An Overview of the Systemic Implications of the Coronavirus

| March 25, 2020 | Leave a Comment

Item Link: Access the Resource

Media Type: News / Op - Ed

Date of Publication: March 25, 2020

Year of Publication: 2020

Publisher: Resilience.org

Author(s): Nate Hagens

Categories: , , , , , , ,

With the exception of some public talks, I’ve largely been quiet the last five years on social media and other venues with respect to describing our societal situation, despite having strong opinions on what is happening and what is going to happen. I’ve mainly been working behind the scenes on responses to the coming end-of-growth situation and have chosen to not be a perpetual buzz-kill to real people I care about who (mostly) prefer to ‘watch a different movie’.

Alas, the world, and particularly this virus and the response to it, has accelerated the timeline a bit, and we are now amid a dress rehearsal (hopefully that only) of the larger events I see unfolding before 2030.

Given all the unknowns – rather than put a % on various outcomes and make a slew of predictions – I’d prefer to provide what I see as the context for our coming challenge, hoping we can avoid the worst and steer towards the best.  Below is my assessment on our systemic situation along with some brief suggestions of ‘what to do’.

The TL;DR summary is:

  • We are part of a system. The virus’s impacts on human health is but a small part of the impacts from SARS-Cov 2 (COVID-19) on human civilization and future.
  • While we might one day surpass 2019 GDP levels, we will never get back to what was recently considered normal in our interactions, expectations and lifestyles.
  • The impact from the cure (shutting down economies) may be worse – and possibly much worse – than the disease. Because of this, the central banks need to now guarantee everything – for citizens and businesses, until the crisis is passed.
  • We can use this external throttling down of our metabolism as an opportunity – as individuals, as society, and as a species – to arrive at a more sustainable, less crazy way of interacting with each other and the planet. But we first need to navigate the financial crisis.
  • Government, corporations, philanthropy, and communities are comprised of individual humans. Take good care of yourself. Be Kind and Good. These things can also be contagious.

WE ARE PART OF A SYSTEM

We are in the midst of a global pandemic. But SARS-Cov2 is only the proximate risk. Ultimately, the virus is laying bare many of the problems that have built up over decades: chasms of inequality, the use of virtual debt to paper over physical world problems, ecological/systems ignorance, addiction, obesity, globalized just-in-time (and fragile) supply chains (especially for basic needs), and fractured political governance— all in service of the growth dynamic, as described in this paper, and this video. We have chosen economic efficiency over resilience. We have substituted technological stimulation and money for social interactions. We have substituted dopamine and supernormal stimulation (most of us, including me) for physical health.  The game has been the plan, and the game has changed so rapidly that we have no plan.

THE VIRUS

I have somehow arrived at middle age with a crapload of intelligent friends. Which is a gift that I treasure. But never in my life have I had so many smart people in my network disagreeing on the order of magnitude on the numbers.  My *sense* is that a) the mortality rate from SARS-Cov2 might be overestimated because b) the morbidity (how many people have it) is vastly underestimated. LOTS more people have this virus than are being tested or even who are sick, or even who are symptomatic. I won’t waste space here speculating on the eventual number of deaths from this virus. Because whatever that number is, unfortunately, it’s worse than that.

THE REAL HEALTH EPIDEMIC

SARS-Cov2 is much more lethal for a) older humans and b) those people with existing health conditions like high blood pressure, diabetes, heart disease, and obesity.  Unfortunately, wealth, comfort and prevalent access to cheap (but profitable) food and the siren-song of supernormal stimuli shouting louder than outdoor activities has resulted in a nation (ours) with 100 million(!) citizens overweight and 39% obese! We now have 4.5% of the world population but are recipients of 50% of world’s medical prescriptions, including an enormous number of people with mental health issues.  Despite being one of richest countries on earth (in total, not average) we are not medically well prepared for this virus. We possess a very unhealthy population with only 2.87 hospital beds per 1,000 people, and far fewer ventilators/ICU beds.

This is the healthcare/medical backdrop.  But it’s much worse than that.

