Coronavirus and Pretend economy

One of the good things you can do during the current lockdown is to keep paying your domestic maid, garbage man their regular salary. Of course, there are many companies who are still paying their employees even when they are not working, and many government employees will get paid their salary no matter what. That got me thinking, what if we as a whole economy continue to pay for all things currently considered non-essential even though we are not getting the goods and services. Can this pretend economy work? An economy, where only the essential services are producing goods and services and everyone else is just pretending to work and still getting paid in real money.

Let’s consider a simple economy of 2 people — a farmer named Ram and a comedian named Biswa living in Dholakpur. Ram, being a huge fan of modern art would pay Biswa, 1 kg rice for every 5 minutes set Biswa would perform for him. When the coronavirus hit, Biswa’s observational comedy was sadly considered “non -essential”; although he tried to argue against the decision.

Biswa, being a comedian, was terrible with money and had no savings. Ram, being a typical “good guy” said: “What the hell, let’s just pretend that Biswa performed a 5-minute set this week”. Biswa used to perform one 5-minute set for Ram roughly every week anyways, so he was also happy to comply.

Of course, the lockdown in Dholakpur lasted a lot longer than a week. Let’s say it lasted for one full year. So, every week for that year, Ram would give 1 kg of rice “pretending” he attended a 5-minute set. You might think that this arrangement works well for Biswa. He doesn’t have to work and still get his Rice. It is a bit hard for Ram to digest though, he will be giving 52 kgs of Rice without hearing even a single joke. Ram doesn’t need to hear the jokes. The jokes are not essential services. But they were undoubtedly a big part of Ram’s lifestyle and luxury.

Similar to Biswa, the comedian, Ram used to have these weekly engagements with his barber, his astrologer and his tailor. All of whom used to take 1 kg of Rice from him (totalling 4 kgs per week), and all of whom were deemed “non-essential” during the lockdown. And all of whom continued to receive their portion of Rice from Ram.

This creates a very idealistic, very delicate economic situation, and reality can break it in several ways, like:

  1. What if Biswa thinks he can create a 10 minute set per week?: 6 Months into the lockdown, Biswa thinks, had he be performing 5-minute sets for last six months, he should have become experienced enough by now to perform 10-minute sets per week. Can Biswa demand 2 kgs of rice form Ram for the rest of the month?
  2. If Ram only has 3 kgs of Rice one week? Instead of producing 4 kgs of Rice, suppose Ram is only able to produce 3 kgs one week. What will he do now? He can evenly distribute the Rice to all four of his non-essential friends. Or, he can think what he would have done if there was no lockdown. In that case, he probably would have not availed services of the “most non-essential” of his friends. In this case that non-essential friend being Biswa, the comedian. So, what should happen in this case? Should Biswa starve for a week or should all the non-essential members of our economy sleep a bit hungry?

Two of the fundamental problems this pretend economy faces are as follows:

1] The denominator in any rate of earning is forced to be time: Before lockdown, Biswa was getting 1 kg rice for a 5 minute set, the barber was getting 1 kg rice for 5 haircuts and the tailor was getting 1 kg rice for one pair of jeans. The tailor could have easily made 2 jeans a week, found customer for the extra pair and earned 2 kg rice. But he cannot do this now in the lockdown.

2] Some goods are bound to distributed unfairly according to someone: Ram will have some variation in his rice output throughout the lockdown year. When he produces less Rice, what should he do? In the above example, if he doesn’t give any rice to Bsiwa, it might be unfair for Biswa because a) he is going to starve for a week and b) In a pre-lockdown world, he could have reduced the rate for his act and took only half kg of Rice for the 5-minute set, or he could have found some other creative way of making money.

If Ram distributes Rice equally, he might think he is running a charity instead of the pretend economy. But in any economy, price depends on both demand and supply. The supply in our case is pretended/imaginary, and the demand will scale with the amount of rice Ram is producing each week.

Now it depends on Ram what aspect of the pre lockdown economy he wants to keep real in this pretend economy. Do he want to keep the prices of the services constant, or does he want to keep the logic of price determination constant?

One thing is clear; this pretend economy cannot work for long even in most idealistic scenarios. At a year-long time scale, there are bound to be some major conflicts among stakeholders about the assumptions and rules of the pretend economy.

Economies are inherently dynamic, goods and services which are in high demand one day may be worth pennies another day. Innovation in technology and business models provide us with services which wouldn’t have been possible a few years ago. Political and geographical changes constantly keep remapping the rich and the poor areas of the world.

Continuing with the pretend economy is trying to make the economy static by force. Preventing the natural growth and decay of some sectors of the economy. If Biswa stops getting the kilo of Rice from Ram, he will figure out how to do standup comedy online, or he will find something else to do. Same goes for every other “non-essential” worker.

Does this mean you have to be a ruthless capitalist and not pay your maid and driver for the next month? No. Of course, not. For one thing, hopefully, the lockdown will not last forever. And even if it does, even if it is the end of domestic workers and drivers, we should ensure that the people doing these jobs get enough time and support to first, figure out what to do next and second, be able to transition into other, more “essential” kind of work.

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