given that, whatever happens from here with respect to Covid-19, the economic outlook is poor (to say the least) it must seem puzzling to many.

The chart figures the Fibonacci retrace lines. The Fibonacci series is 0,1,1,2,3,5,8,13,21,34,55… If you take a ratio of adjacent numbers you get a number that converges on 0.618. If you take a ratio of every other number you get a number that converges on 0.382 and so on. The Fibonacci sequence is ubiquitous in nature and has made its way into finance in this way. Note that 50% has nothing to do with Fibonacci. The other notable ‘tools’ on the chart are the moving averages. The red line is the 200 day moving average. The other two moving averages are 55 and 21 respectively. Having reached the second Fibonacci retrace (0.382) the index seems hell-bent on reaching the third (0.618) at 2931. It would not surprise me if the index continued until the 200 day moving average. The US equity market has dismissed the Covid-19 event as not relevant to market dynamics.

The development is not entirely surprising. The link between markets and economics is not what lay people believe. Markets price earnings streams until infinity so one year may not be so relevant, however dramatic. Moreover, with real yields negative future cash flows have a greater weight than current cash flows (explained in an earlier blog). Markets impact the economy more than the economy impacts markets. Markets have a dynamic and logic of their own. It involves things like Fibonacci retrace, moving averages, momentum, flags, and measured moves, all of which are evident in the above chart. This blog however is not about charts as such.

There are a number of problems with the market response. First, the VIX remains elevated. If you believe the move in the S&P is sustainable then you should be selling the VIX at least until it reaches 20. The VIX is a volatility index but also functions as a fear index. If the S&P is almost back at 3000 how much fear can there be?

Second, this is not a ‘normal’ correction. Covid-19 is an exogenous shock. By contrast 2008 was an endogenous shock; it came from within the system. Covid-19 has hit the system from outside. Elaborating on the importance of the difference is difficult in a short blog. Suffice it to say an endogenous shock requires recalibration of the system but an exogenous shock has unknown outcomes to which it is hard to anticipate or respond. The economic consequences of Covid-19, and the stopping of the economic world spinning on its axis, may not be obvious immediately.

The shock will accelerate structural changes that would otherwise have taken much longer to materialise. Many enterprises will simply fail and disappear. Others will rise and prosper but the transition will not be smooth and the burden evenly distributed. It never is! There will also be profound cultural implications as societies adjust and adapt. These will result in profound political changes. It is going to be very hard to use the excuse of ‘not enough money’ going forward or to allow important functions to be low paid just because there are no barriers to entry. Unions may flex their moribund muscles. Things are already changing with a dim view taken with respect to dividends. This is fine for equity valuations if dividends become retained earnings or productive investment. But what if they are effectively transferred to customers, staff, and the tax pool?

Perhaps the USA, and its equity market, is the least vulnerable to these developments. It is a country where the ‘American way’ can be summed up as ‘winner takes all’. It may take more to cause profound change than in the rest of the world, much of which is already socialised and inclined towards a less harsh attitude to those that come second. But perhaps also the American people will realise they have been sold a very hard philosophy that is an anachronism and frankly, uncivilised. The shock to the USA and its economy may in the end be far greater than elsewhere if the people start to demand some consideration for the loser. Poor leadership may also bring this point home with some emphasis.

Covid-19: Tomorrow belongs to you

This blog is addressed to the ‘young’. The definition of ‘young’ is basically everyone that has not yet reproduced and is free to live whatever life they choose. Reproduction creates ‘parents’ and they are never young. The title of the piece is deliberately provocative. This is a provocative blog. Covid-19 is a great calamity but also a great opportunity. Previous blogs have highlighted the great climate change experiment it has afforded which the newly authoritative voice of science can exploit. It also affords an opportunity for social reform on a scale last seen in the UK after WW2. But it needs the young to grasp this opportunity.

The NHS has emerged as the front line. Years of underfunding and threats to privatise it left the institution in poor condition. The excuse was always not enough money. All of a sudden money is materialising from nowhere. If Covid-19 does not destroy the ability of any government to use that bogus excuse in the future then I guess there is no hope. And perhaps there is no hope. There is an opportunity which I can delineate but only the young can grasp it. I am not young.

How much money does an economy have? The answer is potential GDP adjusted for the external account. The government can borrow from the central bank any amount of cash. The constraint is potential GDP adjusted for the external account. Potential GDP is the amount of aggregate spending that is possible before inflation starts to accelerate above target. It is further constrained because we spend on imports and if we run a deficit we must borrow (portfolio flows) to generate the required foreign currency. Alternatively we can let the currency float and recognise it may lead to accelerating inflation. The answer to how much money is the behaviour of inflation and inflation expectations. We have as much as we need until accelerating inflation above target kicks in. There is a cap but it has nothing to do with budget deficits or arbitrary borrowing rules. During the period of austerity the behaviour of inflation makes clear there was a lot more money than the Tory governments suggested.