THE ECONOMY

Economic growth is a measure of the goods and services consumed during a period. Just like a shark needs to keep swimming to run oxygen through its gills, our economic metabolism can ‘slow’ but if it slows too much it goes into stall—a.k.a. a nose dive, from which even the best pilots in the world can’t make it recover. With the recent shelter-in-place announcements and shutting down of commerce in most places, we are approaching such a situation of no economic ‘oxygen’. As of 3/22/20 we are already in a depression, my guess is that in 2020, GDP will be down 10% at least, and if shelter in place rules stay in effect into June the economy will be down 20% or more, rivaling the early 1930s.  The longer and wider the shutdowns are, the steeper this drop will be, and the less likely it will recover to the way it was. (And let’s be clear: the old normal sucked for many/most people, so ‘less GDP’ might be a good thing as long as basic needs are met, and far more equitably, while replacing what was (frivolous) consumption with well-being tethered to natural and social capital. But first things first).

The risk here is that the US (and world) economy goes into the abyss and if shut downs and shelter-in places continue for more than a few weeks, individuals, corporations and institutions will not be able to stay afloat.

FINANCE

Society swims in finance like a fish swims in water. As an energy-blind/systems-blind culture, we have assumed that growth is a natural law—that ingenuity and technology will naturally result in more growth in the future. For the past 50 years – and especially the last twelve – our ability to afford goods and services has been massively subsidized by credit.  This credit, instead of going to Main Street in 2008/09 largely went into financial assets and has blown the Biggest Asset Bubble in History. Globally we now have hundreds of trillions of dollars of financial claims on a real economy of around 80 trillion dollars, which is about to drop by 10-20%+.

The Big Short story in 2008 was about residential mortgages. In 2020 it will (at least) be corporate credit, as we have just ended a ten year period of extraordinary leverage by corporations borrowing at 2%, using the proceeds to buy back their own stock. Now there is going to be a massive decline in corporate balance sheets and many (50%?) of companies could be rated junk, which would mean insurance companies and pensions can’t own them (unless rules are changed).  The ‘exits’ would be way too small for all the liquidations that people would have to make as we move into a deflationary depression, and these liquidations would then have a reflexive impact on the real economy.  The central banks would be the only buyers of last resort, because so many trillions of bonds will be unloaded that no hedge fund or wall street bank or insurance company would be able to absorb them.

What does this all mean?  Stocks could be down 40-70% and bonds (other than Treasuries) would also have negative returns. The FED (and ECB, and BOJ, and BOC, and BOE and…) will massively expand their already massively expanded balance sheets. Eventually they’ll get approval to buy corporate bonds, and even stocks. There will be limits. We can print money, but we can’t print energy, resources or productivity.  We got a clue in markets last week as US treasury yields backed up by 60 basis points when they announced $1 trillion stimulus. In other words, the amount of funds available to bail out society is not unlimited before market participants call uncle on the funding of it.  This is a massive liquidity crunch and, in same vein as the virus itself, there are only bad options.  We must choose the ‘less bad’.

Personally, I do not think society gets great benefit from Carnival Cruise lines and related frivolous use of long term scarce resources. Of the tens of thousands of companies that will fail without government financial bailouts, we could make a list of those that are important, useful, marginal or better off left to fail.  But if we – to take one example – let Carnival Cruise Lines fail, there are billions of dollars of bonds owned by pension funds and institutions that go to zero. And there will be tens of thousands of people out of work from this one company. The ripple effects on supply chains, basic services and financial architecture of letting companies go under will be massive, and uncontrollable.

Last but not least, there is a real risk here that the cultural institution of finance – where we take for granted that we (or a company or country) –can borrow via getting a loan, ends. This is the risk I have been professionally working on and have thought might happen circa ~2025. The near-term result of the debt bubble bursting could be a 30% drop in GDP and headed lower after that.  I think this could (obviously) now possibly happen this year, but I suspect not this go around because leaders (and people) are focused on a virus and their physical health, and thus their attention is not on the health of the financial architecture. However, the core truth remains: we created too many financial representations of our reality and treated them as reality. The pandemic may unmask those risks.

We will recover from this (probably) and financial assets will eventually go up again, but the system will be severely weakened with central banks and governments having used most of their monetary/fiscal ammunition. So, in my opinion, the next ‘event’ will likely mean the end of our ability to use credit – and central bank backstops – to facilitate growth and a major economic reset.  I strongly hope we will use what’s going to happen in our economy the next few months as a ‘dry run’ of this real thing (more on that below).

