Monthly Archives: April 2020

Israel has been renowned as the start-up nation, punching above its weight for a country with a population of only about eight million. Remarkably, it has become a high-tech powerhouse over the past decades, sprouting from a socialist economy relying upon U.S. aid, tourism, and agricultural exports into a hotbed of entrepreneurship and innovation. The flourishing tech sector continues to expand and diversify.

How does this tiny nation in one of the world's toughest neighborhoods manage to be so innovative and entrepreneurial?

Perhaps Israel best exemplifies what the late Julian Simon, an optimistic economist, pinpointed: The ultimate resource is peopleskilled, spirited, and hopeful people who will exert their wills and imaginations for their own benefit as well as in a spirit of faith and social concern. Inevitably they will benefit not only themselves but the rest of us as well.

Equally notable is that despite the constant threat of war with hostile neighbors, terrorist activity, and diplomatic hurdles, Israel has advanced economic freedom. Ron Dermer, Israels ambassador to the United States, once noted that one of the main recipes to Israels economic success today was moving away from the socialist system on which the nation was founded and embracing capitalism.

As a matter of fact, according to the recently released Heritage Foundations 2020 Index of Economic Freedom, a cross-country policy guidebook that tracks free-market policies,

Israels economic freedom score is 74.0, making its economy the 26th freest in the 2020 Index. Its overall score has increased by 1.2 points, with the countrys overall score is well above the regional and world averages.The Israeli economy has risen higher in the mostly free category for the third year in a row.

That performance has been mirrored by healthy GDP growth. Benefitting from an increasingly diversified productive base and ongoing structural reforms, the economy has grown over 3 percent annually over the past five years.

More specifically, Israels openness to global commerce has been an important factor in promoting innovation and productivity growth. The relatively sound judicial framework that sustains the rule of law and provides consistent protection for property rights has also contributed to economic stability and long-term competitiveness.

The small but capable Israeli economy has charted an upward trajectory of economic freedom over the past twenty-six years, reaching its highest level ever in the 2020 Index. The country is striving to be a scale-up nation, and more market-based reforms will facilitate its progress toward greater economic freedom and entrepreneurial dynamism.

Vibrant entrepreneurial growth is not only vital to Israels resilience but also an important element in its overall security, which has been reinforced by the long-standing trade and investment bonds between the United States and Israel.

In fact, Israel is a partner to the oldest U.S. free trade agreement. Since the implementation of the U.S.-Israel Free Trade Agreement on September 1, 1985, by President Ronald Reagan and Prime Minister Shimon Peres, two-way goods and services trade between the two free-market democracies has multiplied tenfold to around $50 billion. The trade pact between the two like-minded nations is a pragmatic symbol of shared valuesfreedom, opportunity, and prosperity.

The late Milton Friedman once urged Israeli policymakers to set your people free and liberalize the economy. Obviously, they did not discard the American economists advice as Israel has moved toward greater economic freedom.

Anthony B. Kim is Editor of the Index of Economic Freedom and Research Manager in the Center for International Trade and Economics (CITE) at The Heritage Foundation.

Image: Reuters

More here:

Israel Is a Mini-Economic Juggernaut for One Reason - The National Interest

During this pandemic, our twin health and economic crises require two different types of concern, and they operate differently.

For the health crisis, a high level of concern is necessary. Saving lives demands nothing less than full compliance with unprecedented restrictions.

For the economic crisis, it is logical to be worried. Elsewhere, I have distinguished between economic wants and needs, and right now the provision of needs is under threat.

On the other hand, extreme pessimism about the economy is dangerous.

The #CoronaEconomy is different to the normal economy and interpreting it is subject to distortion from confirmation bias, which is the tendency for people to process information in a way that screens out things that dont accord with the narrative they have adopted.

The world faces a crisis, and so it is entirely appropriate that many people have adopted a crisis narrative. But if confirmation bias turns it into a view that nothing good can happen in the economy it will have gone too far.

Read more: When a virus goes viral: pros and cons to the coronavirus spread on social media

As the pandemic spreads, the worldwide media will have up to 195 countries and more than a dozen major stock exchanges to confirm that view.

This is unfortunate. Just as panic buying can create a crisis in supply chains that neednt be there, undue pessimism can create a needless crisis in the economy.

If those who remain relatively well off through the crisis decide not to spend merely because they are worried about a downturn the financial equivalent of hoarding it will make the downturn they are worried about even bigger.

