Be Kind: 2020 (Econ) Rewind

The year 2020, to paraphrase an often quoted line, did not build our character; it simply revealed it. An extraordinary turn of events upended how we thought about everything - life, love, work, social connections, the value of well-being. It shone a sharp spotlight, across the world, on humanity at its best and at its worst, our actions exacerbated by the extreme circumstances we collectively faced. But it was also, in a way, a reiteration of an extraordinary aspect that gets talked about often in economics, but is surprisingly ignored in a lot of its formalised models.

And that aspect is our altruism for each other.

“Helping someone else through difficulty is where civilisation starts.” – Margaret Mead

When the pandemic broke, and along with it came a slew of tough lockdowns, which threw any semblance of normalcy in life out of gear and disproportionately hit the livelihoods of the marginalised. Governments moved to mobilise the usual rescue and relief machinery, but the extent of the disruption (which is still being assessed) meant that those efforts fell well short, which while being bad news, also served to energise volunteers who started their own efforts for relief. I am sure almost every one of us reading this has contributed to the latter in some form.

The Bone Healers

In the context of a broader human nature narrative, this is at the same time almost predictably routine yet startlingly remarkable. And if we take an economics lens to it, it is even more so, offering us a valuable lesson and reminder. To understand what that is, we have to go back to a familiar story that does the rounds on the internet from time to time. In fact, especially during the outbreak of the coronavirus, it seems to have received a new fillip.

The story is one of anthropologist Margaret Mead who surprised a class of hers by telling them that the first evidence of civilisation was a healed femur (the thigh bone) found at an archaeological site dating back 15,000 years. She went on to elaborate to her puzzled audience that the fact was remarkable because a broken femur takes time to heal and that means whoever this person was, had to have been cared for and protected by their tribe for that period. That’s not usually the law of the jungle, where weaker and injured members of an animal tribe may often be left behind to fend for themselves and in most cases, those did not meet a pleasant fate.

The volunteers – especially health workers and frontline workers going beyond their call of duty, in some cases, put their own lives in danger, or at the very least, faced immense hardship – are the femur healers of the modern economy. When disaster strikes, it often upsets our delicately organised economic and social order and threatens to tear it apart. Now, those studying economic systems as a whole often plug survival of the fittest sort of narrative assumptions on to the system and posit everyone as a rational actor who would safeguard their own self-interest. To them the volunteer’s behaviour would seem out of place. Just like that healed femur at that dig.  Altruism need not be seen as an aberration in human behaviour in an economic context but as something that makes complete logical sense.

It’s a feature, not a bug.

Stranger Danger?

In his book, The Company of Strangers, Paul Seabright, who looked at the economy through the lens of evolutionary biology, puts that paradox in perspective saying:

It is hard to believe that something as complex as a modern industrial society could possibly work at all without an overall guiding intelligence… [t]his coordination comes about simply because of a willingness of individuals to cooperate with strangers in a multitude of small but collectively very significant ways.

Our lives are usually dependent on an economic system, a faceless, abstract framework that allocates resources. Individually, everyone is trying to meet their needs by being able to exchange, say, their labour for money, which in turn helps them transfer the goods they need to them. As Ha-Joon Chang puts it in ‘Economics: The User’s Guide’ “[money] is a symbol of…your claim on particular amounts of the society’s resources…” All of economics is about allocation of resources which usually have multiple uses and hence are scarce and thus should ideally be put to ‘efficient’ use. The economy in general around the world (regardless of how it is organised – through market forces or government intervention and planning) functions based on transfer of these resources and the output they produce.

Largely, those transfers are incentive based (the baker sells you cakes because she earns an income selling it not because she is a fan of The Great British Bake Off) and millions of these transfers through complex networks of marketplaces (both physical and abstract) make up the thing we call ‘the economy’, where you can go to the pharmacy and get that aspirin you wanted without having to worry about how it is made or who makes it, or get your skill set gainfully employed for which you get a fair compensation, or put your children in a good school that doesn’t require them to trek through two towns to get to. The system is almost a living breathing organism that functions largely smoothly thanks to strangers trusting each other (your employer may have done a background check on you, but in effect it is hiring a stranger, the same thing happens when you visit a new hairdresser or hop on to a plane where you personally know the crew, the pilot or the plane manufacturer) and continues its job of allocating and reallocating resources so that they find the best use for overall welfare. This understanding of the model of the economy broadly stems from Adam Smith's famous 'invisible hand' argument in The Wealth of Nations, where he famously wrote:

It is not from the benevolence (kindness) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

But what often gets lost in translation is that when he said "self-interest" he did not necessarily mean that the agents in an economy are "selfish". However, during an external shock (like the pandemic), this system breaks down, primarily because the incentive structure that was generally driving it (profit) no longer works well.

During such a shock a rapid reallocation of resources is required (recall the dilemma health care systems faced around the world as capacity was overwhelmed by coronavrius cases needing urgent medical attention or the ICU and pushing other medical needs to the back of the priority list) and the existing system cannot engineer an immediate readjustment. Which is why, voluntary contributions (whether in the form of money or in kind – like labour, expertise or even in the form of informatoon) play a very crucial role. In terms of a system, a parallel one now needs to be set up which works on a different incentive structure and with different goals.

With A Little Help From My Friends Strangers

Natural disasters happen around the world and governments typically have disaster funds set aside (as well as emergency help to call on, from the defence and special forces, for example) to meet this need. The trouble is when once in a century kind of an event hits, those resources become woefully inadequate. That doesn’t necessarily signify a problem with governance, it is more likely a case of something that is impossible to anticipate and prepare for well in advance.

Altruism has often stumped neo classical economists who have tried to explain it in terms of rational cost versus benefit analysis but while it may not seem obvious at an individual level, as a collective it makes sense (remember Seabright’s ‘multitude of small but collectively significant ways’?).

At its most basic an economic system should function where as many people as possible have their needs met fairly (welfare) and there is room for growth. A disaster like the pandemic is a spanner in those works. The machine can grind that spanner out over a long term but such a delay can be disastrous which is why intervention is needed to get the system up and running. In normal times, through the incentive of profit and self-interest a large number of strangers work together to make it function. But when times are unbelievably tough, those fragile links break down and we are down to another set of strangers who need to work under a new incentive system to put the pieces back together.

2020 has been one such year. And to give us something to cling to for 2021, I’ll leave you with a hopeful and important reminder from Seabright’s The Company of Strangers:

As you are reading these words, somebody you have never met is working hard on your behalf. Almost certainly many people are working for you – an Indian farmer driving bullocks across his land so he can plant the cotton that will be made into the shirt you will buy sometime next year; a Brazilian farmer harvesting the coffee beans for your breakfast next month; a civil servant planning the road improvements close to that dangerous junction you pass on your way to work; a chemist synthesizing molecules to treat the illness that you still do not realize you have. These people do not know you, but they do not need to, even though your life, your health and your prosperity depend upon them. You have every reason to be grateful for the intimate links that tie them to you.

Let the economic models keep plugging rationality to make them simpler to work with. The idea of civilisation is a little more sophisticated and a much higher ideal than capitalism. The fact that every airplane safety demonstration has to remind us to put on our own oxygen mask before helping others along with healed femur remains from 15,000 years ago are ample proof.