**Note regarding our financial situation:  For those who are antagonistic towards the concept of ‘socialism’, I hope you understand after reading the above that we have socialism in the USA right now but its socialism for the rich/large banks/corporations. The FED has continued to support and bailout the financial asset owning class—and it will continue to have to in order to buy us time.  Privatizing gains and socializing (onto the general populace and unto other species) the losses has been the ‘American way of life’ for decades, and this model has been on turbo-charge since 2008.

SUPPLY CHAINS

Finance and economic numbers aside, the global complexity we’ve built up in pursuit of economic efficiency (lowest cost) has created a quite fragile global Rube Goldberg machine of just-in-time commerce. In 2009, Ford had to stop producing trucks because the pigment used in painting them was only made in Fukushima, Japan. We are only in early stages of figuring out which components are made overseas that are about to stop arriving. We do know that 70% of drug APIs globally are made in China, so drug shortages are already starting and will probably get worse. The bigger question is what sort of unknown critical components will we need but will be unavailable if the lockdown continues? For the want of a nail.

INEQUALITY

I think the virus will pass, the economy will (probably) recover and the financial guarantees will ultimately hold—at least for a few more years. The biggest risk I see from this pandemic is the laying bare of inequalities created during the past 50 years of unfettered growth. In the coming weeks/months we will witness a bifurcated economy— those well-off people who can comfortably work from home (like me) and those people who work in hourly/gig economy, who have spent their meager savings already and have no recourse. Even before this crisis, roughly 40% of Americans didn’t have enough savings to handle a sudden $400 expense.  How governments/ communities support the lower ½ (and over time, the lower ¾) of society will be the challenge of this crisis and eventually of the next decade.  Perhaps the idea championed by Andrew Yang (a Universal Basic Income of $1,000 per month for all American adults) can now become a reality, but sending $1,000 to every American is not remotely going to cut it.

The ‘good news’ is that many more people of all political stripes are now recognizing the severity of our wealth and income inequalities. If this isn’t solved, there will be a revolution and no one will have much of anything. (Note the lines in your own town at the gun stores. We have more guns than citizens and by far the highest number of guns per capita in the entire world.) The delta between the haves and have nots is about to get real serious real fast. We are all in this together and need to start acting like it—locally and nationally.

ENERGY

This is the worst possible situation for our energy future.

1) This likely cements November 2018 as global peak oil, because there will now be very little upstream investment to offset existing ~6% underlying decline rates.

2) With $25/barrel of oil and $1.5/cubic foot natural gas, supply chain disruptions, and (about to be) a serious lack of capital, scaling of renewable energy is now likely on life support.**

3) And worst of all, with energy at rock bottom prices (not costs) it means the general public and politicians will not recognize the centrality of fossil energy depletion as a central cause of our ecological overshoot situation, nor that the viability of our societies in 10-20 years needs to use our remaining one ‘wish’ (the other 2 we wasted), to use this fossil magic towards some longer lasting higher purpose cultural objectives.

**If you read my superorganism paper, you’ll see we never were going to fully ‘replace’ fossil carbon with renewables, so this exogenous throttling down could inform new scenarios and plans marrying the two in smart way.

In any case, even though global oil production has now peaked, financial depletion will be steeper than oil depletion and so for the foreseeable future advanced economies will be awash in oil and gas. Don’t be surprised to find gas prices under $1 a gallon coming to a town near you. What a horrible signal for what we need to do and where we need to go.

ENVIRONMENT

As those who have been following my work for the last decade plus, you know that of all the issues we face, I care most about the web of life and Earth’s ecosystems.  On the climate side, we like already have 1.5ºC warming built in, but I’ve always believed the growth assumptions in the climate models are wildly disconnected from our money/energy/growth nexus. Human economic growth – and related emissions – will likely end this decade. This is actually good news if managed. With the pandemic allowing for more systemic awareness, better choices on how to build our infrastructure, our national goals, and what sort of energy mix we use during energy descent might be made.  In any case, as Wes Jackson says, “Leisure is a great enabler of virtue.” Sadly, the environmental movement could take a big blow as funding/jobs and surplus devoted to that sector are now going to shrink.  Yet it is still our largest task as a culture to midwife some benign trajectory during economic descent, for the other 10,000,000 species we share this planet with and for future generations of us and them. Unfortunately, this will be on very few people’s minds for the moment.

