Fox Holes and Pandemics

Fox Holes and Pandemics

By Joel Levin

It was said in the war that triggered the last pandemic: “There are no atheists in fox holes “. One might well add: “There are no tightwads in a pandemic “.

The COVID-19 pandemic challenges the normal divisions of politics and economics, that is, the way we look at what governments should do with our money and its own money. Normally that problem pits market-based endeavors against government-based endeavors. But this is not a normal time. Now everyone wants more government intervention. More state help for healthcare personnel, equipment, medicine and funding. More help for businesses large and small and individuals needy and needier. More help for everyone. Even Arthur Laffer, the creator of the Laffer Curve (an unproven conjecture taken by some as holy writ, suggesting that higher taxes are self-defeating as taxpayers will become increasingly impoverished and you will only get a higher percentage of less) has said, for now, that more government intervention is necessary. Political posturing, as always, is a mess. I want to suggest the division here – between markets and laissez-faire (don’t bug me) and government and regulation (please help me) – is a fundamental mistake. It shouldn’t take a disaster, hurricane, earthquake, pandemic, for us to see that. We need to shift our focus to where it belongs. We need to move away from what people call “principled” positions that are a flimsy disguise for ideology, and toward positions rooted in the empirical and the moral.

First, let me state what ought to be obvious to anyone not a partisan in this debate: the facts matter, and they are ambiguous at best, and more often maddening, disappointing, obscure, missing and stubbornly non-ideological. Consider the centuries old debate, in focus at least since Adam Smith and David Ricardo first set out the fundamental problem of modern economic theory 200 years ago: when should governments interfere with, or correct, the market? Of course, the market does some things extraordinarily well: matters from innovation to distribution, from retail to warehousing, from food to high tech to drugs to entertainment, and on and on. That said, it tends toward the monopolistic, indifference to the poor and to the environment, an inability to take on large projects, and unconcern with inequality.  One thinks of what it never did: organize the Manhattan Project, construction TVA and the Interstate Highway System, win World War II, build the Internet, operate the FDA and run criminal law and fire-fighting systems. Instead, pure market-driven capitalism increasingly focuses on the self-interest of a few.  It has been a system complacent if not complicit with slavery, imperialism, and territorial wars, and increasingly with a depopulated and vanishing middle class. It is a positive disaster for the environment. Conversely, governments do some things extraordinarily well, from state and community colleges, to public hospitals and Social Security, to food subsidies, running police and fire and EMS, going to the moon, building roads and bridges and dams, and inventing the vacuum tube, nuclear energy, the Internet, and GPS. However, from micromanaging individual lives to extravagant taxation, to a fondness for wars and prisons, to running a bureaucratic economy often indifferent to consumer choices: these would be just the beginning of the downside of a great deal of governmental activism.

Of course, reasonable regulation and fair competition ought to be everyone’s goal. But the test cannot lie merely with abstract political and economic theory. It is obviously an empirical one: what works where? Political economy theory – complex, inconsistent, deliberately obscure, full of problematic and often meaningless mathematical formulas – is justified on the basis of two fundamental principles: the principle of rational choice and the principle of utility. Neither, in their strong or more carefully stated form, is true. While volumes are devoted to these matters, one might ask a straightforward and pared-down question of each principle. Rational choice says that people are rational in their conduct, basing their actions and choices on knowledge and reason in order to make the best rational economic choices. This underlies the invisible hand, where individual rational self-interest benefits all. For this theory to have any basis in reality, we need to assume people are knowledgeable, rational, unbiased, unhurried, pressured, and can weigh the future sanely. Each of these is very often false. We rather should follow the advice of the empiricist that experience should be our guide and simply look around. Individuals (Herbert Simon, Daniel Kahneman, Richard Thaler, others) have landed Nobel Prizes for spotting the obvious fact that people behave like people, but that one gets the Nobel Prize for seeing the stunningly obvious ought to be a sign of the insanity of much of the intellectual landscape that politics and economics share.

Rational choice is wrong on an array of counts. Game theory has taught us that we can be rational but have different thoughts about risk. That’s why some people buy government bonds while others buy chips for Las Vegas blackjack tables. Moreover, the knowledge necessary to be rational is often in short supply. Do we know enough to select the right drug without the FDA or, for that matter, does our physician? To identify a fraudulent security without an SEC or to board a plane without fear absent an FAA? Bite in to lunch without the USDA? That said, do we have enough knowledge, particularly if we are reasonable risk takers, to use marijuana or alcohol without an overreaching government slapping our hands as we stretch for a drink or a toke. Moreover, we often act in groups – the family vacation, the union strike vote, raising club dues- and the rationality, if it can be found at all, is located with the group not the individual. 

