Monday, May 11, 2020

The End of the World as We Know It

The four decades from 1980 to 2020 produced the greatest growth of liberty and prosperity in human history. Most of the great 20th Century dictatorships that had imprisoned half of the world's population collapsed or were replaced by more liberal versions of themselves. Average human income as measured by GDP per capita increased from approximately $2500 (in current US Dollars) to more than $11,000, and those living in extreme poverty as defined by the World Bank reduced from 44% of the world's population to less than 10%. The economic deregulation of the 1980s resulted in a wave of technological innovation in medicine, telecommunications, energy production, finance and consumer goods that has enabled people all over the world to live better and longer lives. The social liberalism that started in the 1960s accelerated during this period and, in the West at least, most of the remaining discriminatory laws against minorities such as gay people were swept aside.

The authoritarian instinct wasn't gone, however. In China, the Communist Party refused to follow its Russian and European counterparts into oblivion and in 1989 at Tiananmen Square reasserted its totalitarian rule with a bloodbath of tanks and guns against unarmed protestors. A few formerly-liberal countries like Venezuela also bucked the trend and embraced an austere form of socialism of which even the Khmer Rouge might have been proud. The United States reacted to the terrorist attacks against the World Trade Centre and other major landmarks in 2001 by invading Afghanistan and Iraq and introducing the repressive Patriot Act, turning its sophisticated surveillance capabilities against its own people, and many other Western governments followed suit. We had some economic stumbles, most notably the dotcom crash of 2000 and the global financial crisis of 2008, but while these interrupted the long periods of growth, the overall upward trend continued.

That era is over. Covid-19 has been the catalyst for, but not the exclusive cause of, a sea change in our social, economic and political lives that is unlikely to be short-lived. The signs were there before the pandemic. Elements of the environmental movement such as Extinction Rebellion had become shrill in their calls to sacrifice our economic and political freedom to avert a millenarian doomsday, and a combination of enhanced censorship laws and a "cancel culture" - complete with virtual-pitchfork-wielding mobs - saw the casting out from mainstream discourse of anyone who defied the increasingly narrow political orthodoxy. Voters responded by electing contrarian political bruisers such as Donald Trump in the United States, Jair Bolsonaro in Brazil and Viktor Orbán in Hungary, who vowed to overturn some of their opponents' excesses and imposed a few of their own. Covid-19 has merely brought all of this to a head.

Whether or not the Covid-19 lockdowns that most countries have imposed are justified from a epidemiological perspective, there is no doubt now that the economic costs and the political and social impacts will be significant and long-lasting. The elimination of the spread of the disease within a country's borders is just the beginning of the journey back. We will have to live with a less-onerous form of lockdown, including quarantine at the border, until we have a vaccine or develop natural herd immunity. According to the OECD, the lockdowns will have an initial negative impact on GDP of between 15% (Ireland) and 35% (Greece). The longer term economic impact is uncertain, although many economists are now expecting a U-shaped, rather than a V-shaped, recovery. We almost certainly haven't seen the full impact on stock prices, and as earnings plummet and more companies fail, the consequential impact on global markets is likely to be felt for years to come. Governments that already have high levels of national debt and large deficits will have limited capacity to use monetary and fiscal policy to drive long-term economic recovery, particularly with interest rates at historic lows.

Many of the changes we have adopted during the lockdown will survive the easing of restrictions. Some of these changes are positive - for example, the widespread use of working-from-home technology lessening the need for people to commute to central city offices (with a consequential reduction in traffic congestion and pollution). Others aren't so positive - such as the permanent loss of jobs in retailing and food service from the accelerated use of online shopping and home delivery. One of the worst effects may be a permanent disruption to social relations, particularly amongst the elderly, as people struggle to restore tenuous community relationships that existed before the lockdown. The pandemic has seen traditional social niceties replaced by mutual suspicion and this trend won't be easily reversed.

The biggest permanent impact is likely to be political. Covid-19 has seen the largest expansion of state power over our lives since World War II. We have broken through an invisible wall of convention that constrained governments as much as any formal constitutional barriers - the presumption that a citizen can do anything so long as it isn't legally forbidden has given way to the expectation that our governments will tell what we are allowed to do. This hasn't happened in defiance of the will of the people - polls indicate that a majority of voters in most Western nations favour the extension of the lockdown, and any questioning of its necessity is regarded by many as disloyal. The established media have been cheerleaders of the measures and their traditional role of holding government to account has been assumed by bloggers and podcasters, who are often cast as troublemakers. The traditional Western political divide between conservatives and progressives hasn't defined the battlelines over the lockdowns - governments of both political hues have adopted similarly stringent measures and it has been the ultra-progressive Sweden that has been a libertarian outlier.

We don't have to be dire pessimists to think that it will be many years before we shake off all of the effects of Covid-19. International travel, for example, won't return to normal until we have a vaccine and airlines may be required to make social distancing permanent, halving the number of passengers on a plane and doubling the fares, thereby returning air travel to the relative luxury of the 1970s. Perhaps we will see a levelling of the disparities in incomes that have grown up in recent decades between blue collar jobs and the managerial elite, as some of those "essential" workers demand wages more commensurate with the importance of their role in the lockdown. Recent moves towards greater protectionism in trade is likely to accelerate as nations embrace isolationism and autarky, which is likely to further constrain economic recovery and growth. And some governments will be reluctant to hand back the power they have assumed during the lockdown, justifying further constraints on liberty by the ongoing impacts of the lockdown itself, in a vicious circle of escalating repression. It will be a virtuous government indeed that abandons all of their lockdown measures at the earliest possible opportunity.

Those of us whose adult lives have largely played out over the last four decades should be grateful that we have lived through the best of times, but we owe it to our children and grandchildren to give them at least the same opportunities that we have had to enjoy happy, healthy and fulfilling lives. How we handle the recovery from Covid-19 will determine whether we do so.

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