Economic Common Sense and the Pandemic

In writing his great work of economic theory, J M Keynes said that he had struggled to free himself from “habitual modes of thought and expression.” In our time these habits of thought are those which took root during the decades when the market was seen as the central fact of economic life. Since the crisis of 2007/8 we have lost our faith in the supremacy of the market but we have struggled unsuccessfully to free ourselves from its habits of thought and expression.

 It could be that the present pandemic is providing a hard lesson on the inadequacy of our customary manner of speaking about the economy. There is possibly a teachable moment when we can change the terms in which the political discourse and create a new common sense based on the economic lessons of the pandemic.

The economic impact of the health crisis is not a simple matter of a fall in supply, or of demand or of “confidence”. It is not a market failure or a financial shock. It is not about inflation or debt and even the terms GDP and growth are somewhat irrelevant to what is happening. Put simply, workers have been told to stay home, workplaces are closed and so the production of many goods and services have come to a halt.

Thinking about production is one of the habits we lost during the period when only exchange in markets mattered. Production is one of the concepts we should popularise. The classical economists thought in these terms. Wealth is created by people going to work to produce the goods and services we need and want including the capital goods and business services which contribute to production.

Secondly, the response of the NHS to the crisis has changed our perception of healthcare workers. The way in which we value not just NHS staff, but care home and elderly services workers, is being transformed in this emergency. We are suddenly aware of the many other low paid workers from council services to supermarkets who are keeping us going. It is becoming clear that the “labour market” does not reward labour its true value.

This gestalt shift can also challenge one particularly unhelpful habit of thought. We have been told that the private sector creates wealth which pays for public services. In this moment we can see that the NHS itself produces a service without which we would be much poorer. Healthcare workers create a service which is consumed by patients. The only difference economically from a service like a theatre performance is that it is paid through taxation not tickets sold at the door.

Public services are part of the wealth produced by people at work. Public services add value to our economy, they are not a drain on it.

Of the many habits of thought we need to unlearn there is one which stands out. The idea of the economy as some thing apart is one which obscures reality. The economy is not a machine which follows its own rules and operates on its own logic. An economy is always embedded in a society. Even markets only work because of the rules and norms of the community that use them. Some of the rules are codified in law or contract and so an economy is embedded in political structures as well.

The pandemic makes some of this evident. The economy changes when the rules are changed by a medical emergency. Social distancing, alone, will not just change workplaces as they reopen; it will also change the decisions about what is produced and how.

The left has long struggled against the dominance of the market idea. Even after the financial crash of 2007/8, economic discourse returned to its familiar habits of thought. The pandemic offers a possibility, if politicians and commentators choose to use it, or changing the lexicon and renewing the vocabulary of economic discussion to reveal the reality that we are not powerless before the market and that we can make choices.