In turn it will further threaten peoples employment, accommodation, and their ability to fulfil their basic needs.

Read more: Psychology can explain why coronavirus drives us to panic buy. It also provides tips on how to stop

There is genuine bad news. The pandemic has endangered access to health care, shut down industries, pushed people out of jobs and made it hard to spend. And Australia is taking a huge hit in external income as commodity prices fall.

Fortunately theres also good news.

Voluntary transfer payments are emerging. People and groups are giving away money to meet the unfolding challenges. Some managers at firms such as Qantas are forgoing pay while others are giving up their jobs.

Some workers are taking fictional leave, which amounts to a gift to their employer, or sharing around reduced working hours, which amounts to a gift to the employee most likely to miss out otherwise.

Coles, Woolworths, and some other employers are expanding. Even panic buying, whether justifiable or not, can generate employment.

As in the global financial crisis, government stimulus payments can help cushion unemployment, even though not every initiative will operate perfectly.

The movement online of what used to be face-to-face activity will make some businesses more productive when the crisis is over, giving them room to grow and provide products and services more cheaply.

Best of all, our countrys exposure to commodity price downturns is limited by our floating exchange rate.

More than half our exports are resource-based or rural commodities, meaning large falls in world demand could be expected to wreak havoc with commodity prices and Australian employment.

But our floating exchange rate cushions these shocks, as it did during the 1990s Asian financial Crisis, the 2000s global financial crisis and at the end of the mining boom.

The latest depreciation is a big one, and will help us.

Trade-weighted Australian dollar exchange rate since float

In 1948 the English author CS Lewis, wrote an essay, Living in the Atomic Age, about coping with an ever-present existential threat.

His context was different. It was about the atomic bomb. But the message was that the best way to deal with an overwhelming concern was simply to be the best of ourselves.

If we are all going to be destroyed by an atomic bomb, let that bomb when it comes find us doing sensible and human things praying, working, teaching, reading, listening to music, bathing the children not huddled together like frightened sheep and thinking about bombs.

It would help right now if we recognised that extreme concern, while entirely appropriate as a means to protect health, isnt helpful as a means of protecting the economy.

Theres no point huddling together like economically-frightened sheep. It blinds us to the good thats around us now, and the good that is to come.

See more here:

It is necessary to worry about health, but pessimism about the economy will hurt us - The Conversation US

Theres a lot of fear and uncertainty about the future for business owners right now, and with good reason. Like many other countries, over 95% of all companies in South Africa are small and medium enterprises.

Ultimately, only the strongest will survive. From both an evolutionary and resource-based perspective, firms that are not sustainable are likely to disappear, which will in turn free up resources that can be used to create new firms that are more effective and efficient.

The impact of Covid-19 will resonate throughout the South African economy.

For a country with an extensive tourism industry Covid-19 is a lethal pill. Every day there will be more casualties, with firms going out of business and retrenchment fuelling the downward spiral of the economy. On the other hand, online businesses, and food retailers in particular, are likely to feel the pinch less than most.

Children still need to eat regardless of whether theyre at school or at home. The economy can survive a short-term knock, but the longer lockdown remains, demand will decrease, and the number of firms that go out of business will escalate.

The last recession from 2008-2010 killed around 170 000 small businesses in the US, but there are opportunities in turbulent times too. Some of the most successful firms operating today started during recessions. For example, Canon started during the great recession in 1930, Airbnb started in 2008 and Uber in 2009.

For some, turbulent times present opportunities to disrupt and capitalize on resources that are being redistributed in the economy.

There are, however, things SMEs can put in place to survive the coming months.

Focus on sustaining revenue and curbing costs

Look at your cash situation and plan for how long youre likely to be able to sustain your business with decreasing revenue streams. Cut costs directly and go into maintenance mode. Talk directly to your bank or credit provider to extend/increase your credit line. Try to postpone interest payments.

This advice is based on the assumption that you have a sustainable business in the first place. If you do not have a cash buffer it might be a good idea to exit your company directly. It is a sign that your company might not be a very sustainable business in the first place.

Your experience might be more valuable in another context, a new type of business, a new position, or taking the opportunity to upgrade your skills through some of the many on-line courses that are now being developed and delivered, for free in many cases.

If you have a buffer, try to extend the timeline through revenue focusing activities and/or investments into future revenue streams.

Use the time to strategise

This is a perfect time to look at ways to improve your business, an opportunity to plan for the future. Go through each of your firms processes. Ask yourself, what can be improved, what can we take out, change, add or perhaps innovate entirely into something with a higher return on investment?

