What I No Longer Believe
I used to believe that optimizing for efficiency should be the main goal of modern economies. Efficiency limits corruption while driving innovation and therefore improves people’s lives. However, the unintended consequence is that resiliency is often ignored.
If there is one lesson to be taken from the COVID-19 crisis, it is the reminder that human life is an external system vulnerable to adverse events.
Life is not a computer game and how things go wrong is not easy to model due to the complex correlations of the physical world. Manufacturing everything in China may be the most efficient under ideal circumstances. But when things go wrong, they go wrong at the same time. Air freight prices increased increased by 100+% because of no capacity of passenger flights which are all grounded.
So efficient manufacturing works if logistics works but now logistics is failing.
Countries lacking manufacturing capacity (such USA and most of Europe) need to focus on resiliency. This should be done by paying what I call “manufacturing insurance”. In other words, countries should pay slightly higher prices for essential items such as face masks manufactured locally. This will insure countries against expensive shocks later.
In the race towards efficiency, western governments saved pennies on masks early to pay trillions later.