Covid’s economic albatross

13 Dec 2020

As 2020 comes to an end, it feels a bit like we are in the position of the character in Samuel Taylor Coleridge’s Rime of the Ancient Mariner, who was about to join the wedding feast only to be intercepted by a wizened old seaman who told a long and sad tale of his adventures at sea.

First published in Daily Maverick 168

The wedding guest is mesmerised by the story, and the poem ends with a wonderful quatrain:

He went like one that hath been stunned,
And is of sense forlorn:
A sadder and a wiser man,
He rose the morrow morn.

We are all a little sadder and wiser as we rise for the figurative morrow morn. And yet, in experience, there is always something to be learnt, and in this case, it’s profound.

At the start of the coronavirus pandemic, we all obviously didn’t know what to expect. In that doubt, there was an odd utility. Of necessity, a grand experiment was to be had about the right way to respond.

One of the most interesting was what might be called the Swedish option. As with all experiments, the thing you have to watch out for is your priors, and personally my priors align closely with the Swedish approach. In principle, I like the idea of trusting the populace rather than the state. I’m very in favour of personal liberty. I prefer voluntarism to diktat. I like the idea of institutional independence.

All of this was evident in Sweden’s approach to the pandemic: Swedes were asked to be responsible, not ordered around like playthings. They were trusted as citizens. The economy was kept mostly open.

And for a while there, it looked as though it might work. What a contrast to the absurdities of SA’s approach, like banning the sale of cigarettes and all the rest. Sweden opted not to impose mask-wearing, and bars and nightclubs stayed open. Mass sporting and cultural events were happening as late as last month.

Not any more. The numbers are in, and the Swedish experiment is over. Like the rest of Europe, the northern winter in Sweden will be filled with bans on large gatherings, curbs on alcohol sales and school closures.

The really thumping number is the number of deaths per capita, and here Sweden is among the very worst in the world. The problem was not so much the first wave, but the second surge. Sweden’s total coronavirus death count is now over 7,000, while its Scandanavian neighbours, Denmark, Finland and Norway, have recorded since the start of the pandemic 878, 415 and 354 deaths, respectively.

That doesn’t sound like an enormous number compared with say SA’s 22,000-odd, but Sweden only has a population of around 10 million; per capita, it’s double SA’s death rate. Finland and Norway have half the population of Sweden, but a small fraction of the deaths.

But here is the real oddity; Sweden’s economy didn’t deliver the economic benefits that might have made up somewhat, in a perverse way, for the higher mortality rate. Sweden’s GDP dropped 8.5% in the first half, and unemployment will rise to 10%. This is almost exactly the same level of decline as its Nordic neighbours.

Why did Sweden not reap benefits from keeping its economy going? Mainly because other European governments paired lockdown with business support, which Sweden didn’t think it would have to do since the country wasn’t being locked down. Downturns everywhere else washed over the border, just like the virus itself.

Viewed from the perspective of a macabre experiment, the lesson is a hard one for supporters of personal liberty like me: government-imposed rules, in certain circumstances, just work.

And the lesson goes much further than the coronavirus. There is an argument, for example, that government should not place strictures on bank interest rates. Some chancers will try to charge extortionate rates, but gradually the citizenry will clock them, and competition will force interest rates down. In a way, the high interest rates are a necessary evil, for a time, because they attract punters to the sector, without which competition will not force prices down.

The problem with this argument, as we all now know, is that the bankers could collude, and keep their interest rates high by common understanding – an understanding that sometimes doesn’t even need to be communicated. They all have a powerful incentive to keep interest rates high, after all. This is not even to mention disparities of information, or even what economists like to call the “externalities” – the price paid external to the transactors themselves.

But the new thing we have learnt during the coronavirus is about ourselves. We are just not the people we hoped we were; we are more gullible, more prejudiced and more often wrong than we hoped. Some of us always knew that, I suppose, but forgive me, I was more hopeful.

As so we emerge from the year a little sadder and, with any luck, a little wiser. The albatross hangs around all our necks. But all is not lost. The mariner made it back after all, if only to hector wedding guests. But he brought a new mindset too: “He prayeth best, who loveth best, all things great and small,” the mariner says towards the end of the poem.

Not a terrible takeaway for the new year. DM/BM

Tim Cohen is the editor of Business Maverick.

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