A chance to hire new talent

When firms are laying off staff, this creates a supply of experienced individuals with the skills and capacity that could be beneficial for future growth. Think of this as an opportunity to hire the best talent for beyond Covid-19. Based on your strategy, seek to attract talent that could turn your strategy into a sustainable competitive advantage in the future. If youre stretched for cash, use equity as payment. But never hire before someone proves that they can generate value to the business. The new member of the team works toward equity over a three-year period rather than some short time frame.

A good time for succession planning

This is also a good time to plan for succession. A large number of successful firms in South Africa have older owners. Sometimes it is tricky to know what to do, when to retire and pass the business on or exit it. Most family businesses have some kind of idea. Use this as an opportunity to sit down with the family and an advisory team to look at different options for the future.

Spot the opportunity in acquisitions

If for any reason, youre sitting on funds or could come up with a bankable idea, now is the time to act on it.

Dont let Covid-19 stop you from putting your idea into action - the investment required is considerable regardless so turning downturn into future growth could be a very lucrative strategy. There are always opportunities to consolidate and grow through acquisitions.

Firms that have valuable resources, customers, products and services that could complement and build competitive advantage, could be acquired and merged to create a more competitive firm.

In these types of situations, there are likely to be more firms up for sale or takeover. Even bankruptcies could be turned around. That doesnt mean you should forgo your due diligence, as acquisitions can be tricky game. Use a combination of bank and VC funding if possible.

Government and big business must play their part

Ultimately, to help SMEs get through the next few months, both government and big business have a role to play. The South African government, compared with those of the worlds more industrialised countries, is restricted in its ability to help due to the shortage of funds available.

Traditionally governments have also tended to favour subsidising large corporations and state-owned entities.

But there is considerable room for ongoing assistance from government.

Banks, meantime can relax credit restrictions, giving small business owners a bit of respite. Large corporations should pay their invoices on time and not use small businesses as a credit provider. In short, try to keep to business as usual as far as possible.

It may feel like the end of the world as we know it, but if we act together and act wisely, the world wont come to an end. As long as you have a viable solution to a problem and the human and financial capital are available, there will be a role for SMEs in the post Covid-19 economy.

Mikael Samuelsson is an Associate Professor at the UCT Graduate School of Business and heads up the UCT GSB Solution Space.

Continued here:

OPINION | Most of SA's businesses are SMEs, and we can help them survive - Fin24

The moon, observed with Mars (lower right) in July 2003, hold far more riches than you would think. (Photo: Marc Van Norden [CC by 2.0]/Flickr)

Moon mining is poised to become a thriving off-world industry, one that could transform not only the world economy, but also be a driving force for putting boots on the ground throughout our solar system.

But what exactly does the moon, long considered a barren rock or, in some quarters, a very old piece of cheese have to offer?

Don't let that austere demeanor fool you, says NASA. The moon's real commercial value lurks just beneath the surface, as the agency explains in this how moon mining would work infographic. Its resources can be broken down into three key elements. The first, water, needs little introduction. It's the basis for life as we know it.

If humans are going to settle permanently on the moon, they won't be able to rely on a steady stream of care packages from Earth. Instead, water extracted from ice at the satellite's poles could help them grow their own crops.

But water, being composed of hydrogen and oxygen, can also be converted to rocket propellant. That would give missions beyond the moon an enormous boost. Currently, Earth-based launches have to carry all the propellant they need on board, which makes them unwieldy and unsuitable for longer range missions. Refined moon water, on the other hand, would allow spacecraft to fill up the tank when they're already in space.

"The idea would be to get a sort of supply chain started outside of Earth for certain products in particular, for water as a propellant so that it could be much easier to navigate to space from one body to another," Julie Brisset, a research associate at the Florida Space Institute, tells The Verge.

Indeed, the moon and its refined water could become the local Esso station for space travelers.

The second key element found beneath the lunar surface that humans would look to mine is Helium-3. Since the isotope isn't radioactive, it wouldn't generate dangerous waste products, prompting experts to tout Helium-3 as a safer source of nuclear energy.

Our planet doesn't get much Helium-3 mostly because our magnetic field blocks the stuff as it sails in from solar winds. The moon doesn't have that kind of buffer, so it gets a steady dusting of Helium-3.

The third chief draw to moon mining? Rare earth metals, like Yttrium, Lanthanum, and Samarium. These minerals aren't easy to come by on our planet. In fact, about 95 percent of them are controlled and stored by a single country: China.

