Overcoming the Corona Crisis and Social Intelligence

If we prohibit forcefully the contact among people as a countermeasure against the new corona virus, we can reduce the number of infected and severely ill persons; yet, it will be accompanied by deeper recession. This fact the US President Trump is worried about prompted him to resume economic activity. However, in Hokkaido, which adopted a strong social distancing policy early on, the infection spread again after the easing. In a globalized pandemic, social distancing policy will repeat the cycle of strengthening and relaxation until therapeutics and vaccines are developed.

The difficult-to-measure “Knightian uncertainty” is so strong that the effects of large-scale fiscal and monetary policies are being eroded. The corona crisis causes supply chain disruptions on the supply side and the evaporation of demand for face-to-face industries and services. The deflationary gap widens because it has a greater impact on demand side than on the supply side. Deflation will be back again in Japan, and the recovery will be U-shaped close to L-shaped.

There is a view that the world after corona crisis will become inflationary due to fiscal expansion coupled with monetary policy engaging in monetizing government debt (underwriting of the debt by the central bank). However, as it will take longer time to close the deflationary gap and the digital revolution intensifies excess-private savings, the declining tendency of the real long-term interest rate (the “supra-secular stagnation”) will persist, as seen after the 14th century epidemic. The real neutral interest rate (the “natural interest rate”) in the US will be below zero, as in Japan.

What is required is a policy that minimizes the impact on people’s livelihoods under the constraint of protecting their lives. There are three types of policy measures.

The first is the policy recommended by the “Pandemic Recovery Roadmap” of the Edmund J. Safra Center of Ethics at Harvard University. In order for the US to normalize economic activity from August, it is required to implement 20 million tests per day, tracking and warning of infection routes, and protected quarantine. Further, economic activity should gradually restart from the medical and essential goods and service sectors. To achieve this, it is necessary to carry out large-scale investment in medical and testing infrastructure, retraining and transfer of human resources, and a dramatic expansion of medical capabilities through the construction of medical gears supply chains.

The second is the Swedish “Permissive Corona Regime.” No compulsory measures have been taken other than bans on large-scale assembly, segregation of the elderly, and partial blockades of borders. It relies on individual self-discipline to prevent infections based on the trust between government and individuals, and the trust among individuals. It is a policy supported by the citizens’ “social intelligence.”

The third is the utilization of digital technology based on bottom-up type information sharing that was effective in Taiwan; citizens formed a policy group through the Internet and supported the “sunflower movement in 2014” This time as well, while maintaining privacy, it has built a platform under the cooperation of the government, companies and citizens to distribute masks and grasp the places of inventory. The route of infection is also tracked, and the number of fatalities is limited to a single digit.

US business science scholar Herbert Simon once pointed out that in order for humanity to survive, “intellectual docility”, namely obediently learning the superior knowledge of others, is essential. The “social intelligence” required to overcome the corona crisis includes the “intellectual docility” and the skill to use digital technology to facilitate social collaboration, in addition to mutual respect among individuals. The success or failure of mild social distancing policy in Japan also depends on how to utilize and polish up “social intelligence.”

(The english translation of the article was published in the Nikkei morning edition 2020/05/22.)