These days optimism is rarer than before. So it is uplifting to read an historian such as Joel Mokyr writing that “at the end of the day, the post-pandemic economy may not be all that different from what we had in 2019, and insofar that it is different, not all changes will necessarily be bad”.
Mokyr’s reasons for optimism are rooted in the fact that modern economic growth is rooted more in advances in science and technology than on the engine of “Smithian growth”, which is, basically: commerce, though the two things are obviously connected (difficult to imagine technology advances to be independent from the knowledge and even the casual opportunities created by increased contact and thus specialization, as Matt Ridley explains in How Innovation Works).
The problem with Smithian growth is that the institutions that sustain it are very fragile. Markets depend on “peaceful politics, trust and cooperative institutions”.
A shock, whether war or a virus, can wipe those out in just days. We have experienced this in our lifetimes: A major terrorist attack or a pandemic can disrupt markets in a matter of weeks and bring the infinitely complicated machinery of international markets to a grinding halt. In August 1914, with the outbreak of hostilities in Europe, the entire system based on the gold standard and the institutions that supported international specialization and exchange collapsed. It took many years for the system to recover, and it could be argued that not until the 1950s did the world return to the kind of proto-globalization that had taken place in the decades before 1914.
For Mokyr, the fact that modern economic growth is “based on more productive technology and the science that underlies it” makes it more resilient. Different than trust, “knowledge, once acquired, cannot be easily reverse”. And science and technology informs our societies so profoundly that, in the wake of the pandemic, they have been widely mobilised for the fight against COVID19.
Mokyr also points out that a more science-oriented mentality and, more generally, the experience of change should make us better understand flexibility. “Leaders of our business and technology community would be wise to keep sight of the flexibility and adaptability of our economy, as unemployment soars and businesses small and large in the service sector face bankruptcy.” Alas, this wise advice tends to collide with the urges of politics, as leaders in the political world are, particularly as anxiety mounts, in the need of providing impressions of safety, very often regardless of the costs.
This article by Mokyr, which I summarised without giving it justice, is well worth reading.