Saturday, August 8, 2020

The victory of progressive economic thinking

(This is the English version of an article originally publshed in El Triangle, where the Catalan and Spanish versions can be accessed)
We knew that the market as a mechanism of resource allocation is a powerful coordination machine. But we also knew that its results can be greatly improved when there are phenomena such as external effects (or externalities: effects of decisions on other people who do not participate in the decision) or public goods (those goods which cannot be priced because they can be enjoyed freely). Furthermore, even in the absence of externalities and public goods (but also, and probably more so when they are present), the results of the market economy can be very uneven and generate serious social injustices.
What we did not know was that the experience would put before us a very powerful example of the imperfection of markets. This example has been the Covid-19 crisis. This pandemic presents very clear externalities: the decisions that each person makes can affect many others. That is why purely individual decisions, which only think about oneself, cannot be glorified. And in this case, that of a pandemic of global scope, scientific knowledge is more necessary than ever; this knowledge is a global public good that once generated affects the whole world, and, therefore, cannot be priced. And, furthermore, as we have seen, the crisis negatively affects some groups much more than others.
That is why it has been necessary, everywhere, to try to deal with the pandemic with mechanisms of resource allocation other than the market, in this case the state, above all, and also the communities, that is, the actions of freely organized people who acted out of intrinsic motivations beyond material rewards. The market has continued to exist, we have continued to buy some things paying a price, going to the supermarket, buying something online, asking for a service with an app. But our life has been altered above all by decisions made by public authorities. These decisions have been decisions about what we could do and what we could not do; but also decisions to mobilize economic resources to socially support the most vulnerable sectors (through loans or direct aid such as the Minimum Vital Income in Spain), or to economically promote a recovery on new foundations through the Next Generation EU funds, an authentic historic step towards a more federal Europe.
Communities have complemented the role of the state with the action of volunteer groups, with citizen participation applauding the sectors that gave more and responding in general positively to public instructions, and therefore facilitating compliance with regulations and reducing the cost of their enforcement.
During the initial months of the pandemic, a consensus has emerged among the most serious economists in the sense that there was no dilemma between health and the economy, but that we could not recover if we did not stop first (with the coercive action of the state) the contagion curve and, therefore, if we did not prioritize health. Those who have spoken out in the opposite direction have made the loudest ridicule among economists, epidemiologists and other experts.
The crisis has also made it clear that public mechanisms have to operate at different levels, because the pandemic acts from the global to the local level. Therefore, a federal co-governance is appropriate. Hence it was very important that the attitude of the European institutions, and of the main government of the Union, Germany, was very different from their attitude in the previous crisis. At all levels, these public mechanisms will require an increase in tax revenues, which will have to be applied to reduce the enormous inequalities that already existed and which the crisis exacerbates, and to boost the economy on a more ecological and more democratic basis. This also implies, in the self-critical line of some lucid sectors of capitalism, refocusing the company's objectives beyond profit maximization, and taking into account a more ecological and social perspective, as well as facilitating workers' participation in corporate decisions.
Conservative economic thinking had already been on the defensive with the previous global financial crisis. But it was the Covid-19 crisis that left him in a technical KO. The appeal for austerity, for the miraculous effects of the markets, is over; the justification of inequality and the trivialization of climate change is over. Today the great adversary of progressive economic thought, the one that prevents the egalitarian reforms of social federalism, is no longer the neoliberalism of Friedman, Thatcher and Reagan, but rather it is the national-populism of Trump, Bolsonaro, Modi and their advanced followers in Catalonia. This national-populism has been defeated with the agreement for Next Generation funds in the European Union.

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