Brexiteers tried to claim that the predictions about catastrophe, following a crash-out Brexit, were like the predictions of catastrophe in relation to the Millennium Bug. As I've described before, what they failed to point out is that catastrophe, as a result of the Millennium Bug was only avoided, because, for several years before 2000, billions of dollars was spent globally to avoid it! Its not that the predictions about catastrophe were wrong, or scaremongering, they were not. Its that the predictions led to action being taken to avoid it. Nothing of the sort has happened with the potential for catastrophe resulting from a crash out Brexit. But, there are useful comparisons and contrasts to be made in relation to the Millennium Bug with what is happening with COVID19, and with Brexit.
Any trades unionist who has had training in risk assessment knows that assessing risk comprises two elements. First, there is the probability, and secondly there is the consequence. In other words, for any particular risk, what is the probability that it will result in some unwanted consequence. If I go outside without an umbrella, when its raining, its highly probable that I will get wet. But, then, what is the degree of seriousness of that consequence. For most people, not very great. By contrast, if I go outside the chances of being hit by a piece of meteorite, or space debris are pretty small, but should it happen, the seriousness of the consequence is pretty severe. Somewhere, in between, if I work on a construction site, the chances of me being hit by something falling from above are much smaller than getting wet if its raining, but much greater than being hit by space debris. The consequence of being hit will depend on what hits me, and from how high. The risk certainly warrants wearing a hard hat, and the use of other safety measures.
If we take the Millennium Bug, the probability of computers, and other equipment using microchips, being affected was very high, other than for those that had only been produced in the couple of years prior to 2000. Chips themselves were constructed in such a way that they only recognised the last two digits of the year, so that they could not tell the difference between 1900 or 2000, and so translated 01/01/2000, as being 01/01/1900, which meant that it confused calculations, because it then translated 01/01/2000 as being prior to 31/12/1999. The same applied to tens of millions of software programmes running on computers across the globe. What was the severity of the consequence? Well if it was the chips running the systems on an airliner, traffic control system, and millions of other pieces of hardware, pretty significant. I've been on an aeroplane mid way over the Atlantic when the plane's computer system went wrong, and had to be rebooted twice, by shutting down all the electronics on the plane. I wouldn't want to experience it again.
If you're watch or calculator stopped working, whilst that would be inconvenient to you, it would not represent a serious threat to life or limb. Similarly, the failure of millions of banks computer systems, might not pose an immediate, direct threat to life or limb, but by shutting down the global financial system, and money transmission mechanism, it would pose a serious threat to people's livelihoods, and indirectly to lives, because it might mean that hospitals didn't get the supplies they needed, and so on. And, the same thing applied to millions of businesses, in general, across the globe, which, by 2000, had moved from reliance on a handful of large mainframe computers, or, in most cases, millions of bookkeepers, administrators and clerks with pen, paper, and calculators, to a widespread use of personal computers, computerised electronic tills and EPOS systems, and so on.
So, the probability of there being unwanted consequences, be they financial or physical was very high, and the seriousness of those consequences was also high. Risk assessments are based on multiplying together the probability with the seriousness. So, it was inevitable that a large effort had to be put into the only real element that could be influenced, in this case, which was the probability of an unwanted risk occurring. If a computer malfunction occurred, the consequence on the plane would not be changed. The only way to reduce the risk, was to reduce the possibility of malfunction in the first place. So, in the years prior to 2000, people working in computer departments, or, like me, who had responsibility for computer and technology systems within other departments, were charged with ensuring that all equipment and software was Y2K compliant. Where it wasn't, it was replaced. It was only all of that effort, and all of the money spent to bring it about that prevented the Millennium Bug resulting in multiple catastrophes, some of which would have been extremely serious otherwise.
But, it also had other consequences. Billions of Dollars was spent worldwide ensuring that computer and other technology was Y2K compliant. It was one factor that played into the growth of technology companies in the late 1990's, and saw their share prices go through the roof. The other factor was that, after 1987, when global stock markets crashed, central banks repeatedly intervened to pump liquidity into the system, whenever they took a dip. They did that repeatedly during the 1990's, and central banks became the puppet of financial markets. In the late 1990's faced with more turbulence in the form of the Asian markets crisis, and the Rouble Crisis, they pumped yet more money into the global financial system. All of this liquidity also went into inflating share prices, particularly those high growth companies in the technology sector. The final piece came ahead of 2000 itself, when central banks, still not sure that every bit of technology was Y2K compliant, and also knowing that the Millennium would see large scale spending, requiring additional cash, pumped yet more money into the system, stuffing ATM's across the globe, for revellers to splash, and speculators to throw at any and every growth stock available.
