The World Turned Upside Down
The covid-19 pandemic rages across Europe and America, and further afield.
It is beginning to take hold in Africa and Latin America, too.
By March 18th there were 134,000 registered infections outside China in 155 countries and territories. That was an increase of almost 90,000 cases and 43 countries and territories, in just seven days.
Today, March 26th, there are over 500,000 infections, with over 23,000 deaths, and no end in sight.
There are now two aspects to this crisis. One is a public health emergency and the other is one of public health too, namely, the economy. The cure could be much worse than the sickness. When we look back there may have been an illness contained but an economy imploded along the way. Across the world the latest modelling – economic and public health – reveals the troubling suggestion that current strategies to deal with the virus might either leave many dead and/or bankrupt businesses and households. There are no good outcomes.
The various government reactions across the globe have been striking, and unprecedented. “Free money” can get you so far; so too can slashing interest rates, but will it get you far enough? Governments have been forced to work on the most ambitious fiscal rescue of modern times, of any time. And it is not just about the economics. The measures being implemented now across Europe and North America are the most dramatic extension of the state’s reach since the Second World War. Furthermore, this has occurred with little or no scrutiny. In the case of the United Kingdom, the Westminster Parliament enacted sweeping measures and then that same parliament decided to take its Easter break early. Everyone is just too scared. But, as we know, what we need more than ever right now are cool heads not random solutions made on the hoof.
Times are desperate, time is of the essence, but things feel rushed, and not just politically. Only the state can enforce the social isolation and business closures that we see every day in the fight against this virus. Only the state can attempt to offset the resulting economic collapse that countries are about to experience if action is not taken swiftly. Yet, as we watch breathless at the rapidity of the changes in our ordinary lives, there is a nagging suspicion that such state over reach is much easier to enact than to retract at a future date. To stop covid-19 and its spread the state must act decisively. There appears to be no choice. But these new measures will have far reaching implications not just for the economy, but also for the society that is to follow on from this.
This is not a problem for one section of society, or for one country, or even one continent. As of March 25th 2020 the problem may as yet not be so acute in Africa, which has reported only 2,800 infections, or in India, with only 650 cases of infection. But this virus is going to spread in nearly every country. The reason is a simple one: as yet, we have no vaccine. There is no cure. The health-care systems in poor countries will not be in a position to cope – some of the richest countries with the best health systems in the world cannot manage presently. And so, the poorer countries and their economies will take a battering. It is in rich countries’ interests, however, to start to plan and think globally. Because if covid-19 is left unchecked in the emerging world, it will come back to Europe and North America and on a scale unimaginable.
Many are forecasting the end of the American economic miracle we have witnessed these past years. Unemployment is already rising, as much of the economy goes into a medically induced coma with millions across the States applying for welfare. The covid-19 epidemic has not yet reached its nadir, and neither has the economic crisis. Morgan Stanley is predicting that US GDP will fall by 8% year-on-year in the second quarter and unemployment will rise to 12.8%, compared with just 3.5% in February.
These factors alone are almost as unbelievable as the devastation caused by a virus on the Western world in the matter of only a few weeks.
US state after state has asked closed businesses and asked people to stay at home. Twelve states have ordered what is termed “non-essential businesses” to close. Seventeen states – almost half the population of the United States – are telling its people to stay home to stay safe. Many are working from home. Easy for some, impossible for many, especially the poorest or those who work in the retail sector (8.8 million), or in America’s restaurants (9.6 million staff), or those who make a living in hospitality (2 million). It’s just not clear how these folks are expected to make a living.
This week the US Congress has responded to the threat posed to the economy with the largest fiscal stimulus in modern history. Its provisions—including bail-outs for firms both big and small, expanded unemployment-insurance benefits and a straight cash transfer to Americans—are expected to cost close to $2trn, roughly one-tenth of GDP. It may not be enough though.
The US Government is also expected to set aside $500bn to stabilise business.
Yet whole industries rely on people coming together either to work or socialise, but, then, so too does the virus.
US dollars worth an eye watering $250 billion will be spent simply by sending cheques to Americans direct from your friendly Uncle Sam. Every American family can expect $1,200 per adult and $500 per child. Only time will tell if the cheques are too small for some and not enough for others.
These extraordinary measures are not intended to avoid the recession that already seems to have arrived, but to help kick start the fastest possible rebound, one that will have to be the fastest ever known in history. That outcome depends, however, on something outside of the control of politicians, namely, whether the covid-19 pandemic is effectively dealt with first.
Only one thing is certain about this pandemic: it is turning life upside down. Time will tell for how long and in what ways.
