‘Fundamental uncertainty’: Keynesian economics and COVID-19

With the colossal scale of the crises looming over the global economy, perhaps now is as crucial a time as ever to revisit the Keynesian notion of ‘fundamental uncertainty’

‘By uncertain knowledge,’ wrote John Maynard Keynes in 1921, ‘I do not mean merely to distinguish what is known for certain from what is only probable…There is no scientific basis to form any calculable probability whatsoever. We simply do not know.’ Upon reading these words (written in the middle of the worst influenza pandemic in history, the Spanish Influenza!) in our contemporary setting, there is a pertinent case to be made that the global crisis that is taking the world by a storm necessitates a re-examination of Keynes’ foundational concept of ‘fundamental uncertainty.’ Following the outbreak of the COVID-19 pandemic and its mammoth economic consequences for the global economy, a string of crises erupted that have not only rattled the foundational basis of the incumbent liberal world order but is, according to professor of economics Timofey V. Bordachev, ‘living its last days.’ Alain de Benoist describes the pandemic as a ‘catalyst’ with regard to the decline and disintegration of this liberal world order, arguing that this new economic and social crisis could give rise to a new financial crisis, one that ‘has been expected for years.’ 

Of all the unprecedented financial blows of 2020, the news concerning the extraordinary decline in global economic activity leading to the United States’ oil prices falling below a jaw-dropping $0 for the first time in history is set to be one of the most unprecedented by-products of this pandemic. Termed one of the most debilitating quarters for oil prices in the history of the ‘oil revolution,’ this recent development comes in the midst of the oil-price ‘war’ initiated by Saudi Arabia against Russia in early March. A sharp decline in factory output and transportation demands following the early stages of the 2019-2020 COVID-19 pandemic precipitated a decrease in oil demands, leading oil prices to plummet.

During the 5 March 2020 OPEC summit in Vienna, OPEC agreed to slash oil production by an additional 1.5 million barrels per day (bpd) through the second quarter of the year (a total production cut of 3.6 million bpd from the original 2016 agreement), with the group seeking to review the policy on 9 June during their next meeting. OPEC called on Russia and other non-OPEC members of OPEC+ to abide by the OPEC decision. On 6 March 2020, Russia categorically rejected this supply reduction pact – signalling the end of the unofficial partnership, with oil prices falling by 10% shortly after this announcement.

As a result of Russia’s rejection of the aforementioned proposal, on 8 March 2020 Saudi Arabia announced massive discounts of to its official selling prices for April, between $6 to $8 lower per barrel to its customers in Asia, Europe and the United States. According to commodities analyst at Emirates NBD Edward Bell, ‘Should OPEC+ members choose to raise output from Q2 onward, a wave of oil will be unleashed onto markets…We expect to see Saudi Arabia, the UAE and other large producers in OPEC increase production over the rest of 2020 as they return to a market-share strategy rather than price targeting.’ With oil demands continuing to slump amid the uncertainty surrounding this pandemic, oil prices further plummeted throughout March. Following a ‘truce’ between Saudi Arabia and Russia to resolve their battle for market shares and work towards stabilising the overwhelmed oil markets, Reuters cites a source at a trading firm contending that ‘Beyond the cooperative statements, the fight is still going on.’ 

After this oil-price war, the extraordinary possibility of oil-prices reaching a sub-zero level in the United States was materialised as oil-prices dipped into negative territory on 21 April. With Ryan December terming this development as ‘a chaotic demonstration of the dwindling capacity to store all the crude that the world’s stalled economy would otherwise be using,’ the main US storage hub in Cushing, Oklahoma, the delivery point for the US West Texas Intermediate (WTI) contract, is expected to exhaust its storage capacity within a matter of weeks. The argument regarding an oversupply of crude coupled with a dwindling storage capacity has to be analysed with regard to the May contract for WTI. The June contract, it must be noted, only declined by approximately 10% to $22 a barrel. In addition, Brent crude (the world benchmark) fell just 5% to $26.50 a barrel.

