The Virus Circle – An Object Lesson on Socialist Economics

Emile Woolf, Going Postal
rNHS dancing team centre
“Nightingale NHS Hospital, E16” by sludgegulper is licensed under CC BY-SA 2.0

It’s not quite like having to start the economy from scratch, but this lockdown-induced recession warrants some detached assessment.

We are aware that viable businesses have been forced to close their doors – or keep them open to serve a paltry trickle of customers. This has been happening all over the world, relentlessly, and the ensuing job losses are legion.

Before the lockdown most of these businesses were commercially viable. Their owners knew the market and did their homework. They priced their products or services carefully, survived the forces of competition, paid their suppliers, met their wages costs and strengthened their capital base each year by showing a surplus of income over expenditure. In short, they made a profit.

That was true until now. The rules whereby an aspiring entrepreneur might start a successful business have been suspended. Suddenly, the maths that spelt opportunity and success now spells failure and loss. It’s the same maths, and the figures making up the equation constitute an infallible reckoning – they tell you whether you are still in business.

Capital – the indispensible safety cushion

This battle for survival is being staged in what is glibly referred to as the “private” sector of the economy, in which the capital that previously supported all those now crippled businesses is being eroded by loss-making activity imposed by the lockdown. That capital once represented the ploughed-back trading surpluses of living businesses, possibly right back to their inception.

The essence of private sector activity is that you can measure its success or failure over discrete financial periods. Losses can be hidden for a time, but their toll cannot be masked indefinitely because ultimately the axe will fall.

Private sector economics operates inexorably and ruthlessly. It hinges on risk. If you risk your own money to go into business you will have calculated the range of potential outcomes with great care – just as you will have done if you were using borrowed funds that will have to be paid back. If your risk-assessment has been too optimistic, even a minor setback will leave your business exposed and, with it, the capital you invested.

Every day the papers and broadcast media keep us up-to-date on the latest tally of virus cases and deaths – but there is no running total counterpart in the shape of “business deaths”, even though that reckoning, over a longer period, will equate to a comparable toll – and worse.

The famous Warren Buffet observation that “it’s only when the tide goes out that you can see who’s been swimming naked” applies only to private sector activity.

Town Halls don’t go bust

What you will see when the tide goes out is millions of fully clothed public sector employees with jobs still intact – indeed, their departments will now be recruiting to fill all the openings spawned by a new regulatory avalanche, courtesy of virus-mania.

What else would you expect? I’ve lost count how many times I’ve highlighted the observation that “government expenditure is not susceptible to economic calculation”. Civil servants, municipal workers, council employees – indeed, all those in public service – are paid out of the taxes levied on the earnings of private citizens and private sector businesses. Without any objective economic measurement available, there can be no “going bust” equivalent in the public sector.

I hear someone out there correcting me: “Surely public sector employees also pay their taxes? Indeed, in their position it’s impossible to take advantage of tax loopholes or other dodges!”

If you are guilty of harbouring such a thought try, for once, to be rational! How on earth can you extract taxes from the pay of someone whose pay comes out of taxes in the first place?

Jiggle the figures as much as you like in order to feign a public/private equivalence – but to the Exchequer, where it matters, that’s just a waste of time!

Are the commentators brain-dead?

The major recession about to strike will inflict its opening blows on the productive side of every capitalist economy. That is both certain and obvious. But this fact also provides a fundamental insight into the staggering blindness of some very clever people. I here refer to writers, broadcasters, academics, economists and columnists who persevere with the notion that socialism, in its various shades, is a system whose only failing is that it has never been given a proper chance to reveal its glories.

Shortly before leaving South Africa for London I started a Bachelor of Commerce degree in Johannesburg. The first-year syllabus included Economics, and my professor based her lessons on the renowned textbook “Economics: An Introductory Analysis” by the Nobel Prize-winner Paul Samuelson. As Alexander Green has noted in a recent podcast, Samuelson, an avowed socialist, predicted that Soviet GDP would overtake that of the US as early as 1984, but no later than 1997. [By the time his 1980 edition was published these estimates had been delayed to somewhere between 2002 and 2012.]

Samuelson’s rationale was straightforward: the Soviets’ five-year plan was prepared by government bureaucrats “untainted by greed or self-interest”.  They carefully calculated everything consumers would need over the 5-year period, and hence the quantities, including all ingredients, those suppliers would have to provide. How could that possibly fail?

You can have anything you want, as long as its potatoes

Surely, our professor put it to the class, the ineluctable logic of the carefully crafted Soviet model was superior in every way to the unplanned, chaotic melange that passes for an economic system in the West?

One of my sons visited Russia in the ‘80s. He has an enduring memory  of the pointlessness of going into a food store to ask for something that you actually wanted. Choice? Forget it. You would receive a sharp reply: “This week we have potatoes”.

