It seems to me….
“When the coronavirus-positive cases were 500 in the country, you ordered the shops to shut down, and now when the tally has crossed 50,000 you are opening them. I don’t understand the logic.” ~ Jaideep Ahlawat.
While I will not claim to have foreseen the exact form in which the current economic crisis triggered by the COVID-19 virus would be initiated, it was readily apparent it was coming and would not require much of a push to get underway. I, and many others, have on numerous occasions expressed the belief that we were grossly unprepared for either a healthcare emergency or an economic downturn. No one, even the most pessimistic is sufficiently prescient to predict it would be a health crisis that would initiate an economic one. Still, I began criticizing the lack of preparedness back under the concluding year of President Obama’s tenure in office. Trump repeatedly ignored all obvious indications of increasing potential problems. While he and many conservatives loudly extolled the strength of the U.S. economy, it was largely a façade based on massive deficit spending.
There definitely are times when we regret being able to say we were right about something. While not knowing its exact nature, this was an all-too-easy prediction. There were sufficient warnings but not having faced a serious pandemic crisis in one hundred years, it was easy to be complacent and not consider the threat sufficiently seriously. Now, anticipated GDP quarterly growth declines could possibly substantially exceed anything experienced as far back as World War II.
While markets have mostly recovered following their initial slump immediately following the pandemic’s start – the S&P 500 regained most of those losses within 90 days – the coronavirus will more likely inflict a serious blow to the economy. Unfortunately, the Fed and its counterparts do not have many options with which to respond. I did not know when the economy would next face a serious challenge but did believe it was not prepared to withstand any downturn without incurring an alarmingly high level of debt.
In 2005 George W. Bush gave a speech to the National Institutes of Health (NIH) concerning the risk a new virus might pose to the U.S. He said, “Our country has been given fair warning of this danger to our homeland”. He announced a plan to detect outbreaks anywhere in the world, stockpile existing vaccines and antiviral drugs, and improve the U.S.’s capacity to quickly produce vaccines against new virus strains. He warned, “We must be ready to respond at the federal, state, and local levels in the event that a pandemic reaches our shores”.
Mr. Bush’s successor, Barack Obama, also made a speech to the NIH in 2014. “There may and likely will come a time in which we have … an airborne disease that is deadly. And in order for us to deal with that effectively, we have to put in place an infrastructure – not just here at home, but globally – that allows us to see it quickly, isolate it quickly, respond to it quickly … So that if and when a new strain of flu, like the Spanish flu, crops up five years from now or a decade from now, we’ve made the investment and we’re further along to be able to catch it.”
President Obama’s successor, Donald Trump, unfortunately, was the person sitting behind the desk when the warnings actually came true. Before the pandemic arrived, his budgets (which in the U.S. are really statements of priorities) proposed funding cuts for the NIH and the Centers for Disease Control and Prevention (CDC). Those same agencies were working on the pandemic response plans that his predecessors had argued for. When COVID-19 infections began rapidly escalating in New York in March, the President blustered “Just stay calm. It will go away.”, dispensed bizarre health advice, and encouraged people to protest against the lockdowns his own administration had recommended. He has since cancelled funding for the World Health Organization (WHO) and announced his intent to withdraw from the organization.
Trump was briefed on the possibility of a pandemic but canceled early warning programs designed to find threats exactly like COVID-19:
- The Obama administration provided the Trump administration with a pandemic playbook based on experiences during the Ebola and H1N1 pandemics. The Obama administration also tried to prepare the Trump administration with a pandemic response exercise during the transition.
- In 2018, the CDC held a conference and Webinar warning of a potential pandemic. However, also in 2018, Trump dismantled the National Security Council’s (NSC) global health section which was supposed to fight pandemics.
- The Department of Homeland Security (DHS) under Trump stopped running pandemic preparedness simulations.
- Last fall, just months before completely missing the ball on an actual pandemic, the Department of Health and Human Services (HSS) conducted Operation Crimson Contagion exercises about a global pandemic. Also last fall, White House economists warned of the economic effects of a pandemic.
Most Americans think that Trump, whose messaging on COVID-19 has been all over the place and not coordinated the kind of response from federal agencies that the country needs, has not responded acceptably in the crisis. He reacted to the COVID-19 threat first with denial, then with frantic efforts, not to control the pandemic, but to shift the blame for shambolic, ineffective policies to other people. Someone would have to be a political nihilist to believe there is no relationship between Trump’s lack of leadership and the mounting U.S. COVID-19 death toll.
Fortunately, the U.S.’s federal system has been able to adapt and provide most of the leadership Trump should have been doing. State governors and mayors took on the decisions of how to balance lockdowns with the need to keep the economy going. State officials are building the infrastructure for testing and for contact tracing rather than the federal government. It does not follow from this that Trump has not made any difference in the U.S. response as it cannot be known how many deaths might have been averted by a more competent response from the federal government. But to pin it all on Donald Trump both overstates his role and distracts from the fact that the real governing is being done in the states, not in Washington.