Once we hit the limit does this mean there is not enough money for the NHS or other social welfare services? Not at all. It is a matter of priorities. It is a an income distribution decision. Not only did the Tories have more money at there disposal during austerity but what they did spend they chose to spend on things other than the NHS. They did not prioritise the NHS. Priorities is one way of delineating political parties. The big philosophical differentiation is between moral hazard and social justice, the subject of earlier blogs.

Moral hazard arises when by helping someone (giving him a fish) you stop him helping himself (learning to fish). Tory priorities always weigh heavily towards avoiding moral hazard. Social justice is a concern for the well being of all members of society irrespective of how they came to their condition. Labour has traditionally weighed its priorities towards social justice. A total emphasis on social justice will risk inviting moral hazard as free riders exploit the system. But the efforts to avoid moral hazard often introduce social injustice. There is no perfect balance just a judgement and perhaps efforts to identify and shame the free riders. The other thorny question that is raised is who qualifies as a member of society.

The whole Brexit issue has been driven by considerations of Citizenship. Who should be admitted as a citizen and what of those not so admitted? Covid-19 has demonstrated beyond doubt (if there ever was really any) the diverse nature of the NHS workforce. Many have risked their lives and far too many have lost their lives. It demonstrates that citizenship is about commitment to the society and not DNA, colour, location of birth or any other crass criteria that have been used. This must not be forgotten.

Finally, I come to the issue of the value of citizens. The people that have sacrificed most and been put at risk and without whom the Covid-19 fiasco would have been catastrophic are typically little valued and low paid. The Tory Home Office policy enshrines this low valuation in its hostile immigration guidelines. In light of what we have experienced does this not need review?

Pay levels have more to do with barriers to entry than the marginal product. If a form of employment has low barriers to entry it will attract more people and pay levels will be suppressed. If an employment has high barriers to entry it will command, other things being equal, higher than average pay because it will not attract sufficient people. It does not really have much to do with the marginal product of the employee. If barriers to entry decline so will pay levels. This may be oversimplifying the theory of pay but it may be a better working model for the average young voter.

The role of unions is largely to create artificial barriers much like the role of professional bodies (though the latter pretend it is solely about standards). The fact that unions and professional bodies do other things should not obscure the importance of regulating labour supply to these bodies. If the state does not intervene to provide a more equitable distribution of income based on value to society then perhaps there is a case for unions to resume their once infamous bargaining practices. Of course some changes in legislation may be required.

The Tory argument is that their focus on moral hazard creates a wealthier society. Perhaps it does but if the distribution of that wealth becomes unbalanced it does not create a healthier society, physically or psychologically. Wealth without health is pointless. If Covid-19 has demonstrated anything it is this simple fact. UK society has become unbalanced with too much wealth in too few hands and not enough social health or indeed social justice. It does not need a revolution to correct the imbalance merely a new government of competent pragmatists rather than incompetent ideologues.

The opportunity to make this adjustment lies in the hands of the young. Next time you vote think about what you are being told. Not enough money? What is inflation doing relative to target (2%)? is it accelerating? What about the priorities? Could we not simply prioritise the NHS and drop spending elsewhere? Are immigrants really a burden on ‘our’ NHS? Do you feel comfortable being treated by a doctor who has been working non-stop for 23 hours? Are you comfortable being cared for by poorly paid nurses? Is that person sleeping on the street a free rider or a victim? Maybe consider joining your union. Covid-19 has provided an opportunity for social change. Take it. Tomorrow belongs to you….

Covid-19: A State Shift

A state shift occurs when a system moves from one stable state to another. It is not necessarily irreversible but it is highly improbable that even on another state shift the system will end up at the original. Covid-19 may well constitute a sufficient perturbation to effect a state shift. In laywoman’s language, things will never be the same again.

The Covid-19 event has caught the world unprepared. There was every reason it should. The possibility of a pandemic was quite high and highlighted regularly. The problem is that by necessity preparedness means global preparedness and there is no effective global governance. The supranational organisations that exist are highly political and attract political animals rather than specifically talented (though some have talented political animals). These organisations function to remain in existence and thus are more concerned with funding than fulfilment of mandate. They are constitutionally too weak to impose any level of preparedness on national governments. The latter are only concerned with remaining in power and thus focused on events between now and the next election. None of these immediate concerns are served by worrying about a global pandemic.

Objectively such human institutional behaviour is inefficient. The cost of this pandemic in lost GDP and lives could have been dramatically ameliorated with a fairly low cost co-ordinated pandemic contingency plan. This however would have required an unprecedented level of co-operation among nation states that are habitually suspicious and continuously trying to gain advantage over each other. One need only look at progress on the far more dangerous climate change issue to understand how difficult this would have been. After all, biological warfare is still a thing!

