Economic theory responsible for Covid-19

The Covid-19 pandemic is the result of imbalance between the unlimited needs of consumption of humankind and the limited resources of nature. The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services says that opening up ecosystems where the fauna was never before in touch with humans so closely such as by expanding the agricultural, mining and hydropower frontiers into previously unfragmented forests, swamps and rivers has led to the virus "jumping" into humans.

Further, it says, the global economy has expanded manifold based on intensive use of ever more distant natural resources. The cliché of "global value chains" hides within itself the rampage of human use of distant resources. This had forced viruses that were so far "hidden" in their isolated habitats to seek greener pastures in the humans.

An article on Forbes.com says that nitrogen dioxide is emitted in large quantities by burning fuels in power stations. It has been linked to both inflammation and viral infection. Healthy individuals exposed to nitrogen dioxide experience an inflammatory response in their lungs. Disease-fighting white blood cells become less efficient in killing viruses when exposed to nitrogen dioxide.

Furthermore, the social inequality espoused by the present development model deprives large numbers of poor of nutritious food and proper health case leading to increase in infections. These poor, in turn, infect the richer sections. For example, a housemaid infected a number of flats at one go in a hosing society.

The underlying principle behind these imbalances is "maximisation of utility," which is the rock bed of modern economics. The principle holds that more consumption spontaneously leads to more welfare or happiness of the society. For example, the target of Indian economy reaching a target of USD 5 trillion is assumed to lead to a proportionate increase in the welfare of our citizens.

A student of economics is taught that if the first banana eaten gives a utility of 10 units, the second may give a utility of 8 units, and the third 5 units. It is taught that every person must maximise his consumption until the additional consumption of banana brings forth a utility of zero. For example, a person with the full stomach will obtain negative utility from further consumption of bananas.

Nevertheless, a huge amount of consumption has to take place before a person reaches a point of zero utility. Such bounds of consumption are not easily attained in other items. A person may continue to obtain positive utility by buying the third car and the hundredth dress. We have opened up ecosystems, are using distant natural resources, weakening our lungs due to nitrogen dioxide, and created social inequality to produce more and to consume more with the assumption that such consumption will lead to higher welfare. In the process we have unsuspectingly invited Covid-19.

A number of observers say that adopting healthy lifestyles and using clean energy would prevent these ill-effects of ever-increasing production and consumption. I am not convinced. The State government of California provided huge incentives to the people to transit to fuel-efficient hybrid and electric cars. It did not lead to an observable reduction in pollution because people drove longer distances leading to the same quantity of emissions.

The primary objective of humankind is considered to be consumption. Therefore, reduced cost of transport in fuel-efficient vehicles translated into longer distances travelled and resulted in the same levels of emissions rather than same distances travelled and lesser emissions.

There is a need to revisit the principle of utility not only because of Covid-19 but because it does not lead to welfare anyways. Amartya Sen has pointed out that a monk has higher welfare at lower level of consumption. On the other hand, we see richer people living in lavish villas suffering from multiple diseases and having a low level of welfare. Therefore, high welfare goes with low consumption and low welfare goes with high consumption. However, economic theory continues to be driven by maximisation of production and consumption—leading to Covid-19 and ill-fare as explained above.

In distinction to the economic theory of utility, psychologist Car Jung has said that happiness comes from syncing of one's conscious mind with one's own unconscious psyche or unconscious desires. To consider the above example, the monk is happy in less consumption because his unconscious desire is of walking freely in nature or of singing songs in the praise of the Lord. Putting him in an air-conditioned penthouse causes him ill-fare.

"Consumption" of closed though "comfortable" spaces is pain for him. The need, therefore, is that economists must discard the theory that consumption begets welfare. They need to make a new definition that welfare is attained by pursuing only such consumption and in such quantities that is in sync with the unconscious desires. If the unconscious desire of a monk is to walk in the nature, then his welfare will be increased not by cutting of the forests for mining of coal. On the contrary, his welfare will be enhanced by preserving the forests.

That in turn, will prevent the spread of Covid-like diseases as explained at the head of this article. The welfare of Bismillah Khan would be increased by allowing the Ganga in Varanasi to flow uninterrupted and clean even though that will lead to higher price of electricity and higher cost of production for our industries that will have to install pollution treatment plants.

Indeed, the welfare of a number of persons will be increased by cheap electricity made available by hydropower projects on the rivers, and by the availability of cheap paper produced by allowing factories to pollute them. Personally, I think there are only a few people who would prefer cheap electricity and paper above clean rivers.

But granted that there are some persons whose welfare will be so enhanced; it is the solemn responsibility of the government to assess the change in welfare of the total population. I dare say, the welfare of the people of our country will be reduced if we reach a GDP of USD five trillion!

It is simultaneously necessary to make psychology a compulsory subject in our schools. Every student must be exposed to the idea that her welfare is dependent not on the level of consumption but on the direction of the same. This teaching will reduce the wanton pursuit of consumption, reduce the destruction of environment, reduce the level of diseases and increase the capacity of humankind to live with viruses like Covid-19. The task of building a humane society has to start with new economic theory.

(The writer is formerly Professor of Economics at IIM, Bengaluru)