But we all certainly need them. Everything from wind turbines to glass for solar panels to hybrid cars to your smartphone contains rare earth metals. Even guided missiles and other high-tech military equipment makes use of them.

"There could be tons and tons of platinum group metals on the moon, rare-earth metals, which are tremendously valuable on Earth," NASA Administrator Jim Bridenstine tells CNBC.

So why haven't we started digging yet? Well, despite the promise of lunar riches, engineers have yet to work out one niggling detail: how a full-scale mining operation would work. Maybe robots could do it, using 3D-printed equipment. But we would still have to build some sort of infrastructure there; not everything can be carted directly from moon to Earth. As NASA notes, "at this stage, it's still guesswork. Most of the proposals have resembled the Underpants Gnomes' business model."

If you're not familiar with the "South Park" reference, that refers to a three-part business model. The first phase is to identify a resource. The third and final phase is to profit. The second phase is a question mark, because no one really knows how to get to Phase 3. At least, not yet.

That's not to say no one has a clue. Have a look at the video above to see how moon mining could work.

One thing is for certain. Right about now, the U.S. must be pretty pleased with its decision not to sign the Moon Treaty back in 1979. That pact's chief objective was "to provide the necessary legal principles for governing the behavior of states, international organizations, and individuals who explore celestial bodies other than Earth, as well as administration of the resources that exploration may yield."

In other words, the treaty would ensure the moon's resources couldn't be carved up for the commercial interests of a single nation. In all, 18 nations signed it. But, by joining Russia and China in not backing the treaty, the U.S. essentially kept the door open for American companies to someday reap some out-of-this-world profits. (Never say capitalism lacks foresight.)

Because that day may have finally arrived. This week, U.S. President Donald Trump signed an executive order, establishing U.S. policy on the exploitation of off-Earth resources.

"Americans should have the right to engage in commercial exploration, recovery, and use of resources in outer space, consistent with applicable law," the order notes. "Outer space is a legally and physically unique domain of human activity, and the United States does not view it as a global commons."

The rocks on the dark side of the moon could hold a trove of rare earth metals. (Photo: CSNA/CLEP/Doug Ellison)

That policy would span anything the U.S can dig up on Mars and other planets, as well as asteroids. But the lowest hanging fruit, the one most readily within grasp, would be our faithful sidekick, the moon.

"As America prepares to return humans to the moon and journey on to Mars, this executive order establishes U.S. policy toward the recovery and use of space resources, such as water and certain minerals, in order to encourage the commercial development of space," Scott Pace, deputy assistant to the president and executive secretary of the U.S. National Space Council, said when the executive order was shared.

In other words, the U.S. may see the moon a lot like the way Elon Musk sees the star-filled sky to the spacefarer go the spoils.

How moon mining could transform the economy and space travel

The moon is surprisingly rich in water, nuclear fuel and rare metals, which is why humans are interested in mining it.

Link:

How moon mining could transform the economy and space travel - Mother Nature Network

Many Americans are asking, "When will I get my stimulus check?" The answer for some people is: sooner than they may think.

To combat the coronavirus pandemic's harsh effect on the U.S. economy, including the nearly 17 million people who filed for unemployment benefits over the last three weeks, the Trump administration and congressional leaders rolled out a $2 trillion economic recovery package. The Coronavirus Aid, Relief and Economic Security Act, or CARE Act, is delivering much-needed money to Americans suffering financially because of the COVID-19 pandemic.

U.S. residents who have an adjusted gross income of up to $99,000 for individuals, $112,500 for head of household filers, and $150,000 for married couples filing joint returns are eligible, according to the Internal Revenue Service website.

Individual taxpayers who have an AGI between $75,000 and $99,000, head of households making $112,500 and $136,500, and married couples filing jointly with an income between $150,000 and $198,000 are eligible for reduced payments, the IRS states.

Individuals who earn more than $99,000 a year will not be receiving a check. Heads of household who make more than $136,500 and joint filers with an AGI of more than $198,000 are also not eligible.

Students who are age 17 or older don't qualify for a stimulus check if their parents or guardians claim them as a dependent. Parents can only be eligible for a child payment if their son or daughter is 16-years-old and younger.

U.S. residents can receive the maximum stimulus payout of $1,200 payment for individual or head of household filers, and $2,400 for a married couple filing jointly if they are not a dependent of another taxpayer and have a work eligible Social Security number.

