John Anderson interviews Niall Ferguson: On the Response to Covid-19

John Anderson interviews Niall Ferguson: On the Response to Covid-19

John Anderson https://en.wikipedia.org/wiki/John_Anderson_(Australian_politician)  has interviewed Niall Ferguson https://en.wikipedia.org/wiki/Niall_Ferguson on April 24, 2020 on the response to Covid-19. John Anderson is a former Australian politician and Niall Ferguson is an historian. Both have a lot of other titles and accomplishments under their belt as well as at times having strong contrarian positions on policy matters.

I would, for the sake of framing, call them liberal conservatives and valuable contributors to the public debate. I have followed Niall’s speaking engagements on YouTube and they’re usually quite interesting and I’ve just finished his Civilization book https://www.amazon.com/dp/B0054TVW04 that by the way pointed out to the pandemic and debt issues throughout and most specifically in its conclusion.

In this short piece, I will outline some of the discussion and key points in the interview very briefly and offer my own opinion alongside where relevant. I strongly believe they’re covering very important issues and are bold enough to be contentious. Many of these points, we will revisit in the near and far future and with no joy I think that there will a lot of validity in the conclusions derived in this interview.

Here’s the YouTube link for John Anderson’s channel and the interview: https://www.youtube.com/watch?v=J3s6pzmmvEg

Below are my key takeaways and personal commentary:

1.       World Economic Forum:

a.       Niall: WEF was held in January this year and did not focus on this pandemic as a risk. I tried to call attention to it and was not successful.

b.      My comment: Virus had already broken out in Wuhan and it is surprising that the global elite was utterly complacent in risk assessment (at the very least in general). This calls out to the general viability of the current global order and / or its main components and / or its priorities and / or its leadership. With 2008 Great Recession as well as with the Coronavirus episode, the global order is rapidly losing trust. Furthermore while the US is acting incompetently, neither EU nor China is a satisfactory global alternative. As it stands, Pax Americana is suffering and heirless.

2.       Inability to Act as per Plans & Preperations:

a.       Niall: The US did have comprehensive pandemic response plans. On paper, it was well prepared and it had resources. Then something went terribly wrong in implementation. Whereas Taiwan and South Korea was able to do the implementation properly. Similarly UK failed as well.

b.      My comment: From far away, the institutional capacity of the US and the UK looks to have eroded in the last couple of years. I disagree with Niall to attribute a higher quality to smaller government (as per his comments in this interview) and think that he is self-contradicting by praising smaller government and the government led responses in Taiwan and South Korea.

3.       On the Government Response:

a.       Niall: This virus is similar to 1958 virus but the responses are very different. In the former economic life was not brought to a halt.

b.      Niall: This shutdown is similar to World War I response where the stock markets were closed on government order and economic dislocation happened due to war related panic.

c.       My comment: From the early days, it has been politically wrong to point out this cost and benefit dilemma. As Niall point out, the worst of both worlds have been achieved in some countries. Virus has spread and the economy was stopped. The complacency early on led to panic afterwards and resulting mix was toxic in multiple fronts.

d.      Graham Fuller was one of the early commentators on this issue in his blog http://grahamefuller.com/corona-thoughts-on-end-times/ : “It may be some time before it becomes clear just how much the sweeping measures to stop the disease may in the end be worse than the disease. But how much worse? In an age when pandemics are likely to emerge again, how much and how often can leaders really shatter public life to meet the disease? And how will shattered economic and social orders ever restore themselves?”

e.      I tried to write about this by creating a fictional world scenario laden with game theory to show that a controlled smart response was better on https://medium.com/photos-2019/a-game-theory-approach-to-coronavirus-decision-making-and-related-economic-loss-potential-making-b087b2a06755. As such I agree with Niall on this issue.

f.        Furthermore, while the governments had China-like tools to employ on enhanced surveillance of their populations; public opinion was a show stopper to limit executive power. However the virus has enabled a Brave New World moment of willing compatriots (who are afraid of health risks and consequently ready to turn in their individual citizen privileges) in the expansion of state powers. The hopeful expect that this will act as a double edged sword and put the onus on the executive to perform. The hopeless (sometimes called the realist) fear that it would be hard to step back to the previous democratic standard

4.       This response was a mistake:

a.       Niall: We copied the Chinese example in lockdown whereas we should have copied the Taiwanese example by following the right China.