GEOPOLITICS

Geopolitically this is a very dangerous situation, as many countries in the Middle East, Latin America and elsewhere are now facing serious fiscal deficits with leadership vacuums and uncertainty at high levels. This provides the opportunity for various state and non-state bad actors to act up either opportunistically or to divert internal pressure towards social or economic unrest.  This is increasingly one of my core worries: virus exposes economic faults, economic faults expose geopolitical faults, and geopolitical faults result in… boom.

GOVERNANCE

This morning (3/24)  President Trump announced the possibility of re-opening the lockdown after 15 days. Setting aside the health care implications of such a decision, it highlights another core risk of this situation: widening the political divide.  State Governors have ultimate authority on curfews, and if large states like CA and NY (with significant populations and economic influence) maintain curfews against Federal mandate we begin to have a bifurcated economy, geographically and politically. This is a crisis that requires leadership uniting to implement the above supports for our society.

Which gets to the deeper question: can our fractured political system work in a de-growth environment? Because it depends on a much deeper question – what IS an economy for anyways? I fear many Americans have come to equate it with the level of the stock market -when the real health of an economy is the well-being of its people, its land and its future.  These things can’t easily be compressed into a financial number, which should be one core lesson we learn after this crisis is passed. Can the lesson and vision be shared beyond traditional political boundaries?? An open question.

WHAT TO DO?

I could go on, but I think I’ve made enough of my point, which is: this virus is uncovering many problems that finance and a growing economy papered over. We face a systemic crisis that will remain after the virus risks have passed. We live as part of a system and it’s high time we start speaking about how to go forward as civil, reasonable people choosing ‘less bad’ options in the near term while considering inspired choices for the future post-crisis.

In answering, “What to do?” there are two timelines:

1) What do we need to do right now to navigate this crisis, and

2) Longer term policy/behavior/cultural changes to work towards and adopt after the crisis is passed.

Here are some key categories (that I thought of Sunday morning):

GOVERNMENT

Increasingly there are two giant risks and no easy solutions. First, epidemiologists tell us we need to flatten the curve using extreme social distancing. Because in the U.S. (and in many other countries) we waited too long to impose social distancing measures and have feeble testing, contact tracing, and quarantine measures for those likely exposed, some kind of widespread, government mandated stay at home/shutdown order is required to drop infection rates and buy us time to set up containment systems.

Second is the downstream economic impact of these shutdowns, because if they go on for long, we will create 1-2 (3?) orders of magnitude more deaths and chaos from the other risks mentioned above (financial blow-ups, revolutions, supply chain breakage, lack of affordability, and other systemic risks). I suspect that in coming weeks, as this becomes more apparent, and as the morbidity rates (as % of those tested) decreases, we will increasingly hear leaders suggesting lifting the economic headlock—calling for creating safe spaces for the people at risk, but announcing the virus is unstoppable (but hopefully manageable, e.g., Singapore) and choosing the lesser of two bad choices.

What we need to do is:

  • Support all failing businesses with direct cash injections (or guarantees) without discriminating between “important” and “not important” (something Democrats don’t like to do), and
  • Support all out-of-work people with significant direct cash handouts (something Republicans don’t like to do) for the entire duration of the curfews.

Right now we need national support of everything. The government needs to backstop a significant amount of private payrolls (they are doing this at 75% in Denmark).  We need to keep people fed, housed, and healthy. Guarantee these things with the financial kitchen sink while at same time preparing longer term blueprints for a different more sustainable pathway. This could be the moment to democratize our basic needs: water, electricity, internet, food, health care, etc.  There will be time for a massive New Deal to transition millions of Americans currently working for zombie companies in dead end industries to public good/conservation corps projects like in 1930s and 1940s. But we need to get oxygen to the veins and arteries of our economic body.