U.S. citizens and resident aliens will receive the full one-time stimulus payout of $1,200 for individuals, who are making less than $75,000. Heads of household are eligible for $1,200 if their adjusted gross income is as much as $112,500. Married couples filing joint returns with an AGI of up to $150,000 are eligible for the full $2,400 Economic Impact Payment.

Parents are eligible to receive $500 for each child under the age of 17 that they claim on their taxes.

The Economic Impact Payment decreases by $5 for every $100 if a person's income is above $75,000 and under $99,000. The same goes for a head of household with an adjusted gross income between $112,500 and $136,500, they'll receive a reduced payment. Joint filers who have an AGI between $150,000 and 198,000 are eligible for reduced payments, according to the Consumer Financial Protection Bureau.

The stimulus check is based on your income and the filing status on your 2019 tax return. If you haven't filed your 2019 taxes, your 2018 return will be used to calculate if you're eligible for a economic stimulus payment or not.

No, the checks will not be taxed.

There will be two types of payment: direct deposit and physical paper checks. Americans who filed their income taxes in 2018 or 2019 and provided direct deposit bank information to the IRS will receive the first payments. Stimulus payments could have been deposited in some taxpayers' bank accounts as early as Thursday, April 9, and should be delivered in bank accounts by April 14.

The IRS is expected to mail out paper checks on April 24. Taxpayers with the lowest adjusted income are expected to receive their paper checks first.

"The checks from the Treasury and the IRS probably start going out...I think this week, perhaps early next," Larry Kudlow, Director of the U.S. Economic Council, said on Tuesday.

The IRS is developing a resource for those who did not have their direct deposit listed with the government and would prefer the payment sent to a bank account. The tool is called "Get My Payment," and it is scheduled to be functioning by April 17.

You can find out more information on the IRS website.

Read the original here:

When is your stimulus check coming? How much will you get? - TheBlaze

In the great chess-board of human society, every single piece has a principle of motion of its own

I had an insightful, if disconcerting, engagement a couple of days ago on some of the thinking behind the COVID-19 resource mobilisation that is going on in the government. This was in connection with some proposals on how to tap into unconventional sources of private money, some of them admittedly quite innovative. It is not the substance of the proposals that is cause for alarmin fact some of them are quite sensible and practical. It is the preoccupation with private money. My disquiet was reinforced by a source close to some of the captains of industry that have been appointed to a COVID-19 response task force. According to the source, it was intimated to them that the government was counting on substantial contributions from their respective companies.

I learned from Prof. Terry Ryan, a veteran treasury mandarin, and have taught public policy students over the years that policy priorities are understood, not from what is written, but by how three resourcespolitical power, managerial time, and money, in that orderare allocated. That the government, at the top level, is preoccupied with private sector financing suggests two things. First, the government does not understand the magnitude of the response that is required. Second, there is no appreciation that the key challenge of responding to the COVID-19 economic shock is policy instruments, not funding. And that is a problem.

The US governments $2.2 trillion rescue package is over 10 per cent of GDP and close to half of the annual federal government budget. Canadas $75 billion relief package is 4.4 per cent of GDP and a third of the budget. The two quantums are not directly comparable because they have different public financial management (PFM) systems. If we benchmark with Canada whose PFM system is closer to ours, we are talking Sh440 billion if we go with the GDP ratio, and Sh750 billion going with the budget ratio. The most that private sector mobilisation can raise is a few billion shillings, if that; Sh2 billion at most by my reckoning, less than 0.5 per cent of the lower figure. The government is barking up the wrong tree.

In my open letter to President Uhuru Kenyatta, I proposed a lifeline fund in the order of one per cent of GDP, about Sh100 billion. Clearly, even this falls far short of the Canadian initiative. But as I make clear in the letter, the figure was not based on need but on what is financeable from a macroeconomic sustainability standpoint. Canadas budget deficit before the COVID-19 relief package was 1.2 per cent of GDP. The relief package will push it up to 5.6 per cent. Our budget deficit right now is about 7.5 per cent of GDP, and we were already in the early stages of a fiscal crisis before the COVID-19 crisis, with businesses crying out over pending bills and VAT refunds. A relief package like Canadas would push the deficit to 17 per cent of GDP. That, ordinarily, would be flirting with hyperinflation.