b.      Niall: That response would be to ramp up testing and contact tracing alongside using technology to our advantage.

c.       My comment: Full lockdown is very hard to sustain and the virus might just lie in hibernation. The solution to the problem is smart and targeted action that is backed up by testing extensively and contact tracing. Check out some of the commentary I’ve put on my article https://medium.com/datadriveninvestor/a-simple-question-how-likely-to-get-back-to-normal-this-summer-at-the-current-infection-path-ccd28ebc3a69. On this issue as well as this article I’ve put on Medium couple of weeks ago that statistically supports this view https://medium.com/datadriveninvestor/covid-19-mortality-divergence-data-and-conjecture-783368effebf.

5.       Major future risk from monetary and fiscal measures:

a.       Niall: We sought to offset the shock imposed on ourselves by unprecedented monetary and fiscal measures. As we will not get a V shaped recovery, we will not get out of these measures in the foreseeable future.

b.      Niall: By effectively resorting to monetary financing of the governments, Central Banks have thrown out the rulebook. Given the high amount of debt prior to this episode and current levels now to surpass World War levels; there is inflation risk in the future in the long run and a fiscal crunch risk in the short run.

c.       My comment: Global money supply is soaring https://twitter.com/dlacalle_IA/status/1254096059644743683, FED balance sheet is expanding at an unprecedented pace https://twitter.com/Schuldensuehner/status/1253616663775383554/photo/1, share of Emerging Market debt to GDP is at a record high https://twitter.com/elerianm/status/1251959983081586688 https://twitter.com/nickdearden75/status/1253651257090342914 and global debt to GDP is dangerously high https://twitter.com/FinancialTimes/status/1235127876288221185 https://twitter.com/santospereira_a/status/1251090575434158080.

d.      Public trust in fiat is eroding, low growth lies ahead, debt is high and rising, low interest rates for longer appears to be the norm and coupled with all this a massive debt burden can indeed act a Japan moment for the US and the EU along with other notable economies. I fear that the economic fallout could be greater and more long lived that the health fallout once everything settles.

6.       No short term return to normalcy:

a.       Niall: Vaccine, even if effective, is at earliest due in 2021. Indoor events and crowded events should not come back for a while. However, in a smart phased manner, economic activity can be restarted.

b.      Niall: There is no single curve to suppress as pandemics historically had multiple curves. However with the lockdown financial and mental cost, neither population nor the governments are ready to tackle new waves.

c.       My comment: As the Swedish expert Prof. Johan Giesecke points out here on UnHerd https://www.youtube.com/watch?v=bfN2JWifLCY, once the lockdown is initiated; an abrupt stepping out is difficult and a one step at a time approach is necessary. This is my prime worry – which normalcy is hard to achieve and all sorts of setbacks are possible along the way. From a mutation to inadequate herd infection and from a second wave to a relapse in immunity; there are so many things that can jeopardize a so-called normalcy.

7.       China has a lot to answer:

a.       Niall: China has not timely shared the magnitude of the problem. It has not provided adequate information how the virus passed to humans. It has not timely curbed international traffic in and out of China once the virus broke out. China’s claim that it is helping the world is a Cold War level propaganda and a disinformation campaign.

b.      Niall: China has systematically has prevented fair competition, cheated on trade and refrained from playing by global rules. There is a way forward with a liberal economic order but only if both China behaves differently and the West hold it accountable.

c.       My comment: We’re in a unipolar hegemonic world order in which the hegemon is democratic and short of domestic popular support undertake the cost of being a global hegemon. Whether China answers up or not; from my vantage point, both the US is failing at the role and the nearest challenger is far from being a compelling alternative. The Coronavirus episode could add more unpredictability to the already struggling global political order.

8.       The US economy prior to this episode was already on steroids:

a.       Niall: Even at near full employment in 2017, the deficit in the US was unsustainably high. Trump’s tax cuts were a mistake.

b.      Niall: Conservative movement has sort of blown it and I don’t see how we can get back to responsible fiscal policy.

I shall state that I differ from John and Niall on the importance of climate change as they’ve ended up downplaying it perhaps in relation to criticize the failure of Western leadership to recognize this current crisis but nevertheless it came out way below their analytical capacity.

In conclusion, I recommend that you watch the interview and thank you for taking time to read my highlights and commentary on it.

April 2020, Istanbul