Australian Notes

Our threatened eco-system

29 August 2020

9:00 AM

29 August 2020

9:00 AM

Our threatened eco-system

A fragile, irreplaceable eco-system is threatened and not a single environmentalist has raised their voice in protest. I am not talking about a rainforest, a waterway or even the climate system. No, I refer to our economy. The shifting, delicately woven web of relationships which link us all, employer and employee, consumer and seller, in what is crudely termed the market. A spontaneously created order, too complex for any single planner to comprehend let alone replicate, which reconciles and balances our millions of separately formulated plans. Yes, Adam Smith’s invisible hand, which no less than the eco-systems environmentalists celebrate, is a miracle of nature, a gift of providence upon which we all depend.

As we all know, governments around the world have shut down large parts of this eco-system to counter Covid-19. This action has been urged on them by health experts. Guided by their single-minded focus on virus suppression, they argue that no obstacle or barrier to this goal should be left standing. If the economic eco-system is a disease enabler, it must be closed down or put into hibernation. If the metaphorical village must be destroyed in order to save it, so be it.

I will not criticise the epidemiologists for their views. If you have spent your life studying diseases to the exclusion of everything else, you can be forgiven for a certain monomania. To expect epidemiologists to understand, much less take nuanced account of, the effect of their advice on the world beyond their models is unrealistic. In a society characterised by a strict division of expertise, everyone remains firmly in their own lane. The Renaissance Man, to use a sexist term, is dead.

No, if our threatened eco-system is to be defended, I look to our economists to come forward. No one has a better feel for this system’s complexity and fragility. No one a greater appreciation of the diverse livelihoods, ambitions and life-plans it sustains. If every marine biologist can be expected to stand up for the Great Barrier Reef, every economist worth their salt would do the same for the eco-system they study. Or so you would think.

But we see very little evidence of this. Why? The main reason, it seems to me (and I confess I am a practitioner of the dismal science, so can speak from experience), is that economists picture the economy in engineering rather than biological terms. Rather than a self-regulating, finely-calibrated ecosystem, it is for them no more than a kind of giant, motorised meccano set. A system of prosaic pullies and levers which links us all together. A production line, or a series of them, which transforms society’s resources (our labour, land and savings) into so many goods and services.

The mechanistic metaphor is highly convenient. It allows economists to quantify the unquantifiable, giving their work a spurious precision (investment, a subjective act of courage and risk for every person who undertakes it, is for them no more than an injection or flow). Millions of moving parts can be reduced to a few simple aggregates, which become the focus of analysis. Precise forecasting becomes possible. After all, a functioning piece of machinery can operate, or be assumed to operate, at a regular pace. Economists call this trend growth. A complex eco-system, in contrast, evolves in unexpected, unquantifiable ways. Life has a habit of not fitting into neat equations.

Now if we accept the engineering analogy, which almost all economists do, it follows that the economy (or parts of it) can be shut down and restarted at will. This explains economists’ ready acceptance of the epidemiologists’ preferred course of action. The almost total absence of protest, from this quarter, of punitive shutdowns.

If, on the other hand, economists viewed the economy as a threatened eco-system, they would be far less sanguine. In this case, they would warn against precipitate action. They would explain that damaging part of this system risks throwing the entirety out of balance, risking its future health and functioning for years to come.

Armed with this ecological perspective, economists would urge the epidemiologists to reconsider their harsh economic prescriptions. They might even propose lighter touch strategies to counter the virus. At the very least, they would help balance and ground public discussion on this subject, highlighting trade-offs and dilemmas that our medical experts are inevitably blind to.

Perhaps I am too pessimistic. Perhaps, once the virus is under control (even before a vaccine) and the restrictions relaxed, our damaged economy may quickly return to life. Taking a different form, to be sure, and bearing some lasting scars, but viable nevertheless. I sincerely hope this proves to be the case, but history would suggest otherwise. While regeneration is possible, it can be a long and drawn out process. A matter of decades rather than months. This was the case after the Great Depression. And (admittedly on a smaller scale) it has also been in evidence since the 2008 global financial crisis, a time of stagnating investment, wages and growth throughout the developed world. A phenomenon, I might add, that economists have been unable to explain, much less prevent.

As any environmentalist will tell you, you harm an eco-system at your own risk. This is the basis of the precautionary principle, after all. Did we reflect carefully on the consequences before shutting down our economy? Did the purported benefits justify the costs and suffering?

Yes, the virus will be defeated one day (or perhaps we will learn to live with it), but for our eco-system to thrive, its most fragile life form, now almost extinct, must flourish anew. Its name is confidence. The animal spirit that animates every risk-taker, every small-business owner and consumer. A spirit that once lost, can prove maddeningly elusive. If the economy was indeed a giant machine, confidence could be manufactured. Just give business a tax cut, a regulatory break or a lower interest rate and watch the investment flow. But if, as I suspect, it is quite a different thing, we may rue the harm we have done.

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