In macroeconomics parlance, we say that Canada had plenty of fiscal space. We have none. Hence my contention that the prudent thing to do is to switch rather than increase the borrowing we have already budgeted. The revised national government development budget for the year is Sh436 billion. The Exchequer had released Sh220 billion as at end of February, that is, with four months to go to the end of the financial year. This means that if we can freeze every national government development project, we can switch Sh200 billion to the COVID-19 response within the existing budget. My Sh100 billion Lifeline Fund proposal requires switching half of the budgeted amount, which I think is very realistic. As it is, the current spending rate projects an absorption of Sh330 billion by the end of the fiscal year, that is, Sh106 billion less than budgeted. The COVID-19 disruption is bound to slow budget absorption.

In macroeconomics parlance, we say that Canada had plenty of fiscal space. We have none.

It is important to point out that budget is not money in the bank as some people seem to think. It is the approved expenditure, that is, what ministries, departments and agencies (MDAs) are authorised to commit. Right now, all our development budget is deficit-financed, that is, funded by debt. As at end of February, the government had borrowed Sh378 billion against a budget target of Sh514 billion for the year, leaving a borrowing headroom of Sh136 billion. What I mean when I say that the government does not have a funding problem is that, once the spending decision is made and approved by parliament through a supplementary budget, the government will continue to borrow as normal and channel the money to the COVID-19 response instead of development projects.

It should be readily apparent that given the urgency and enormity of the challenge, running around scrapping for private sector charity is a misplaced diversionary preoccupation and a waste of valuable time. The orders of magnitude we should be talking about help to put into perspective the much ado about donor money, Sh10 billion or thereabouts so far. It is useful but nowhere near significant enough to warrant all the attention it is getting. By now, a serious government would have pushed a Sh150 billion-plus COVID-19 response supplementary budget through parliament.

We can now turn to my contention that it is policy instruments, not funding, that are the key challenge of responding to the COVID-19 economic shock.

Economics Nobel Laureate Paul Krugman delights in deploying the simplest models for penetrating insights into the most complex problems. In a blogpost titled Notes on coronacoma economics, Krugman posits that, What were experiencing is not a conventional recession brought on by a slump in aggregate demand. Instead, he postulates, Were going into the economic equivalent of a medically induced coma, in which some brain functions are deliberately shut down to give the patient time to heal.

Running around scrapping for private sector charity is a misplaced diversionary preoccupation and a waste of valuable time

To fix ideas, as we say in economics, Krugman deploys a stylised two-sector economy, consisting of a non-essentials (N) sector and an essentials (E) sector. Unlike a regular recession where policy intervention seeks to stimulate the whole economy, the coronavirus pandemic requires shutting down the N sector, while keeping the E sector working. But even after shutting it down, we need to replace incomes lost in the N sector, for two reasons. First, to keep the people alive. Second, to support the E sector with demand, so as to minimize the multiplier effect of the job losses in the N sector on the E sector, and spillovers into the financial sector that could bring the whole system tumbling down. Krugman posits that the correct policy instrument is a hybrid instrument he calls disaster relief with a dash of stimulus. Readers of this column may recognise that this is akin to the Lifeline Fund proposed in my open letter to the president.

How to finance it? Krugman posits that the slowdown of the N sector will leave plenty of money on the table that would have been invested think about all the approved and financed projects that have been put on hold. This money is available for the government to borrow to finance the COVID-19 response. Let me reiterate: funding is not the problem.

The US, like many other advanced countries, has public social security and other public social safety nets that can, and are, being deployed to achieve this. We dont. Another cautionary note is that the N and E sectors should not be taken literary. They dont exist as such in reality.

Two weeks ago, this columnist mused that depending on how long this goes on, governments should start thinking in terms of wartime economic management. The IMF and others have since echoed the same call, prompting some people to compliment or be awed by this columnists prescience.

As flattering as that might be, exceptional prescience was not required. John Maynard Keynes concludes his magnus opus, The General Theory of Employment Interest and Money, on the note that,

[T]he ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

And so it is. Adam Smith famously remarked that the market economy functions as if by an invisible hand:

Every individual . . . neither intends to promote the public interest, nor knows how much he is promoting it . . . he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention

But for all its virtues, there are occasions, times such as this, when the invisible hand is not fit for purpose. The market system is not wired to recognise essential and non-essential activities, only price signals. The market also does not respond to need, only to effective demand, that is, want backed by ability to pay.

At the onset of this crisis, a small supermarket chain caused uproar and moral outrage when one of its branches increased the price of hand sanitiser after observing a spike in demand (Krugman also talks of an epidemic of price-gouging). Even after the supermarket chain apologised profusely for individual error the authorities came down hard, and in an unprecedented consumer protection action, ordered the shop to trace and refund all buyers the difference between the normal and the inflated price. I am not certain that this directive is lawful, as there appears to have been no due process, but that is a matter for another day.

