16 March 2020
Thoughts From a Distance is a series of daily ruminations written while self-quarantined during the 2019-2020 COVID-19 pandemic. In order to mitigate “corrections” from hindsight, each day’s thoughts are posted on the following weekday with minimal editing.
By Trauma, Alas
A confession: I still live with my parents. While harmful to my pride and marriage prospects, this arrangement may benefit my survival.
See, my mother has the paranoia of a Soviet-era babushka. Our cupboards and cabinets have always been stuffed with canned goods, excess medical supplies, gift wrappings preserved from past Christmases. I have never recalled seeing the back of our refrigerator. Her first impulse towards leftovers was to squirrel them away in the freezer, only to have them reemerge years later when she did not feel like preparing a meal. There wasn’t cash underneath the mattress, but only because that would be the obvious place to look.
These types of habits are unsettling for those who prefer order, the possibility of finding a particular canned good without needed the sponsorship of an archaeology department, and so forth. All the other members of the family had gotten in minor spats with her over it at some point or another. But when the economy began shutting down and people flooded the markets to buy supplies, we were glad for her peculiarities. We did not have to brave the crowds in order to stock up, facing shortages and markups, because we had prepared in advance. Not that this stopped my mother from making a few additional shopping runs.
My mother’s strategy of excessive stockpiling is a clear example of what Nassim Taleb calls antifragility, a behavior with a positive response to uncertainty and instability. Under normal circumstances, our household paid a minor “fee” for hoarding: messiness, shouting matches, cans expired in a previous century. But in rare crisis situations, my mother’s behavior could be the difference between survival and starvation. The cost of the behavior is small and frequent, while the payoff is rare, but unbounded (you would trade an infinite number of days with messy cabinets for additional years of life). Compare this to someone I once knew who boasted about only having enough food on hand for the week. In a crisis, this person is at best squeezed by the market, and at worst reduced to eating the neighbor’s cat.
I wonder how many “irrational” traits are only revealed by luck and circumstance to be vitally useful for survival.
How did my mother come by such a trait? By trauma, alas. Hers was a difficult childhood. Post-traumatic growth, the oft neglected cousin of post-traumatic stress, helped mold some of her helpful quirks. As I write, our bathtub is full of water, just in case the plumbing goes out.
So when I wonder whether our society will learn from this pandemic, recognize and confront the existential risks exacerbated by our hyperglobalized society, I think it might. But, alas—
If They Plan in Weeks, You Plan in Months
A heuristic: Prepare an order of magnitude beyond what the average person is preparing for. Right now, most people are buying food for the next few weeks; my mother is planting vegetables in the garden.
Airline Bailouts and the Reverse Broken Window Fallacy
As the economy retracts and international travel comes to a halt, President Trump is signaling that he is willing to bail out the airline industry. “It’s not their fault,” he says; “No one could have predicted this.” This is weak-minded thinking. Businesses are not expected to predict the future, but they are expected to prepare for it. A restaurateur is not expected to know whether they will be undone by a change in customer taste, an unexpected competitor, or embezzlement by the co-owner. But they are expected to be prepared for turbulence; we may shed a tear when the restaurant goes out of business by misfortune, but we do not rush to save them with taxpayer dollars.
Change the scale from an individual business to an industry and somehow people lose this clarity. People suddenly become concerned with the loss of jobs, in a way they were not when our lone restaurateur went under. (If I could have any socio-economic principle named after me a la Murphy’s Law, it would be this: Every slack-jawed economic idea will, under duress, rest its laurels on job preservation or creation.) The public becomes so concerned with saving the status quo, they fail to consider whether their generosity is actually an act of heroism at all.
An industry bailout is a sort of inverse of Bersiat’s Broken Window Fallacy. In its original formulation, the naïve observer concludes a window broken by vandals is a gain for society because it creates work for the glassmaker, while in actuality the benefit is illusory; the funds spent buying the new window would have been spent elsewhere in the economy anyways and society is now short a window. A bailout begins with a visible cost, or rather an extortion. Pay a cost or lose an industry. Political leaders pontificate on job losses, the taxpayer grumbles and ponies up. Just as before, we end the scenario back at the status quo as it was before the crisis (be it window smashing or economy crashing) and we deem it a gain for society. But what would have happened if we let the industry collapse?
Let’s assume the industry in question still services a consumer demand; even economic policymakers are not stupid enough to want to keep something like the floppy disk industry alive. The airlines clearly fit this mold. People may not want (or be able) to fly now, but they will once the pandemic is past. The airline industry goes bust: workers laid off, Chapter 11 filed, upper management escapes on their golden parachutes. What happens next? Some combination of the following:
- Foreign competitors move in once consumer demand revives. They hire domestic staff to run operations (likely from among the recently laid off staffers of moribund domestic industry) and are able to purchase equipment from the recently bankrupt domestic airlines.
- A private source of capital fills the niche, either by buying out the failing companies, or by purchasing some of their equipment and starting a new company.
In either scenario (bailout or no bailout), we end up with an airline industry. In both scenarios airline employees are likely to face furlough (either from bailed out companies temporarily reducing operations, or functionally the same as the open market niche is colonized by other companies) followed by staff reductions to match slower demand (these reductions will likely better match reality in the no bailout scenario; it’s easy to be generous with the money of others). The notable difference is that in bailout world the existing upper management get to keep their jobs at public expense, while in case of collapse they get to live off their Swiss bank accounts and work on their memoirs.
The Parable of the Broken Window is about unseen consequences. We see the benefit to the glassmaker, not the loss to society. In the Corollary of the Bailed-Out Industry, we see what we have saved at public expense, failing to see that we could have gotten the same benefit for nothing had we left it to private capital.
Apologist who brandish the “too big to fail” argument trotted out in 2008 should be met with this retort: Why should industries large and vital enough to merit public insurance be allowed to run independently? If they are truly so vital to our country that any major perturbation would be untenable, then the airlines should be nationalized, not given a check from public coffers. From my analysis above, it should be clear I think the airlines do not meet the benchmarks for nationalization, and that airline industry will be fine regardless of the fate of individual firms.