As we know, the Soviet economy collapsed, while that of the US became the envy of the world. As Alexander Green now asks, how is it possible that Samuelson, author of the bestselling economics text of all time got things so grotesquely wrong? Another Nobel Prize-winner, Paul Krugman, still refers to Samuelson with awe – “an economic thinker like no one else”. But Krugman is a columnist with The New York Times.

The virus circus has laid bare an exhibition of unbelievable waste and wrong thinking. Our government’s response to the current panic included the opening of five so-called “Nightingale Hospitals” to cater for the overflow of at least 10,000 sick Covid-D patients that existing NHS hospitals would not be able to cope with.

In the entire month since opening, London’s 4,000-bed flagship hospital has treated precisely 51 patients, and is about to be mothballed together with three of the other four Nightingales, none of which are needed.

But such is the linguistic duplicity of our age that this mother-of-all economic cock-ups is now being hailed by the scientific intelligentsia: “Thanks to the determination and sacrifice of Londoners in following the expert advice to stay home and save lives, we have not needed…..etc”

Please feel free to take a “retch-break”!

Following the science

And while you are doing that, don’t overlook the mighty contribution made by the arch-hypocrite that set this hare running in the first place. I refer to Professor Neil Ferguson, who led the team from Imperial College, London, and predicted the astronomic numbers of fatalities that we would suffer if an immediate lockdown was not enforced.

It seems that Ferguson is truly possessed of a “death wish”, having spent his professional life making wild predictions of doom. He forecast that mad cow disease would kill 150,000 people, and the actual figure was 178. In 2005 this prophet of doom warned about probable deaths from bird flu in these terms: “Around 40 million people died in the 1918 Spanish flu outbreak. There are six times more people on the planet now so you could scale it up to around 200 million people – probably.”

No, actually, you couldn’t. To date, according to the World Health Organisation, H5N1 avian flu has killed just 455 people – globally.

And this is the man whose modelling, despite its track record of sheer fantasy, our government chose to rely upon in this crisis. According to Ferguson’s Covid-19 model, on the basis of which most of the world has shut down, the UK was on course for 500,000 deaths unless the government imposed radical interventions – which they duly did, destroying the economy in the process. None of the many other predictive models suggested anything as dire as Ferguson’s, but our sheep-like government decided to “play safe” by swallowing his rubbish.

But wait – his mandated rules on social distancing and staying home, imposed on the whole population, didn’t apply to him personally. While lecturing the public on the necessity of putting up with the pain of lockdown, his married girlfriend left her own family home to travel across London to visit him in his flat on two separate occasions. The sheer hypocrisy beggars belief.

“I accept I made an error of judgment….” prefaced his resignation as government adviser. His excuse? He had previously tested positive for the virus and therefore thought he was immune – the very principle on which “herd-immunity” is based. Yet it was on Ferguson’s advice that the government rejected the herd-immunity route, opting instead for lockdown and all the agonies that followed.  Nothing like a double-dose of hypocrisy!

Central control, or the market?

The economic lessons are far more important than Ferguson and his over-active libido. Every failure of Public Health England (PHE) – whether concerning equipment procurement and distribution, virus testing or regulatory over-rigidity – would have been avoided by the harnessing of market forces. It is astonishing that a Conservative administration should now, of all times, be missing every opportunity of allowing businesses to regroup and survive, rather than presiding over a massive statist takeover.

Ministers and Public Health England (PHE) were acutely aware of the urgency of tests to mount a meaningful response to the virus attack. Yet PHE’s insistence on relying on their in-house testing procedure lies at the root of the testing backlog. Many companies and diagnostic labs offered full technical support to advance the testing process, and they cannot fathom why they were excluded.

Our exhibition of perversity has shown up deep flaws in our national religion, the NHS, despite its god-like status. As I made plain in my last essay, their front line staff are brave, dutiful and unstinting in their efforts to care for patients, even risking their own lives in so doing. But they work for a sluggish bureaucratic colossus that is challenged to the point of logistic impotence – and that, surely, is not what we are clapping for each week. What about bus drivers, small shopkeepers, supermarket counter-staff, often less protected than nurses? I would happily clap for them too.

Forty-nine million people are now on the public payroll. Can the Chancellor pause from giving grants, loans, furlough guarantees, tax reliefs, universal credits, minimum wages  and every other piece of fake largesse, for just long enough to ask himself where their salaries are going to come from? 

Jeremy Corbyn must be faintly amused. His cry about the unjust distribution of wealth is being addressed by a Conservative government hell-bent on making everyone broke. It won’t be a pleasant life after lockdown, but it will be fair.

© Emile Woolf May 2020 (website)

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