Market fundamentalists here and elsewhere have come out in support of price hikes of this nature as the proper working of the invisible hand, asserting that what the uninitiated see as price gouging is precisely the circuit breaker needed to prevent panicky and greedy people buying all the supply, the former to hoard, and the latter to resell at a profit. In this view, the branch store manager who hiked the price of sanitiser is cast as the unwitting agent of the invisible hand, compelled by his nose for a quick kill to do the greater good.

Adam Smith did not have such religious faith in the invisible hand, and in fact, much of his contribution to economic thought turns on trying to square markets and morality (unsurprisingly, seeing as he was professor of moral philosophy). His benevolent view of the invisible hand is not predicated on an angelic view of man, but on temperance of greed by moral sentiment, that impulse which leads people to cultivate virtue. He had a dim view of businesspeople, maintaining that whenever and for whatever reason people in the same trade met, it would end up in a conspiracy against the public, or in some other contrivance to raise prices.

Adam Smiths moral being was a person who cultivated justice, prudence and beneficence. Such a person would have asked themselves whether raising prices was morally upright, considering that the higher price would compel poor people desperate to protect themselves from harm to sacrifice food or another necessity. Thus Smiths moral being might have concluded that in the circumstances, rationing was a better allocation mechanism than price, seeing as no ordinarily person would buy ten sanitisers at a go, or three bales of toilet paper for that matter. Limiting each customer to two or three sanitisers was warranted.

An even more fundamental challenge is the propensity of the invisible hand to work as it is meant to, resulting in perverse, morally repugnant outcomes. We know that export horticulture has been completely disrupted. Floriculture employs more than 30,000 people, mostly low wage earners in Naivasha. The flower farms themselves are staring at business failure. Naivashas second industry is tourism. In fact, both floriculture and the hotel establishments are on the same stretch of Moi South Road along the shores of Lake Naivasha. These two industries are the engine of the rest of the Naivasha economy. Once these paychecks stop coming, every other business, from the grocery shops, to boda bodas, petrol stations and supermarkets, will be affected. Naivasha may be looking at a socio-economic implosion in a matter of weeks. Once the flower farm and hotel paychecks stop, without income replacement, the invisible hand will signal a fall in demand and supply will adjust downward to the quantity commensurate with Naivashas much diminished purchasing power, as opposed to the number of mouths Naivasha has to feed. Survival will turn on moral sentiment. Left to the invisible hand, they will starve.

Naivasha is not an island. Hospitality establishments are closing downthe Serena Group has closed ten lodges, Pride Inn has closed its Mombasa hotels, and in Nairobi, DusitD2 has closed, to name but that one. Given the trajectory of the pandemic we are observing, the best-case scenario is four to six months before the pandemic curve flattens globally. We do not know when the people from our COVID-19-devastated source markets will venture into leisure travel in large numbers again. The tourism-dependent economiesMombasa, Diani, Malindi and elsewhereare no islands either. In addition to sustaining livelihoods, they are a market for supplies of fresh foods from upcountry. If the big hotels are not in the market, it may not be worth their while for some traders to transport food there.

Given the trajectory of the pandemic we are observing, the best-case scenario is four to six months before the pandemic curve flattens globally

Scarcity will drive up prices, which should elicit supply. Middle-men will be called out for price gouging. The government will be called upon to protect consumers. In as much as government intervention may become imperative, humility is required. We recall the spectacular failure of the dirigiste economic regimes of a few decades back. One week candles would be out of stock, but the market would be oversupplied with brown shoe polish. The following week, candles would be back, but only blue ones, and sugar could only be bought with tea leaves, salt, or a can of brown shoe polish. But people forget, and other generations who take twenty brands of toothpaste for granted are born. Governments will do well to proceed with an abundance of caution, and take heed of Adam Smiths much less remarked observation about homo leviathansis, government man:

The man of system is often so enamoured with the supposed beauty of his own ideal plan of government, he seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that in the great chess-board of human society, every single piece has a principle of motion of its own.