FINANCE

We now have to nationalize the economic risk that was created from nationalizing financial risk at a time when we need the nationalization of basic needs. A systemic pickle.  We have painfully sharp memories from 2008/09 via TARP and other programs, when we bailed out banks and other companies while letting Main street flail.  But we now have to do it again, at a larger size. Democrats don’t want to bail out companies. Republicans don’t want to bail out people. But right now we need to do both, and fast, and large, otherwise we risk a social collapse.  Despite our feelings, this is not the time to discriminate on who we bail out—we have to bail out nearly EVERYTHING, perhaps using special purpose vehicles wherein the FED takes temporary ownership position, or something similar.  We now either 1) get destruction or 2) we make government guarantees using borrowed money and manage to get back to stability, with enough time and insight to change the system towards something more sustainable.  Two bad options. One (much) less bad.

This means a FED balance sheet increasing from $5 Trillion to ~$15 Trillion+, or a lesser amount with US Govt taking equity positions in thousands of companies. Yes, this will have consequences, but it is necessary.

FOOD SYSTEM/AGRICULTURE

Most food in countries like the U.S. is grown by large, commercial farms who rely on functioning credit, supply chains, and a mobile labor force (often foreign). These are all at risk of freezing up before most 2020 crops get planted. It is imperative that what is described above under finance be done to ensure food production for later in the season.

Because of difficulties with border crossings happening now, migrant labor is already in short supply, which means crops such as fruits and vegetables are at the greatest risk now. Families may want to ramp up their gardening to supplement purchased food. Locally organizing ‘garden boxes’ of seedlings to be delivered to people with yards. Canning/preserving seminars, etc. can only help. If you don’t already know and buy from local farmers, now is the time to start doing so, and in doing so you create a network of social capital to boot.

Some of my colleagues have already written extensively about this, as over the longer term, the entire food system needs to be overhauled to be less complex, more locally oriented, and attuned to the realities of soil, energy and nature. Like everything, our future agriculture system can be informed and improved by this crisis, but we first need to navigate the crisis.

EDUCATION

This virus – even if it resolves in next month or so – could well be the death knell for our current university/education system:

  1. A) Many small/mid-sized liberal arts colleges will fold up, due to endowments shrinking, a lack of affordability from students, and a lack of interest.
  2. B) Half of the stuff we teach at universities is divorced from any coherent map of human futures and is so much trivia relating to a unique non-repeatable period of growth in human history. We will still need scientists and systems generalists, but we also are going to need plumbers, welders, and technicians of all kinds. The virus will pop the university bubble. We need new educational models commensurate with the reality of coming decades: a more local, less materially consumptive, more ecologically aligned existence.

POLITICS/GOVERNANCE

I vote Democratic, but have many friends in all political classes. I consider myself a centrist not because my views are ‘centrist’ but because I believe the coming Great Simplification is going to affect all of us and we are truly lost unless we work hand in hand, mind in mind, with all kinds of stakeholders—rich/poor, black/white, urban/rural, left/right, young/old, etc.  Until this crisis is passed (and that may be for a long time) we need leaders on both sides to postpone the blame game.

I am hopeful this crisis might break the frozen political partisan iceberg, but many questions and risks remain.  Before this crisis one of my biggest projects was to get people to prepare for this kind of economic growth-decimating scenario. I wasn’t trying to get people to consume less, or re-localize, or buy renewables or any of that. All I was trying to do is get people talking to each other—building nodes of social capital and communication so that relationships existed. Therefore, when strange things happened there was trust, knowledge, and a collective that would respond locally – across the country – to the emergent risks.  I still think this is a vitally important direction for us to go. I really hate the term ‘social distancing’—we need spatial distancing, with social bonding. Yes, we identify as conservative or liberal but we are also a) all Americans, b) all citizens and c) all humans. And above all we are certainly not merely ‘consumers’.  During this crisis, reach out to people who politically disagree with you and break (virtual for now) bread, find common ground, and find some plans on projects you can collaborate on locally in an apolitical collective that makes the future of your city/neighborhood better. This is one of those times when there is no natural leader to do these things so if not you, WHO?

COMMUNITY

Now is the time to get on phone with people that live near you and begin conversations. Even if you don’t come up with concrete action plans this serves two purposes: 1) we are social creatures, so even with no resolutions, socializing reduces cortisol and stress responses, and 2) it builds trust, alliance, and cooperation that will be a central backbone of authentic community now and in the future.

