The current pandemic is a human tragedy on an enormous scale, not only in terms of death and illness but also in loss of employment, disruption to education and increased anxiety. Perhaps of most concern to politicians, the various restrictions put in place to reduce the spread of COVID-19 have had large negative effects on national and regional economies. 

As a result, many leaders have opted to ‘re-open’ their economies prematurely, partly since economic performance affects electoral cycles. In some cases there have been disastrous consequences to such loosening of social distancing restrictions, with spikes in infections in various countries or states. This has led to a discussion of a false dichotomy – between protecting human life and reviving the economy. 

This dichotomy is false for several reasons. At the most basic level, if large parts of the population get infected and either die or are unable to work, this would not bode well for the economy either. But more fundamentally, what we think of as ‘the economy’ is really broader than just profits and asset values. 

One clear indication of this ontological mismatch is the fact that, while GDP is shrinking and unemployment is rising in many countries, stock markets are on a euphoric roll. Unlike their plunges in the face of previous shocks –  such as the dot.com and subprime mortgage crises – stock markets rallied at an incredible speed. Paul Krugman quipped that, rather than following economic fundamentals, the stock market is moved by a combination of fear and greed.

But there is a deeper and older explanation for this spurious puzzle. Our current understanding of ‘the economy’ is rooted in a relatively modern definition by Lionel Robbins in 1932: “the allocation of scarce means that have alternative ends”. This is a fundamental notion for neoclassical economics, which focuses on the market as intermediating the supply of (scarce) resources among demand from alternative buyers based on prices. This worldview sees consumers as seeking to maximize their ‘utility’ (an unobserved quantity which roughly represents satisfaction), while firms who produce the goods are maximizing their profits. 

But how can firms maximize profits if consumer spending is tanking due to business and travel restrictions? Indeed, many small as well as large corporations have gone bankrupt during the pandemic. But the process of financialization in recent decades has broken the link between productive investment (making tangible things for profit) and generating revenues. More and more firms are making their profits from financial products and services, and increasing shares of countries’ economies and GDP are coming from pure speculation in real-estate or financial markets. 

This disconnect between the ‘real’ and the financial parts of the economy came to the fore during the 2007-8 global financial crisis, as hyper-speculation in the financial sector caused enormous damage on the real side of many economies. So what is ultimately the relationship between finance and the economy? 

But how can firms maximize profits if consumer spending is tanking due to business and travel restrictions? Indeed, many small as well as large corporations have gone bankrupt during the pandemic. But the process of financialization in recent decades has broken the link between productive investment (making tangible things for profit) and generating revenues. More and more firms are making their profits from financial products and services, and increasing shares of countries’ economies and GDP are coming from pure speculation in real-estate or financial markets. 

This disconnect between the ‘real’ and the financial parts of the economy came to the fore during the 2007-8 global financial crisis, as hyper-speculation in the financial sector caused enormous damage on the real side of many economies. So what is ultimately the relationship between finance and the economy?

Aristotle, in his book on Politics, distinguished between two kinds of activities. Chrematistike (χρηματιστική) – sheer money-making – was considered morally inferior to Oikonomia (οἰκονομία) –  the concern for morally adequate individual and public household management. In fact Aristotle cautioned against separating financial activities from public (political) oversight, as this Chrematistic logic leads to maximization strategies resulting in excesses. By contrast, the desirable Oikonomic processes promote overall well-being in social, ecological, financial and even inter-generational dimensions. 

While the recent stock-market rally is a pure example of Chrematistics, another trend is actually an example of how the holistic concept of Oikonomia is making a (partial) come-back due to the virus-related restriction on economic activity. Pandemic-related reductions in demand for fuel, air-transport, industrial production and car transport have all contributed to a greater-than-expected drop in CO2 emissions in the past few months. Historically, emissions move in tandem with GDP, but this time may be different. This is due to the fact that reductions in emissions in the current crisis are concentrated in sectors which emit more CO2, proportionally, than others, leading to more reductions in emissions than those resulting from other shocks. This divergence of emission and growth opens up the possibility of policies to delink our economies from fossil fuels.

But CO2 emissions are not the only things that have dropped. People commute less, resulting in less traffic and car accidents. Families spend more time together, strengthening social bonds. Consumers spend more locally, invigorating small businesses and communities. And while many people have lost their jobs, some countries support citizen incomes to maintain both livelihoods and overall demand (thus indirectly helping businesses). 

Taken together, these positive side-effects of an otherwise tragic situation suggest that this crisis is teaching us a lesson. Instead of an unlimited pursuit of profit, our economy could (and according to Aristotle, should) be focused on meeting basic needs, cultivating social relationships, and even doing better by our planet. In fact, recent research suggests that zoonotic diseases like COVID-19 are directly related to the encroachment of the global economy on ecosystems (which leads to loss of habitat and transmittal of viruses from animal to human in previously untouched areas). 

So in a way, the fact that (chrematistic) stock-markets rally in the face of human and economic (oikonomic) decline is not surprising. We have let our greed go wild at the expense of human, social, economic and ecological well-being. It is time to return to the original meaning of Oikonomia, enhancing the well-being of people and the planet alike. 

Dr. Jacob Assa, The New School for Social Research. He Tweets at @jacob_assa.