The coronavirus end of lock-down migth be driven by a simple cost-benefit economic analysis
For the past few days we have been hearing this little song: that the lockdown must end as soon as possible, for economic reasons. It’s a simple idea, based on the economist’s favourite tool: cost-benefit analysis.
On one hand, people dying from coronavirus. On the other, the costs of the drop in GDP and the economic crisis, which will also result in people dying. The scales seem to tilt in favour of restarting the economy. We could once again turn to the infamous ‘herd immunity’ strategy, and tolerate covid casualties to prevent heavier casualties caused by an economic disaster.
The dilemma is remarkable in what it reveals about our capitalist economy. […] This ghoulish bookkeeping places two distinct realities on an equal footing: one is a natural phenomenon that people are subjected to, a virus against which we have no weapons, at least for now, and which directly kills men and women. The other is humanity’s own creation, the market economy, which now imposes its law on its creators to the point of directly killing them.
This is not to deny that economic crises cost human lives. But these crises are not natural phenomena that men are subjected to. They are the product of our social organisation, of our activities and of our choices. It is entirely up to us to find other forms of social organisation which preserves lives and whose occasional crises are less lethal.
The truth hiding in plain sight in these economistic discourses that deplore the lockdowns is that the victims of the future recession won’t be collateral victims of our current choice to save lives, they won’t be the victims of our decision to curb the pandemic; they will be the victims of our economic system based on market worship and ghoulish bookkeeping.
We understand the economists’ ire: suddenly, within a few weeks, we realised that we could stop the flight forward of our market economy, that we could focus on the essentials: the sectors of health, food, and care. And—how supremely strange—the world did not stop spinning, nor did humanity cease to exist. Capitalism is frozen in its most bare-bones state: it only generates the most minimal surplus value, not enough to feed the flow of capital. And humanity lives on. Capitalism is separate from human existence. […] When the market ceases to “create wealth”, hardly anything happens.
This is why we are now hearing threats aiming to maintain the myth of the intrinsic capitalistic character of human existence: we will all pay for this, we will pay dearly. In human lives. A 30% drop in GDP cannot go unpunished. Except we are precisely seeing evidence to the contrary, to the fact that human lives, rather than commodity exchanges, might be at the centre of things. […] This is deeply unbearable to economists and they cannot wait to end a lockdown that sheds light on many inconvenient truths. We might end up picturing a different social organisation, different priorities, we might end up redefining our essential needs […]. But then, we wouldn’t need all this hodgepodge: competitiveness, GDP, returns on investment, dividends—which ensures that our job market remains under the heel of the exchange value. We might democratise the economy…
This is exactly why it is urgent that we move on to this foretold recession that will be allowed to run rampant to teach us a lesson about the foolishness of putting human lives before market abstractions. Everything will be done to ensure that the lockdowns result in a violent economic crisis that will, indeed, cost human lives. This will be done very simply: by merely “freezing” the economy and avoiding at all costs to take advantage of this pause to implement any reforms. Once unfrozen, the market economy will do its worst—its mechanisms will unleash their wrath, and we will be asked to accept this as unavoidable divine retribution.
Source : What the lockdown teaches us about economics (french), April 11, 2020, Médiapart, translation by exhaled-spirals via Tumblr
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.
Coronavirus is a planetary event of a magnitude we have trouble wrapping our minds around, not only because of its ...
To widen the market and to narrow the competition, is always the interest of the dealers…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
The opportunity cost (or alternative cost) is an economic concept that considers the cost of not doing an activity so that to use its resources to achieve another one.
These costs are not counted as such but are taken into account in the decision-making process.
The opportunity cost translates as the company's decision to allocate one available resource to one project rather than another in order to make the best possible gain. In in the example above, if the company decides to assign its production tool to the X model to the detriment of the Y model, and retains the B2 option for some strategic reason, the cost of opportunity is (72-55) € 17 million.
Source and adaptation :
Fred Wilson, Opportunity cost, AVC, 2010