As the pandemic upends much of society, frontline healthcare workers are shouldering the burden of a systemic lack of preparation. In the U.S., a sluggish government response, along with the mismanaged rollout of testing, allowed the virus to widely spread. Years of running lean operations left many hospitals without the resources to quickly expand care. Global demand for personal protective equipment (PPE) and ventilators made these crucial supplies insufficient. Backup stockpiles proved too small, and efforts to bolster supplies were uncoordinated or, even worse, forced hospitals and jurisdictions to compete with one another. Now ERs in hard-hit areas struggle to keep up with a flood of critically ill patients. Staff in eerily quiet hospitals elsewhere look on wondering if the virus will overwhelm them next. Nurses facilitated final phone calls between the dying and their loved ones barred from entry. As morgues overflow, refrigerated trucks arrive to temporarily house the overwhelming number of bodies.
The COVID-19 pandemic might have a structural impact on the U.S. and the global economy with unemployment levels possibly taking years to decline back to pre-pandemic levels. It could affect the global economy in three main ways: by directly affecting production, by creating supply chain and market disruptions, and by its financial impact on firms and financial markets. Much depends on the public’s reaction to the disease. Unfortunately, too many people refuse to adhere to recommendations – they are not wearing face coverings or practicing social distancing.
Even when the number of cases starts to recede (caseloads are still growing exponentially in many states), without a vaccine or viable treatment, consumers will avoid activities that could increase their risk of contracting the virus. The economy could possibly be severely impacted for many years to come: Many customers are avoiding restaurants and bars. Travel is down as are lodging numbers. Oil prices are extremely low affecting banks which financing these high-debt operations. Insurance companies are also on the brink after paying considerable sums to vast numbers of businesses that have been forced to close under stay-at-home orders.
With the Federal Reserve printing money to stimulate economic recovery, inflation could substantially increase inversely affecting personal savings values. One of the possible reasons why the stock market continues to increase in value is an expectation of this eventuality. With the economic impact yet to fully occur, many have looked at stock prices with huge dividend yields and low P/E ratios without factoring that revenues will most likely decline in Q2 earnings reports and possibly falling even further in Q3 depending on the sector of the company in question.
The fight against COVID-19 has seen governments, particularly those in the wealthiest nations, increase their national debts to such an extent that the way in which they will be paid off could have a long-lasting effect on their economies and significantly affect the distribution of wealth.
Advanced economies will run an average deficit this year of 11 percent of GDP according to the International Monetary Fund (IMF) – even if the second half of the year sees no more lockdowns and a gradual recovery. Their public debt could exceed $66trn, about 122 percent of GDP, by year’s end.
Governments wishing to see such debt burdens diminish basically have only three broadly defined options: they can pay back the borrowing using taxation, decide not to pay or agree with creditors to pay less than they owe, or can wait it out rolling over their debts hoping it will decline relative to the economy over time.
Inflation can assist in lessening the debt burden but could involve both a high tolerance for such inflation and an ability to stop interest rates from following it upwards. Emerging economies may have no alternative other than to default or restructure their debts which will result in significant hardship.
The public is likely to reject paying off pandemic debts through a return to austerity. The emotional, as opposed to economic, logic of austerity – that people have spent too much and must be reined in – will not be accepted. Most people are likely to demand increased spending on healthcare post-COVID-19, not less. More than half indicated they would support tax increases to pay for higher spending on the national health services even before the pandemic struck. Aging populations are also increasing the demand for public spending as are investments needed to respond to deteriorating infrastructure and climate change.
Demand for various products will see a decline as consumers cut back on purchases as a result of employment uncertainty. A disruption in both supply and demand could cause a severe contraction in economic activity. The scale of these effects remains largely unknown and, at this point, unknowable. It is precisely this uncertainty that enhances the paralyzing impact the pandemic could have on the economy.
In the U.S., the spread of COVID-19 has been financially negatively impacting manufacturers. In a National Association of Manufacturers (NAM) survey conducted from 28 February to 9 March 2020, around 80.0 percent of respondents anticipated COVID-19 to have a negative financial impact on their businesses and around 35 percent of them are already facing disruption in a supply chain process. The financial losses to U.S. manufacturers will, in turn, affect production capacity and foreign trade operations.
To understand COVID-19’s hit on the economy, consider its effect on industries. Consumption makes up 70 percent of the U.S.’s gross domestic product (GDP), but consumption has slumped as businesses close and as households hold off on major purchases as they worry about their finances and their jobs. Investment makes up 20 percent of GDP, but businesses are putting off investment as they wait for clarity on the full cost of COVID-19. Arts, entertainment, recreation, and restaurants constitute 4.2 percent of GDP. With restaurants and movie theaters closed, this figure will now be closer to zero until quarantines are lifted. Manufacturing makes up 11 percent of U.S. GDP, but much of this will also be disrupted as global supply chains have been obstructed by factory closures and companies are shutting down factories in anticipation of reduced demand. Ford and GM, for example, have announced temporary closures of car factories.