The human species is doomed to fail to anticipate and plan for events that potentially affect all humans equally. This is because the human species is a collection of competing sub-species just like all other organic life. Despite its much vaunted intelligence it behaves like all organic life. Indeed the concept of a sub-species is a human construct. Human knowledge construction is all about noting difference. It is rare that it is emphasises similarity. The compulsion to scientific reductionism seems to be ingrained in human consciousness. It may ultimately destroy us and perhaps through us all organic life. Attempts at a holistic approach are not unknown but seem to fade. Buddhism is a holistic religion but seems to degenerate into a reductionist religion. All life us sacred except Rohingya it seems. This pattern is evident in all attempts at a holistic approach. Reductionism always seems to assert. Covid-19 may be the catalyst for a state shift.

Taken in isolation I doubt Covid-19 would be a catalyst for anything. It is not the first pandemic nor, so far, the worst. There is little evidence that collective human behaviour has been materially impacted by past pandemics so I see no reason to expect Covid-19 to be any different. But context is everything and the context is quite unique. First, there is a far more serious existential threat hanging over organic life. Second, the world has never been smaller and so well connected.

The previous blog highlighted how science has been resurrected as an authoritative voice and the blog before how a Covid-19 had imposed an unimagined experiment in climate control on the humanity. The combination of the two may well allow science to impose its authority on the globe much like religion once did. Unfortunately like religion science is not a unified body of ideas and ‘facts’. Much needs to be taken on trust and so suspicion and manipulation in pursuit of power remains a threat (the subject of many of my blogs). Nevertheless the strength of science is the ultimate test of experience or evidence and thus, unlike religion, it can be challenged. This is the importance of the second contextual variation.

Technology has shrunk the world. Not only can we travel around quickly and cheaply we can communicate with people everywhere and anywhere instantly and at zero marginal cost. Indeed with virtual technology travel is not wholly necessary to experience the globe. The information network is open to manipulation and misinformation but nevertheless it exists and makes it possible to be aware of what is happening everywhere more or less as it happens. There is less emphasis on difference in a community and the community is now global. The combined impact of science regaining authority, the climate change experiment, and global community has made the possibility for a holistic approach to human existence never more evident. There is hope.

The forces of nationalism and isolation are presently in the ascendancy. They were before Covid-19 emerged. Superficially the short-term impact might seem likely reinforce these trends. But it may not. The generation growing up now must be looking at the behaviour of national governments with a jaundiced eye. This is the generation most connected to the global community and I can only imagine what they make of the ‘leadership’ and ‘governance’ on offer at the moment. The transparent egos and power plays that presently masquerade as policy must be confusing and frustrating. But they have many governments to compare and there is an objective criterion by which to judge. It may take a few years for this young generation to assert itself but when it does I strongly suggest it will not be anything like my generation. Indeed it will be so different that to be speak of a state shift is not an exaggeration.

Resurrection of an Authoritative Voice

The Authoritative Voice is the voice we internalise as truth without question (It is discussed at length in my blog ). The last few years have seen this voice decline and fracture ( discussed at length in my blogs ). Covid-19 may well result in the resurrection of an Authoritative Voice: the voice of science.

For many years experts have been demonised in the pursuit of populist policies. The latter work by telling people what they want to hear. The populist ideas need not be mutually consistent nor based in evidence. They simply need to make people feel better about themselves in the moment. The destruction of the Authoritative Voice was a necessary pre-requisite to populism. Covid-19 may yet reverse the process.

The same politicians that derided experts now hand over control of press briefings to ‘the science’ and the scientists that wield the science. No one is listening to the politicians. They are listening to the scientists. The prospect of death has a way of concentrating the mind and only facts make people feel better. Mutually inconsistent concepts no longer help. Covid-19 has eroded the collective sense of control and only science can restore this sense of control.

There have been attempts at populist response to Covid-19. Conspiracy theories abound. Quack cures are all over social media. Politicians still lie and try to rewrite history which is only weeks old and still fresh in the memory (and on social media). Some people still dismiss Covid-19 as ‘just a flu’. These are probably people that must work unprotected and need to feel safe. Others regard it as the plague. These are possibly people that struggle with being confined by the state and need to feel it is justified. Most however simply listen to the scientists and adapt their behaviour as instructed because it is the evidence-based way to proceed. The Authoritative Voice is being resurrected.

In my previous blog I discussed the unimagined experiment in climate change dynamics that Covid-19 has forced upon humanity; the dramatic reduction in Co2 emissions and other pollutants. Scientists will soon have evidence on how a change in our economic behaviour may impact climate change. At some point they will collate and present this evidence with authority and we will listen. Economists will be asked to demonstrate how we can implement necessary structural economic changes whilst minimising the social and economic cost. Politicians will defer to experts and we will listen. The resurrection of a science based Authoritative Voice may not save humanity but it does give us collectively the best chance of saving ourselves. It is certainly better than the voice of the populist.

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