Sunday, July 31, 2022

A permanent emergency

The cartoon of The Economist in the early days of the pandemic, showing Covid-19 as practice for the much bigger challenge of climate change, should be kept in mind.

The pandemic has been a lesson in many ways. I ask my students to reflect about it, as it has been an economic phenomenon that has deeply influenced their lives, and from which they can learn more than from any theoretical class (although I hope they can also learn from these).

From covid, they can learn about the meaning of externalities, uncertainty, social interactions, the role of the market and the role of government, the importance of economic activity, output, income and aggregate demand. In the CORE web page there are very useful materials to learn from Covid.

In the worst days of the Covid pandemic, societies accepted degrees of public intervention that would have been impossible to imagine some time ago. Richer societies were able to significantly compensate workers and firms for the losses, and were also able to produce and distribute vaccines at large scale. Unfortunately, our effective solidarity did not expand to poorer countries. In Europe, integrated efforts to vaccinate and to invest for economic recovery showed the potential for joint acion and true political and fiscal union.

We have seen later that disruption was not limited to pandemics, but could be provided in the form of wars, climate change and the erosion of democracy. All these forms of disruptions are related and complementary. In the long run, the social risks related to climate change are the more threatening, and societies have been reluctant to introduce the necessary social changes to stop the disaster. Why democracies in particular have been unable to do what we know is necessary to be done to stop greenhouse emissions is something that is debated. The answer has to do with behavioral issues, lobbying by corporate interests and difficulties of cooperation in a world without strong enough global institutions.

But now he have more experience of the threat (with wild fires, extreme heat waves and other natural disasters), and we know that government action can be of large scale to solve social problems (such as pandemics and climate change). The awareness of the emergency that we experienced at the beginning of the Covid-19 pandemic should be extended as a permanent state. We need strong governments at all levels (also good firms, well regulated markets and well-functinning communities), and we need them to coordinate, horizontally and vertically. Climate disaster can to a large extent still be stopped: it is very different for global average temperatures to increase by 4 or by 1.5 degrees. To keep the growth of temperatures (and the social calamities associated to it) as low as possible, we need to make permanent what until now was exceptional.

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