Then, the party was over. All of the preparations prevented a Y2K catastrophe, and central banks tried to get back some of the liquidity they had sprayed into the system. As they did so, and interest rates began to rise, all of those astronomically inflated stock prices collapsed. The technology based NASDAQ index collapsed by 75%.
If we compare and contrast this with COVID19, the latest evidence suggests that we can expect around 70% of the population to be infected. In terms of probability that puts it in the same league as the Millennium Bug. For 80% of those infected, the symptoms are mild or not detectable. In other words, around 56% of the population are essentially unaffected by it, whilst another 30% are not affected, because they are not infected. That is 86% of the population unaffected. Even amongst the other 20% of those infected, only a minority will suffer serious, or life threatening consequences. The current mortality rates for developed economies indicate that only around 1% of those infected will die, and these are concentrated amongst those who are elderly or who have existing medical conditions making them susceptible.
The obvious conclusion, from a risk assessment standpoint, therefore, is to focus on ensuring that this very small minority of the population that are at high risk of death, or serious illness, if infected, do not get infected. How is that best achieved? Well, if the spread of the virus is slowed down, which appears to be the current plan, it means that the virus will have a pool of potential victims to infect over a much longer time period. That means that the virus will remain in circulation for much longer. Given that, currently, no vaccine exists against the virus that means that the longer the virus remains at large, the longer those at-risk groups have to be isolated from it. The most obvious response, from a risk assessment standpoint, therefore, is to focus resources on that very small minority that are at high risk of death or serious illness, if infected, and enable them to be isolated from it, so as to avoid infection to begin with. That means about 20% of the population, or about 13 million people, in Britain, need to be able to self isolate, and need the resources to be able to do so.
Clearly, the resources to do that are less, in total, if the period of self isolation is shorter than if it is extended. The government's current policy of trying to slow the spread of infection, however, means that by slowing it, it will be around for much longer, requiring a much longer period in which that 20% need to self-isolate, and so increasing the resources required to be able to do so. Comparing that situation to that with the Millennium Bug, something is very obvious. In the years prior to 2000, billions of dollars was invested preventing the Bug being able to affect computers and technology. By contrast, in the last decade, the policy of austerity in Britain and elsewhere, has brought about a decay in infrastructure, and particularly, in Britain, in healthcare and social care.
The resources to enable that 13 million people to self isolate, for a couple of months, in their own homes, therefore, are not available, in the same way that the resources for supporting the health and social care, for people who need it, have been run down in general. So, its no wonder that the government has gone for a solution that falls between two stools of leaving those at risk to self isolate without the adequate support, whilst introducing measures that would mean that the spread of the virus amongst the young and healthy is more drawn out, putting those at serious risk in danger for a much longer period of time. The other reason that the government is introducing such measures is that, as with every moral panic, the authorities get pushed into having to do drastic, visible measures to appease demands that “something must be done”, whether, in fact, that “something” is the best thing or not.
What is more, with the Millennium Bug, dealing with the problem by spending large amounts of money to prevent it being a problem did not have other consequences, other than those mentioned already that, because it facilitated a sharp rise in the share prices of technology companies, it played into the asset price bubble, and subsequent bursting of that bubble in March 2000. But, measures to prevent the spread of COVID19, by implementing blanket bans on activity do have other consequences. Suppose, for example, that we responded to the fact that some people have nut allergies, by saying that no one could eat nuts, and all nuts had to be removed from food and other products. It would have immediate consequences for food production and those employed in it. Thousands of people would lose their jobs, not just in agriculture, but in food processing industries too. That, in turn, would have knock on economic consequences, as all those people lost their incomes, and reduced their spending. Instead, we enable those with such allergies to avoid nuts, and require food processors to provide adequate allergy information on their products, as well as providing those with severe allergies with Epipens, and so on.
