The Solution is Inaction
I’m trying to get my current mental model of the Covid crisis in writing, to see both where it leads and where it is incorrect. This is an economic model. Section 1 is defining the problem and vocabulary, section 2 is a description of my mental model, and section 3 is comparing my model to reality.
A couple assumptions I’m making: I assume that we cannot over-isolate (i.e. we should social distance as much as possible, and not worry about overshooting); I assume that this crisis will last about 2 months in its current form, by which time (as in China right now) the situation will look different enough that there’s no way to predict and no use in forecasting now; lastly, despite being generally fairly libertarian, I see a strong centralized government like owning Volcano Insurance in Iowa, it’s generally a waste of money but when Yellowstone erupts it’s a good time to soak them for every last dollar.
Let’s separate the American workforce into three groups. The first group is remote-workers. These people are generally able to maintain their economic output while maintaining heavy social isolation. Not only can they work remotely, their customers can utilize their product remotely. I imagine most in the LW community are in this category. While output may be reduced by having to work from home, work continues to get done, and we can in principle ride this thing out for a few months without too much intervention or life-destroying change. Note that e.g. retirees and the long-term unemployed count as remote-workers, vacuously.
The second group is essential-workers. These people can’t stop working. They are farmers, grocery-store cashiers, Amazon deliverymen. I would hate to be one of them right now, because their needs will inevitably be the last consideration.
The last group is non-essential non-remote workers, or Eloi (from H.G. Wells, I know Eloi are supposed to be upper class but the point is they are worthless and vulnerable and remnants of an obsolete economic model). The Eloi will destroy our economy. They are the 30% unemployment rate I’ve heard predicted. They can’t have any economic output for the next two months.
How should we deal with these different workers? The optimal thing is for all the Eloi to go into hibernation for a while, neither working nor buying anything. Everyone sits in the room they are currently in for two months, wait for this whole thing to blow over. It’s honestly kind of perfect, since they cannot labor but also can’t buy much with their wages anyways, they can’t go out to eat or catch a movie, they can’t go on trips, they can’t go shopping, so why not hibernate? The problem of course is that humans need at least food and shelter. Okay, so we shut down the whole economy for a while, where there used to be America there is now a bunch of farms making eggs and bread and milk, truck drivers transporting them to cities, and grocery workers handing them to Eloi. The Eloi sit in bed and eat all day. No one is paid, the essential-workers keep feeding the Eloi, and in two months the government snaps its fingers and everything goes back to the way it was. Oh, the remote-workers keep working this whole time (why not?), for them everything is normal, and if the lack of customers makes them useless, we just keep designating more people as Eloi until there are no more remote-workers or until the crisis dies down/changes fundamentally.
This model has problems, obviously. What are they and how can we fix them? Well, first of all, why do the essential-workers keep working? They can just quit their jobs, stay at home, and the government will take care of them. This is just the well-known welfare trap! The solution is to give them free rent and groceries as well, and in exchange for working they are given access to some of the cushy remote-worker economy (e.g. they can order luxury goods on Amazon).
This model seems roughly reasonable to me. There are details about how to get the right number of people into the right categories, but we only have to hold it together for a couple months and in the worst case scenario, the government can just hold essential-workers at gunpoint. I’m not too worried about civil liberties, if the crisis lasts too long the government will be overthrown anyways (and any civil liberty they violate in the final days will definitely get covered by the new constitution, so there’s kind of an upside).
Okay, so that’s not actually all that reasonable. The government isn’t just gonna declare all groceries free. That much radical change would have incalculable downstream costs. How can we jerry rig our existing capitalist system to approximate this emergency-economy I’ve described? Well, it looks roughly like what we’re seeing out of Washington right now, so that’s good.
Imagine an Eloi that used to work at a bar that is now closed. He needs to pay the Krogers and his landlord.
1) Either the government demands that Krogers and the landlord give him free stuff,
2) or the government gives him free money,
3) or the government demands that the bar continue to pay him (but the government pays the bar).
These are of course all equivalent, modulo details. The second option looks like the payment-to-Americans plan that Congress is working on right now (remember, it’s very important that they pay essential-workers as well to avoid the welfare trap, but phase-outs for remote-workers including the unemployed can be thought of with the normal economic frame). The third option looks (as far as I understand it) like what the fed is doing with interest rates, or like the bailouts people are talking about.
On a tangent, I’m honestly not sure why we can’t do option (1) with regard to rent, but for Chesterton’s Fence reasons, I assume that landlords have to burn a certain amount of money per month in offering to the Elder Gods or else we will all die.
Now, the bar that our hypothetical Eloi works at presumably has other costs. The corporation needs to pay rent, it may need to keep up maintenance of some sort, though it won’t be paying distributors. For this reason we need to funnel some money into small businesses, even if government checks take over their payroll.
A lot of the criticism of the government’s response coming from certain circles seems to be predicated on the usual circumstance where the government’s goal is to spur economic development. The goal is to stop economic development in its tracks (at least for the Eloi and, in part, the essential-workers) so the current strategy seems mostly spot-on to me. The true goal is to maintain stasis in such a way that startup costs are minimized when the economy does get going again.
My criticism of the government’s response is that, if I were a small business owner right now, I wouldn’t be sure if I should fire my employees so they can take advantage of unemployment, or keep them on with reduced wages supplemented by government checks (all of their wages are paid by the government, the only difference is an agreement that they will come back to work when it’s over). I think the most important thing now is for the government to articulate a clear plan so people know what they should be doing as we transition out of the economy and into the, well, whatever this is.