Alvaro Vargas Llosa has a great piece on Covid19 and partisan politics. The virus is “ideologically ambidextrous and hermaphrodite”. The virus “disfavors migrations” and “home confinement may skyrocket the birth rate, strengthening, or at least slowing the erosion of, family values.” So is it a situation that will resonate more with the worldview of people on the right?
Vargas Llosa doesn’t think so. The virus will hardly have only the consequence of pushing us in a more conservative direction. The most likely political consequence of Coronavirus is going to be a massive increase in government powers and spending:
The outbreak has brought about a new heyday of government power. Governments lock us down; they bully us into complying with their draconian measures; they are now controlling entire industries (they can requisition goods, take over factories, redirect production towards their goals, etc.); and they have announced monetary and spending measures that make the post-financial crisis days of easy money and fiscal profligacy look like small fry. Despite government spending levels that, as a percentage of GDP, are on almost three times as high as that of Singapore and twice that of Hong Kong, Europe is looking to spend the equivalent of between 2 and 3.5 percent of GDP to rescue the economy.
Personally what I fear the most is the way in which people will respond, at the end of the emergency, to the major economic wreckage we will have to deal with. Lots of observers tend to assume that the virus has damaged populism, as now demagogues (including Trump) were forced to pick “experts” who are at the helm of our countries. But interventions validated by experts may backfire too. We may end up with a society which is less dynamic, more fearful, and more dependent on government than ever.
READER COMMENTS
Matthias Görgens
Mar 25 2020 at 11:59am
Singapore is pretty open to skilled migrants, if you want to come to the Promised Land.
Phil H
Mar 26 2020 at 2:54am
“a society which is less dynamic, more fearful, and more dependent on government than ever”
And an excellent thing that would be. People who have never taken any risks in their lives – academic economists – love to tell us that “risk taking” is necessary for a vibrant economy. This is complete nonsense. In fact it was the invention of mechanisms for minimising risk, notably the limited liability company, that created the conditions for the great explosion of wealth in the 20th century. Fearful people seek to minimise risk, and when risks are reduced, we will finally be freed (from fear) and able to create. Government will indeed have a major role to play.
Mark Z
Mar 26 2020 at 6:28am
Every production act of creation or innovation is a risk, as well it should be, because it’s not guaranteed to pay off. Progress is made through trial and error. The more you insulate someone from the ‘error’ part of that, the less incentive they have to avoid erring.
I’m also going to dispute your claim that limited liability companies were essential to the explosion of wealth. If liability were allocated in a way that exposed investors to to much risk, why wouldn’t companies just finance themselves via debt instead of equity? It’s not hard to imagine such a parallel world that would work fairly similarly to the one we have. More generally, maybe I put too much faith in Coase Theorem, but I don’t think how liability is originally allocated is what’s most important, as long as it’s allocated clearly and consistently and exchange is permitted so the cost can be reallocated however is most efficient.
Comments are closed.