The analysis should not be the usual political or economic theory (as they are pontificated) but empirical. What makes sense, where does the knowledge lie, what about risk, surprise, ignorance and fraud. Karl Marx and Milton Friedman, and their acolytes and fellow travelers without number (think Bernie Sanders and Rand Paul), would benefit by simply looking around. Perhaps when they do, they might see the messy but commonsensical steps needed by government and private sectors momentarily working together, as with COVID-19. The results may be abysmal – tardy responses, misappropriated funds, imprudent resource allocation- but they are measured by empirical results, not econometric modeling.

There is a second issue, that of the principle of utility. What counts as success? That is, what is a good political economy: more prosperity, more equality, more rights, better shepherds of the environment, better planning for future generations, or a more pleasant life with fewer highs but also fewer devastating lows? These are hardly the same things, and clash constantly. But political economy, generally in the West, favors a single measure to judge that success, namely, utility. Utility today is usually meant to be the satisfying of individual preferences. Things work well if individuals get what they want. Sounds fair. But it isn’t. 

We each have different preferences, quite different. What Donald Trump needs or wants or prefers is quite unlike what Gandhi needed or wanted or preferred. If it is just a matter of material goods, Trump seems to be the proverbial utility monster, always wanting more. If it includes freedom for India from British imperial rule, then Gandhi is the utility monster, wanting much, much more. However, even if we award each individual the same measure, say $2500 worth of stuff, existing inequality remains almost exactly the same, with Gandhi now able to buy a rather good MacBook and Trump dinner at an excellent New York steakhouse. How has morality advanced?

It is worse than that. Increasingly utility, or any of the larger markers that roughly consist in it, such as the Dow Jones, GDP, trade and employment numbers, can mean increasing inequality. If you spend money for the cloud to store your stuff and gain a unit of utility thereby, it will cost you a unit as well, but its price could be sufficient to give the cloud’s largest owner, Bill Gates, two units of utility. This sale would increase inequality. Same exercise can be seen with banks, physicians, the gas company, insurance carriers, and other takers of precious utility units.

There are a raft of related issues. If a Third World refugee, starving, sells his second (and perhaps not immediately necessary) kidney to feed himself and his family to a wealthy but needy individual wanting to avoid dialysis, setting a price that might be economically reasonable (utility and maybe Pareto net positive), an increase in utility would not be the issue, but any even modest ethical inquiry old reveal issues nonetheless. The same problem with temporary slavery (indentured servitude or corvee) for a reasonable price, whatever that might mean, to allow survival. High utility, suspect morality. Achieving preferences is but one moral goal, a laudatory one, but sometimes the wrong one. It is indifferent to other goals, including equality and justice. It is also indifferent to uncounted people, including future generations. Overuse of public parks or the winnowing of the unique Sequoia Forest might easily meet the goal of increasing utility, but it would irreparably harm future generations who are unable to be counted in any poll or census of utility preferences today.

Where does all this leave us? Does disaster require the nanny state or is our fiscal reaction merely panic that is counterproductive, ruinous, and an intrusion on the god of the market? Seeing it to be that choice is to see it the wrong way. This false choice suggests that the empirical world, what actually occurs, works and fails, doesn’t matter, only ideological purity does. It is satisfied with an emaciated morality, one only counting freedom rather than other moral ends or any broader welfare of the population. It asks us to choose without seeing what works. 

Yet, that is our joint political and economic system: bipolar and ignorant of reality. Bragging and bluster – “ours is the greatest everything “– replaces inspection, observation, experience and research. Should we, then, give entities tax money when they suffer the pandemic, companies such as airlines and restaurants and dollar stores? Does that support a socialist vision that is insupportable or a humanitarian cause of help to companies that will justifiably aid employees and consumers, or does any of that labeling make any difference without looking at the facts of the matter?

Back to the foxhole. God isn’t verified because one is scared to near death in a foxhole, and Adam Smith isn’t wrong because panic sets in with a pandemic. Maybe the atheistic market is just right. But that would be because we have found it accurate by experience and right by our moral sensibilities.

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