Thursday , April 9 2020
Home / Naked Capitalism / Bad Bets and the Corona Virus Epidemic

Bad Bets and the Corona Virus Epidemic

Summary:
By Lambert Strether of Corrente. The headline says “epidemic,” and not “pandemic” because the no authority (for example, WHO) has made the call. (The only pandemic we currently have going is AIDS. So, good news there.) The headline also says “bad bets” instead of risk, because risk is a topic that I should probably avoid entirely, not being a trader or a statistician, hating gambling, and being a humanities major (though I suppose I do have a little “skin in the game” because I depend on a readership, as opposed to being, oh, a college administrator). I had thought to begin this post from first principles by citing to the master artisan of risk, Nassim Nicholas Taleb, but I was unable to find the exact tweet I wanted to use as a hook, which may have been a stroke of luck because I

Topics:
Lambert Strether considers the following as important: , , , ,

This could be interesting, too:

S&P Global Platts writes Commodity Tracker: 6 charts to watch this week

Jerri-Lynn Scofield writes Right to Repair and Ventilators: Saving COVID-19 Patients

Jerri-Lynn Scofield writes Links 4/5/2020

Yves Smith writes Services Sector Falls Off Cliff: First Data Points from the Eurozone Where Lockdowns Started Earlier

By Lambert Strether of Corrente.

The headline says “epidemic,” and not “pandemic” because the no authority (for example, WHO) has made the call. (The only pandemic we currently have going is AIDS. So, good news there.) The headline also says “bad bets” instead of risk, because risk is a topic that I should probably avoid entirely, not being a trader or a statistician, hating gambling, and being a humanities major (though I suppose I do have a little “skin in the game” because I depend on a readership, as opposed to being, oh, a college administrator).

I had thought to begin this post from first principles by citing to the master artisan of risk, Nassim Nicholas Taleb, but I was unable to find the exact tweet I wanted to use as a hook, which may have been a stroke of luck because I shouldn’t be juggling with sharp tools.

So what do I mean by “bad bet”? Totally bastardizing Taleb from memory, a “bad bet” — to me — is a bet that you cannot afford to lose. (Walk away from the table if a loss means you lose your house, if you have only one house.) Now, in retrospect, I’m not sure that #COVID-19 is all that “Black Swan”-ish — not at all “highly improbable.” But there certainly have been a number of “bad bets” made. I will point to three: By the individual, by the state, and by globalizing, neoliberal elites.

First, a “bad bet” by the individual (“bad” in the sense that the individual might lose their life[1]). Here is a flower seller in Shenszen, a week before lockdown:

Suppose the flower seller’s decision-making process was a matrix like this:

“Carry on”/”Shouldn’t” is clearly a bad bet — even in the absence of a police crackdown and quarantine — because it violates all the Nineteenth Century public health measures that would save her life: Little social distance, no way to wash her hands, and (just in case she gets sneezed upon) no mask. Of course, if a lot of people start making bad bets out of necessity — say, because they have to sell their labor power to survive — then that’s not only going to amp up the epidemic, but will cause social stability problems for the state, to which we now turn.

Second, a bad bet by the state. From the Washington Post, “Why Wuhan Is at the Center of the Viral Outbreak“:

Wuhan, which branded itself as a Chinese version of Phoenix, is now the epicenter of a SARS-like virus that has sickened hundreds. It’s worth asking why this disease came out of an inland technology hub that boasts a young — and presumably healthier — workforce, rather than the mega-cities of Beijing or Shanghai….

Wuhan has been carefully fostering a reputation as an alternative to Shenzhen. In its latest five-year plan, the city set a target of keeping 1 million college graduates by relaxing its hukou system, the equivalent of a green card that entitles holders to social services such as public-school education.

The high volume of labor migration isn’t to blame, however. A city may well expand in size, but basic public services must keep up, too. Take a look at Wuhan’s fiscal spending. While money has poured into hot areas such as technology research, expenditure on public health has been stagnant. As recently as last June, Wuhan residents complained about poor hygiene at the seafood market, but the municipality didn’t respond. While Beijing and Shanghai host lots of migrants, too, both cities spend more on this sector. Populations there have flattened amid restrictions on labor inflows.

Granted, money is tight for local governments as the economy slows, especially after last year’s $300 billion tax cut. As a result, bureaucrats have to make a tough decision between grants to chip designers and public health. The former serves President Xi Jinping’s Made in China 2025 drive, while the latter minimizes black swan scenarios.

As I said, I’m not sure enormous viral outbreaks are blacks swans; I think a little research would show plenty of Cassandras. That said, it certainly looks like skimping on public health was a very bad bet (besides the suffering and death, a recession in China, or even a global recession, permanent reconfiguration of the supply chain, loss of soft power by China, etc.).

Finally, our globalizing, neoliberal elites. This is a whole post, and probably a whole book. Simplifying absurdly, our neoliberal elites destroyed manufacturing in this country and moved it to China. (And yes, a great swath of the American working class in flyover was destroyed, but there were downsides, too!) Save for the profits they accrued, most of their working assumptions for this policy proved false. China, for example, did not become a liberal democracy; as it turns out, liberal democracy does not automagically happen because there are markets, or capitalism. Nor did China become a happy member of “the rules-based international order.” Rather — and who could blame them — they decided to write their own rules. Finally, a highly optimized supply chain system so complex as to be unmanageable developed to ship consumer goods from China to the world, and to ship raw materials from the world into China. As we have seen in the last few weeks, the supply chain is extremely fragile, and its failure may mean a loss of truly essential commodities to the United States, like pharmaceuticals (although the wealthy will be able to get what they need, so no problem there). And what bad bet did our globalizing, neoliberal elites make? The same as the bureaucrats running Wuhan: That public health doesn’t matter. (An absurdly bad bet, after H1N1, SARS, and swine fever in China, an animal epidemic running concurrently with the human.)

Clearly, a less fragile, more robust system of global public health is needed; one that can take precautionary measures, instead of just reacting to outbreaks as they occur. How to get to that point, however, is little beyond me. We might start from the premise that human life is the most important thing. That may be difficult for our elites to accept. But they might be making a bad bet if they don’t.

NOTES

[1] Of course, there might be reasons to make bad bets: Altruism, self-sacrifice, personal integrity, and so forth. But bad bets they are.

Leave a Reply

Your email address will not be published. Required fields are marked *