There will be scores of smaller business that never open again. There will be fewer jobs, making it more difficult to find one. It is important for job seekers to put their best foot forward when applying as companies will be hiring high-performing individuals and probably pay them more as well.
This economic devastation is most keenly felt among low-income employees. 65 percent of those earning between $30,000 and $50,000 annually said they would not get paid if the virus kept them from working for two or more weeks. A majority of this group, 69 percent, said that it would be difficult to keep up with expenses.
For those earning less than $30,000, the employment consequences of the virus are even more dire. More than three-quarters of workers in this income group who indicated they would not be paid if they could not work for two weeks also said it would be impossible to keep up with expenses.
A further complication is that many jobless Americans have also lost their health insurance in the midst of a pandemic – and now Trump has requested the Supreme Court to declare what remains of the Affordable Care Act unconstitutional denying healthcare to an additional 20 million people at a time when such assistance is most needed. This virus has disproportionately affected peoples of color and the economically disadvantaged. There is nothing racially related to severity or susceptibility concerning COVID-19. It is the environment in which minorities live that is responsible for elevated infection and morbidity rates.
Families pay an average of $9,167 a year per child for daycare, the median pay for people working in those facilities is only $11.65 per hour. With most childcare centers, schools, and summer camps remaining closed, caregivers are unable to return to work. And if they are unable to return, they are unable to afford alternate forms of childcare to enable them to do so. It is a dilemma that is also hurting businesses. Even before COVID-19 struck, U.S. firms were losing billions of dollars every year when employees could not report to work because of breakdowns in childcare.
Conservatives who believe in the magical power of tax cuts insist we should respond to a pandemic by cutting taxes. No one should believe cutting taxes would greatly increase Americans’ incentive to work harder (it does not), tax cuts are not the answer when millions of workers are necessarily idle because of a lockdown meant to limit viral infection. There is no justification for having to choose between economic resilience and protecting lives.
In much of the rest of the world – including Australia, Britain, Canada, France, Germany, and South Korea – governments have temporarily paid the salaries of workers in order to prevent millions of layoffs. The U.S. has taken a different path. It created a complicated mix of different stimulus policies, including loans to businesses and checks for families. This approach does not appear to be working as the U.S. has had a sharper rise in unemployment than other countries.
There have clearly been problems with the business loan programs in the federal government’s coronavirus stimulus as many companies, especially small businesses, have struggled to obtain loans. There is growing recognition in Congress that execution of the stimulus program has not been the main problem, it has been the design of the program itself.
There is much talk about fiscal and monetary measures to alleviate the slump in the advanced capitalist economies but there is little about the devastating hit to the billions in the so-called ‘Global South’. Many of those economies were already in a recession – Mexico, Argentina, South Africa… – prior to the start of the pandemic and now the collapse in commodity prices, particularly energy, will hit many of their economies which depend on staple commodities as their main exports.
The coronavirus slump actually makes the case against a universal basic income (UBI), which has been proposed by some liberals, less advisable even though part of that $2 trillion proposal did involve sending everyone a check. Workers have bills to pay; they need replacement income close to what they were making prior to being laid off. The rest of the work force does not need anything comparable.
Response should not focus at this time on economic stimulus but on disaster relief for those losing their incomes; infrastructure spending, which generally is one of the best forms of stimulus, however desirable, does not address immediate issues. Enhanced unemployment benefits and aid to small businesses provide greater focus on the current problem.
It remains too early to predict when life will return to some semblance of how we knew it prior to the crisis but it is apparent that it will not be coming back any time soon and even then not necessarily in the same way. Rather than looking at a return to some normality in a few months, it more likely will be at least one year. Economic recovery could possibly be further delayed until mid-2022 with higher than average unemployment extending well beyond that. Possible cascading, resurging COVID-19 global outbreaks pose a significant risk and could further limit recovery. Waves of infection will extend through the summer and most likely well into the fall.
Long-term changes will result in something more akin to a ‘new normal’. It is possible that ubiquitous deployment of broadband and 5G could lead to rapid digitization of business and society fueling innovation and a return to growth. Negatives, however, such as record indebtedness, longer-term change in business and customer behavior, and lack of interest rate options could far outweigh any positives.
Prolonged recessions with weak supply and demand combined with financial system shocks also disrupt social and economic life. The pandemic will likely increase social unrest and homelessness, prompt government bailouts, and increase government economic involvement.
It should be kept in mind that recovery eventually will occur but, for now, necessitates patience. It remains difficult to predict when it will occur or what economic and social changes will result.
That’s what I think, what about you?
 Jaideep Ahlawat is an Indian actor who has appeared numerous movies in the U.S., Bollywood, and in the widely acclaimed Amazon Prime Web series Paatal Lok.
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