29 June 2020

Faced with post-Covid uncertainty, the last thing we need is a grand plan


The coronavirus has shocked the British economy, no doubt about that. It will also be necessary to rebuild after the effects of both the disease and the lockdown. The problem is this vast number of people lining up to insist there must be a plan for what happens. Even, that the future cannot happen without it being planned. Examples abound, Gordon Brown for example, as if there hadn’t already been a surfeit of his plans for the future.

The problem here is that this future isn’t known. No one knows how the varied influences will interact. Some insist that cash will die. Others that none will darken office doors again thus city centres will collapse. The leap in online retail will produce many more collapses like Intu’s and shopping centre bankruptcies.

Maybe all those will come true, but some of it does seem unlikely. One thing known to produce economic growth is urbanisation. Simply piling people on top of each other produces epidemics, pandemics even, of innovation and experimentation – it’s why Silicon Valley works, The City does, why new potteries are still founded in Stoke on Trent. The sudden surplus of office space might just be the result of a massive impending recession, or it might be bringing forward the effects of the telecoms revolution a bit. Who knows – but breathless reporting about a ‘revolution’, often supported by a few carefully picked quotes from one company or another, ought to be taken with a pinch of salt.

Certainly some things might happen a little less. Less commuting perhaps – with all the implications that has for shovel ready projects in infrastructure and vast boondoggles like HS2. But again, we don’t know, so it’s not actually possible to plan for any of this. The balance, the solution, will be emergent from the individual interactions with incentives. It’s not just that the plan cannot be imposed it’s that it’s not even possible to know what the plan should be.

There are, of course, things that can be done. As Torsten Bell of the Resolution Foundation has said, the best bet is to do things that would be good to do whatever the circumstances.

One thing we do know is that unemployment, certainly in the short term, is likely to be a problem. It follows that cutting taxation on labour might be a good idea. We can even invoke JM Keynes, who argued for reducing national insurance contributions. Continuing to sort out Universal Credit also makes sense just because the old welfare system contained so many disincentives to work. Reducing the red tape throttling the economy has its merits, whether we’re recovering from a pandemic or not. Free trade makes all consumers better off anyway, so why not go all 1846 again?

The same is true of fiscal policy and politicians telling all that We Need A Plan, without having the foggiest what the fiscal picture will look like. G Brown is a canonical example. Rather than trying to play Mystic Meg, we should focus on policies that tend to work well whatever the circumstances.

It is possible to put this in more formal terms. It is not probability being faced here, where odds of this and that can be calculated, plans adapting to those chances. It is uncertainty – we dunno. 

The initial analysis, that the economy needs to change, is going to change, is entirely correct. But as no one really knows how it is going to change, we should avoid trying to lay down the rigid rail lines of a plan to get there. For plans take you to where you know you want to go, like trains, and the current reality is that we’re wandering on a plain of possibilities without knowing what is the end destination, or even which one is desirable. All of which leaves us, as Hayek insisted, with having to use the market to do the calculating for us. Forget the grand plan, do the things that are sensible anyway, then leave well alone.

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Tim Worstall works for the Adam Smith Institute and the Continental Telegraph.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.