Economy is split into online segment and fragile off-line majority

As political scientists Jeff Colgan and Robert Keohane (2017) argued in “The Liberal Order is Rigged” – “elites have taken advantage of the global liberal order – sometimes inadvertently, sometimes intentionally – to capture most of the income and wealth gains in recent decades, and they have not shared much with the middle and lower classes.”

Today, the pandemic has brutally exposed this fault-line between the prosperous “best” technocracy and the precarious rest. The lockdown split the economy into its viable online segment and the fragile offline majority where most people work.

In the post-coronavirus economy, Big Tech companies will thrive, whereas Industrial Age companies that depend on high density crowd revenue such as mega-malls, cruise ships, airlines and tourism will suffer.

Unfortunately, many small businesses and workers have not fully learned the online technology.

This raises a fundamental question of social fairness. Can we still afford to pay very high salaries to financial engineers, when the ability of banks to make money is less dependent on public deposits and more on central bank monetary creation?

Why should public health workers, who put their lives on the line in the pandemic, be paid significantly less than software technicians? The market cannot price in the social value of different jobs. If socialists demand minimum wage, surely to be fair, some caps on non-socially useful salaries could be considered?

The big winners in the post-coronavirus era will be big government and big Tech. This is because the government will rely on technology to deal with four major expenditures going forward.

The first urgent cost is in keeping firms and jobs alive during the lockdown. The second is the funding and investments that may be necessary to keep some viable firms to transit into profitable post-coronavirus businesses. The third are the losses of the non-viable businesses. The fourth (and possibly the most important) is the education, training and re-skilling of employees out of the dying businesses into the new post-coronavirus businesses. But the best technology may not require so many new jobs.

All this suggests that the post-coronavirus economy will have very large government spending and deficits well in excess of the 5%-10% of GDP deficits as in the 2008 crisis.

Short of a miracle in vaccine discovery, how businesses can re-open will depend very much on the quality of government regulations on health and social distancing. Adapting in order to survive means that we need to build in redundancies and spare capacity to be resilient to future shocks. What is resilient is not the most efficient. There are no “best solutions” going forward.

The pandemic shows that the best cannot be the enemy of the good. The best has to take care of the rest. This means cooperation, empathy and putting people first. Our hearts go out to the hundreds of thousands who have to die to prove that America First is not wrong.

If that is best, I don’t want that model.