There is a view that we can disrupt the virus with a one-off lockdown of a few weeksgo into hibernation so to speak and once we emerge, the curve will have flattened, and we will then go back to business as usual. This silver bullet view of lockdowns is little more than wishful, lazy thinking. As Stanford economics professor John Cochrane opines, the more likely scenario is whack-a-moleas soon as we think it has subsided, it flares up in another corner of the world, triggering another containment cycle around the world. Epidemiologist Nelly Yatich offers a similar prognosis. She argues that an effective lockdown would have to be in place until a vaccine is found and administered on 60 per cent of the population, and that is still six months away at best. Alternatively, countries can adopt on and off lockdowns but that requires meticulous surveillance systems capable of picking up an increase in infections very quickly.

This silver bullet view of lockdowns is little more than wishful, lazy thinking

These predictions may already be playing out. Singapore, one the first countries to bring infections under control, has announced another lockdown after registering an upsurge of cases whose source could not be traced, suggesting that there are people without symptoms within the community who are unknowingly passing the virus on to others who then develop symptoms. Put differently, it is now endemic. It is telling that only a week ago, the Singaporean government had said that a nuclear option lockdown was not on the cards, on the grounds that it would be too costly economically. Singapores economy is built on international trade. As Gillion Koh of the Institute of Policy Studies, a think tank at the Singapore National Universitys Lee Kwan Yew School of Public Policy, observes, Singapores survival and sustainability depends on borders being open and receiving goods as well as people. So the cost of locking down Singapore is very high, both for the economy and for sustaining daily life itself.

Proponents of the nuclear option posit it as a moral imperativelives above money. Its a false dichotomy, and for three reasons. First, healthcare provision is an economic activity. It is not an island. It requires supplies and logistical servicesmedical and non-medical supplies, maintenance and financial servicesand health workers need to meet their daily needs and social obligations. As the economy is disrupted so too will healthcare provision. Other diseases have not gone away. Already, patients with chronic illnesses are expressing fears about being crowded out of the healthcare system by social distancing and curfew. Preventive disruption of the economy must be weighed against how many existing patients lives will be put at risk, and whether the degraded economy will be able to service healthcare provision if the coronarivus epidemic does materialise. It is in anticipation of this unhappy trade-off that this column suggested weeks ago that African governments earmark coronavirus isolation hospitals and make contingency plans to evacuate them as and when needed. This advice, and much else, is clearly falling on deaf ears.

Already, patients with chronic illnesses are expressing fears about being crowded out of the healthcare system by social distancing and curfew

Second, it has been pointed out ad infinitum that the vast majority of low-income people, particularly the urban poor, live day to day. Many have lost their incomes already. They are surviving on social support from family, friends and charity. It is not at all evident that the government is capable of mounting a safety net that would sustain half of Nairobis 4.5 million people for two weeks. Mounting a total lockdown has to be weighted against the risk of breakdown. Should the government be overwhelmed, it will be downhill from there. Self-preservation will become the governments primary preoccupation. The coronavirus will have a field day.

Third, the economic dynamics of the pandemic are now, for all intents and purpose, delinked from the epidemiological. The coronavirus has become an economic terrorist. Such is its contagiousness that the only way to be sure not to get it is to be in complete isolation. Even a trip to replenish food supplies, face mask and all, is not risk-free. As long as the virus is lurking in our midst, self-preservation demands that people minimise social interaction and mobility to the extent that they are able.

And therein lies the rub. We do not need a lockdown for the economy to seize up. The instinct of self-preservation is sufficient, and this is already evident. With every day that goes by, there is less and less on the supermarket shelves. Many county governments have closed fresh produce markets. The fresh produce that is rotting in the farms means shortages for the remainder of the year because many farmers who are losing money simply wont have the working capital to invest in another crop. The prudent thing for them to do is to hold on to the money they have to tide their families over the hard times ahead.

It is not at all evident that the government is capable of mounting a safety net that would sustain half of Nairobis 4.5 million people for two weeks

All said, the lockdown question is not one of lives versus money. It is how many lives are at risk in each scenario. But above all, it is about getting it into our heads that complex problems do not have simple solutions. Simple solutionsespecially ones that need to be propelled by manufactured consent through opinion polls and social media acclamationcan be relied upon to backfire. We need not trawl through the Jubilee administrations record in this regard at this time. Politicians who are raring to go back to their 2022 slugfests may want to consider looking for online side-hustles. Coronavirus is not a passing cloud.

In the great chess-board of human society, every single piece has a principle of motion of its own. Men and women of the state realm, take heed.

The rest is here:

DAVID NDII - Notes on Leviathan, the Invisible Hand and Moral Sentiment in the Time of Coronavirus - The Elephant

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