Similarly, closing down schools means that millions of children, who are not affected by the virus, have to stay at home. Their parents then also have to stay at home. Some of those parents will be NHS workers, who then cannot provide life-saving treatment to other people. Some will be care workers, who then cannot work to provide assistance to those amongst the sick and elderly that need support in being able to self-isolate. Some will work in other vital jobs that then would not get done, and which would inevitably mean that thousands of other people would than have their lives put at risk for reasons nothing to do with coronavirus. If the economy ground to a halt, because people were being told not to go to work, or not to go out and spend money as normal, this very economic collapse would directly put people's health, well-being and lives at risk, and mean that the resources were not available to provide the support required. From a risk assessment, and risk management standpoint, it seems a completely foolhardy approach to take.
But, eventually, COVID19 will pass. At worst, some 500,000 people in Britain might die. That would, of course, be awful, but to put it in context, around 80,000 people die each and every year, in Britain, from smoking related illnesses, and for every one that dies, another four suffer from serious smoking related diseases. In 2018, 17,000 people died, in Britain from seasonal flu. So, eventually, the economic consequences of COVID19 will also pass.
But, that, as with the Millennium Bug, contrasts with Brexit. The probability of the Millennium Bug causing a problem was dealt with by spending billions in advance to prepare for it. The same preparation has not occurred in relation to COVID19, on the contrary the necessary infrastructure has been undermined by austerity. Health workers even complain that they do not have the required safety equipment to be able to ensure that they do not pass on, or contract, the virus in their contact with patients. But, even that will be a one off effect. With Brexit, not only is there no preparation to prevent an unwanted consequence – the best way of doing that would have been to cancel Brexit itself, which is entirely in the capacity of the British government – of a crash out, but even if that immediate consequence was dealt with, then, unlike COVID19, and the Millennium Bug, the negative consequences of Brexit itself are ongoing. Its more like the 80,000 deaths each year from smoking.
The Millennium Bug led to a splurge of technology spending, and also led to an increase in the liquidity pumped into circulation by central banks. It facilitated the bubble in technology and other stocks that led to the stock market crash of March 2000. Similarly, COVID19 has seen central banks pump liquidity into circulation, this time not causing asset prices to inflate, but trying to prevent asset prices, across the globe, collapsing. In 2000, the withdrawal of liquidity caused asset prices to crash. Today, all of the liquidity, alongside increased fiscal stimulus is creating the conditions for inflation to rise, and interest rates to rise, which will cause asset prices to collapse, and that will occur rapidly, as soon as the panic in relation to COVID19 disappears, as was the case when the Millennium came and went without catastrophe.
Yet, the asset price crash of 1929, which saw shares, and property fall, in total, by around 90%, did not bring the world to an end. In the 1930's, new technologies, and new industries arose, along with an increased rate of profit that formed the basis for the huge economic expansion after WWII. Nor, did the world end after the stock market crash of 1987, of 2000, or even 2008. Those financial crises, as Marx points out, really only affect the speculators who, by these means, rob each other. They only affect the real economy if we allow them to, by allowing them to cause credit and liquidity to seize up, so that the normal functioning of business is brought to a halt. In fact, as Marx sets out, and as I have described in the past, these financial crises actually benefit economic expansion in the longer term. By reducing the astronomically inflated prices of property, they reduce the cost of shelter for workers. By reducing the astronomically inflated prices of shares and bonds, they make it cheaper for workers to buy them, and so build up the capital of their pension funds. This reduces the value of labour-power, thereby raising the rate of surplus value, and profit, so as to facilitate greater capital accumulation, and economic growth, and the rise in workers' living standards that goes with it.
But, the opposite is true with Brexit. Brexit like Trump's tariffs, increases trade frictions and so costs. It makes the cost of labour-power, and of means of production more expensive, which reduces the rate of profit and slows down capital accumulation and economic growth. That is not a one-off effect, but an effect that persists year after year. But, in making the economy less productive, it means that the currency becomes depreciated, which in turn means that interest rates rise higher than they would have done, and that causes asset prices to fall. It means that all of the negative consequences are suffered without any of the positive effects.
No comments:
Post a Comment