What is needed in your community? Maybe it’s creating garden boxes of seedlings to be delivered door-to-door after social distancing is loosened, so people can plant gardens and grow a bit of their own food. Or maybe canning workshops and makerspaces, tool sharing libraries, and older citizens sharing knowledge with younger ones.

Have the haves in your community use their digital surplus to support and expand the commons. Don’t wait for government bailouts; do it locally. This can include community land trusts, hoophouses, protecting ecosystems, and protecting prime agricultural land from development. Start a local currency – not as an alternative to the dollar, but as a way of building social networks.  Let’s not let this crisis go to waste.

CULTURE

Here is the hope. The disconnect between our physical reality and what people assumed to be our reality has now been cut in half.  A good % of Americans now (possibly for the first time) realize we live in a physical world. We have so many amazing pro-social responses happening now—taking care of health care workers, donating masks, delivering food to the elderly, sharing knowledge, accelerating intellectual collaboration/peer review on the science of SARS-Cov 2.  How do we keep and expand on this emergent altruism in our culture?

A return to 1970s-1990s level per capita GDP in advanced economies this coming decade is highly likely, in my view. But keep in mind that we, in the USA, consume 50x the goods and services as the average human in the year 1800.  Being mentally prepared for this is a first step. What makes us happy? What do we value? Do all of us really NEED to drive to work 5 days a week? Or are other arrangements possible? Do we want a cultural goal of maximizing GDP or minimize suffering and maximize well-being of our citizens and ecosystems?

INDIVIDUALS

You may now realize that the days of ‘normal’ are gone, so what is it that you’d like to do the rest of your life?

Mental resilience is going to be extremely important. Increasingly I hang out with people that meditate daily, because it empowers them to be present with the real (crazy) world in a calm and balanced way.  I made a ‘Dopamine Sarcophagus’ (a used ginseng container) to house my phone each night before I go downstairs.  I expect we will have 24/7 access to news and craziness, perhaps from here on out, so it’s important to create time to disconnect from media entirely and live life at a normal human pace.

We are now in cultural triage. Nearly every decision that is made is going to piss someone off, since we’re left with only ‘less bad’ decisions. Let’s be smart, civil, and tolerant. Change some tiny habits in your own life today. Today. If you’re reading this, you most likely have the time. Instead of focusing on stockpiling toilet paper or whatever else, consider instead how you might be of service to your broader community— call someone and talk, make plans, form committees for local triage, offer your help to local civic organizations, help someone without them knowing, widen your circle of empathy and compassion, and be kind to yourself.  If you have physical/mental health and resources, please contribute to making your community better/stronger. If you have significant resources, please make significant contributions – not just money, but building the network of real capital where you live.

Also, call your mom and dad (or other parental supports) everyday during the crisis (and even after).

CONCLUSION

These suggestions are just a tiny beginning. My thinking is evolving on all of the above. But finance and social inequality will be the most important near term hurdles.  We need systemic response informed by systemic knowledge—a clearinghouse of ideas and projects that work at various scales and timelines.  This is the collaborative opportunity of our time.

The knowledge I have regarding our growing predicament does not reduce my anxiety, but explaining it and sharing it somehow makes me braver.  Understanding all the above is no panacea, but I hope it might increase our capacity to engage with these issues and make better decisions.

I recently told a colleague that we vastly underestimate what young people are capable of. His response was, ‘Nate, we underestimate everyone’.  That hit pretty hard, because I immediately realized it’s true.  A crisis is here, seek out your better self and play a role.

Let’s create a living open source project—where collective intelligence informs near and intermediate term mitigation, one that helps us as a culture navigate the narrow path between fantasy and doom.  When we see gasoline this summer under $1 per gallon let’s not waste that moment in a Caligula-like orgy of consuming like we used to, but rather, reflect, imagine, and resolve to make America good again.

Read the full article here. 

The views and opinions expressed through the MAHB Website are those of the contributing authors and do not necessarily reflect an official position of the MAHB. The MAHB aims to share a range of perspectives and welcomes the discussions that they prompt.