According to Asia Pacific market strategist at AxiCorp Stephen Innes, although the negative price of US crude futures was merely a technical blip, it alludes to a ‘demand devastation’ as ‘nobody wants to store oil.’ Innes further added that ‘If it continues down this road, without any further cuts by OPEC, it would cause a lot of trouble – credit risks, banking risks, unemployment risks.’ 

With the colossal scale of the crises looming over the global economy, perhaps now is as crucial a time as ever to revisit the Keynesian notion of ‘fundamental uncertainty’ in order to make sense of the volatility that has not only accompanied but it also being exposed through the COVID-19 pandemic. Keynes’ emphasis on the impacts of ‘uncertainty’ – the sheer inability to predict the future – on micro and macro theory was well ahead of any of his contemporaries at the time. The belief surrounding inherent instability underpinned his examination of the capitalist economy, as Keynes proceeded to draw pertinent political conclusions from his historical investigation, subject to the socio-political circumstances of his time. According to Jochen Runde and Sohei Mizhura, the Keynesian understanding of situations of uncertainty are ‘ones in which economic decision-makers have neither objective nor subjective probabilities to go on.’ Such uncertainty is what influences decision-makers to suspend judgement and ‘keep their options open by holding liquid assets even over the longer term, leading to deficient aggregate demand and, thereby, to long-term unemployment.’

An often understudied area in Keynesian economic philosophy, Keynes’ criticism of the then ‘Doctrine of Mathematical expectation’ stemmed from his scepticism over assuming the ‘numerical measurability of probability and “good” for neglecting risk and evidential weight.’ 

A post-Keynesian economist, Hyman Minsky’s criticism over the return to classical economic ‘conceits’ which ‘embraced the infallibility of the markets’ and ‘new classical pursuits’ draws perceptible similarities to the overworked and overwhelmed global economy that is grappling with the wave of an inflationary economic quagmire. Minsky’s revisiting of Keynesian uncertainty during the 1970s and 1980s (when the route towards a neoliberal paradigm was picking up momentum) sought to unravel and dissect the US ‘boom and bust’ cycle. Periodic shockwaves – jumping from ease to fear – are part and parcel of the capitalist economy, exhibiting a predictable and discernibly cyclical nature. On Minsky’s discussion, Robert Barbera poses an important question: ‘How much will the US change its policies in response to concerns about financial system instability?’ 

With despondent predictions over the fate of the global economy amid the COVID-19 pandemic, it remains to be seen what the fate of the incumbent ‘liberal order’ may be as experts investigate the possibilities of the Corona Virus showing any signs of a slowdown. Of these predictions, lecturer of immunology Dr. Jenna Macciochi also weighs in on the difficulty in projecting a slowdown: ‘It’s a question we probably all want to know the answer to and I doubt anyone knows for sure as it depends on many factors. I’d say we don’t currently know.’

With perpetual uncertainty looming, chilling threats with regard to financial stability, the un-concealment of the inherent flaws and limitations of the global energy markets and the very real possibility of a new ‘world order’ in the midst, revisiting the Keynesian notion of uncertainty may be a helpful starting point to understand the dynamics of how the COVID-19 pandemic (as argued by Alain de Benoist) proved to be the catalyst for what seems to be a cyclical ‘boom and bust’ phenomenon. 

Ana Tawfiq Husain is a student at Habib University. Her previous posts on this blog are available here

Works used












Minsky, Hyman. (1975). John Maynard Keynes. 10.1007/978-1-349-02679-1.

Mizuhara, S. (Ed.), Runde, J. (Ed.). (2003). The Philosophy of Keynes’ Economics. London: Routledge, https://doi.org/10.4324/9780203488973

Fernando Ferrari-Filho, and Octavio Augusto Camargo Conceição. “The Concept of Uncertainty in Post Keynesian Theory and in Institutional Economics.” Journal of Economic Issues 39, no. 3 (2005): 579-94. Accessed April 21, 2020. www.jstor.org/stable/4228172.

1 Comment

Filed under Discussion, Economy, Pakistan, Pakistan Horizon, Politics, Russia, Saudi Arabia, United States

One response to “‘Fundamental uncertainty’: Keynesian economics and COVID-19

  1. Great reading. A return to Keynes is essential

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s