Hayek Vs. Keynes – How should the Government respond to the Pandemic?

During a beautiful summer in 1916, off the New Jersey shore, an unexpected turn of events ensued which left everyone badly shaken – sharks attacking bathers.

When the lifeguards managed to pull out injured and dying bathers to safety, the impact it had on local businesses can only be described as utterly devastating. Resorts almost immediately witnessed a 25% fall in occupancy, which were normally full. And the otherwise robust local economy recorded major job losses.

There wasn’t much anyone could do about it at the time, particularly politicians – and even if they did the things they could such as close the resorts and beaches – would have compounded the problem further.

Well, the sharks played their part and moved on but people wanted to blame someone and so they did: the president.

But here’s my take on the current situation: I feel that two very essential ingredients are lacking a time like this, and that’s being bold and demonstrating good leadership. Why can’t we let the free market take control? What disturbs me is that there’s now talk of the UK’s Coronavirus furlough scheme being extended.

Are we still swimming in shark-infested waters?

Here’s a little food for thought: do we close the resort or do we close the beaches? Because it’s in the nuance of our response that if we only close the beaches (the sharks can run around in the sea as they please, not really bothering anyone), tourists might still help us generate some business. And, perhaps we could even turn this into a peculiar yet feasible tourist attraction where visitors could admire the sharks’ fins at a distance, maybe from a restaurant window.

The current issue that we have with what we’ve done is that we’ve used the lockdown (which is fair enough) to contain the situation but that has also meant relying on furloughs and all sorts of grants and schemes, which is raising debt. We’re not heading in a very positive direction, are we then?

What if we gear more resources toward protecting the vulnerable within care homes, for instance? In fact, why not take them from their care homes and put them into five-star hotels? If I were a senior citizen, as a tax-payer, I certainly would have been up for that! Because it would meant the rest of the economy and the rest of us would have pressed on with our lives and wouldn’t find ourselves smack in the middle of the furlough we are currently facing – something which could be as high as 5 million+ unemployed in the coming months.

It is possible to protect the economy and the vulnerable at the same time using a different strategy like the one above perhaps. However, these bold decisions need to be made based on an ideology. And the problem is ultimately that these ideologies are missing. For example, what’s best – is it about small government individuals’ opportunity irrespective of their background? That ultimately is the Conservative ideology, isn’t it?

Interestingly, when the coronavirus outbreak was in its infancy, many political commentators compared Donald Trump to the character who plays the town mayor in Spielberg’s classic, Jaws. The mayor simply refused to acknowledge the fact that a shark could actually be behind the horrific attacks.

As evidence of the shark attacks in Jaws becomes harder to refute, he still refuses to shut down the resort – that is, until another unsuspecting swimmer bites the dust – and he finally caves in, allowing the ‘professionals’ to take over.
At the moment, there’s only one politician who’s opted a crisis management model similar to the Jaws mayor, and it isn’t Trump. Ironically, Boris Johnson used to joke around with audiences and followers by remarking that the real hero in Jaws and a ‘wonderful politician’ in practice, was in fact, the mayor – who kept the beaches open even though a large, scary sea creature was claiming lives and taking names.

While Johnson would typically end his riff by saying something along the lines of “Okay, he was probably wrong to shut down the beaches, but in principle he was right and our politicians should follow suite” – he has hardly been in evidence recently.

Given that he’s facing immense pressure as a prime minister who’s trying to help the nation bounce back from what may be termed the greatest health crisis ever – he is still publicly viewed as someone who is following the best, most logical and scientific advice.

For a fact, political leaders hardly ever leave behind a trial of their primal political instincts. Our very own Johnson is an instinctive libertarian.

Should the Government then follow a Hayek or Keynes model?

But when it comes to fighting the good fight and managing a crisis, it isn’t just about what Johnson has or hasn’t done.

Certain Western democracies have, in fact, elected ‘Hayekians’ to government and a shining example of this is Margaret Thatcher who once slammed down a copy of The Constitution of Liberty by Hayek in a meeting, declaring that this is what the government needed to collectively believe in and follow.

If we think about it, the political direction over, say, the past four decades, has actually been in Hayekians’ favour – that is, towards market competition, deregulation, global independence and the all too familiar ‘winner-take-all’ economies.

The 2008 financial crises may have arrested this movement’s momentum for a while but not by much, as it fundamentally remained on course. Now, however, given the present situation we are in, the future may welcome lasting change.

What it boils down to

I believe in a crisis, we have a tendency to rush to judgement. And so, in the midst of a crisis, we really are all Keynesians one way or another – and even if we’re not doing what Keynes would have in this scenario, or even if the government has gotten a nice refreshing drink from the fountain of Keynesian economics, it’s we (the people) who end up having to replenish that fountain.

Well, perhaps a small degree of Keynesian may work – but only in the short term – which is to manage the shock. However, anything beyond that is economic suicide because it elongates the issue, as opposed to dealing with it swiftly and moving on to the next order of business.

With that said, there are businesses that will fail – but – there is still huge opportunity to be had for new and leaner businesses that are more in touch with the issues we are facing today.

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