Compared to previous recent pandemics, Covid-19 appears at first glance to have a relatively low death rate of around 3%. This 30-fold higher rate of death than seasonal flu is the statistic being passed to us by national leaders and the WHO as a means to give us some comfort.
Hiding behind this number is that an additional 7%, of those who have contracted the coronavirus, remain in a critical condition. Furthermore, the rate of infection far surpasses that of SARS or MERS. This suggests it has the potential to become the most deadly virus encountered by humanity in over a century.
In order to deal with the threat of widespread infection, governments and political commentators are discussing and hopefully preparing the healthcare systems to cope with an expected rise in demand for hospital beds. However, perhaps an equally large proportion of time is being spent discussing the economic consequences of the coronavirus and trying to come up with steps to mitigate those consequences. As usual there is much talk of getting the central banks to intervene by lowering the price of money to assist the economy.
Although the economy will need some sort of stimulus if it falls into a recession, I am not sure this is the time for it. There are many reasons for taking this point of view.
1. Providing incentives to boost economic activity from the natural rate dictated by the existential threat we face is bad health policy. One could easily see a strong correlation between economic activity and the spread of the coronavirus. Think of the marginal worker receiving extra pay to get on public transport to come to work, whereas he or she might otherwise stay at home. We should instead focus everyone's minds, including those obsessed by fortunes available on Wall Street, if they are able to distract themselves, to stopping the virus and let that dictate our economic activity, however dire the economic outcome. Reducing economic activity temporarily might help to reduce the spread of the virus.
2. If we are then successful at facing off this threat and containing it, only then should the relatively bare cupboard which contains the central banker's remaining toolkit be opened to deal with a recession. Using the tools now means, if worse is to come, the central banks will have even less firepower when they need it most.
3. We should be prepared to suffer a recession and declining living standards for a short period than have 1/2 the world infected. For an economic policy standpoint, the latter would in any case result in a far worse economic outcome.
Hiding behind this number is that an additional 7%, of those who have contracted the coronavirus, remain in a critical condition. Furthermore, the rate of infection far surpasses that of SARS or MERS. This suggests it has the potential to become the most deadly virus encountered by humanity in over a century.
In order to deal with the threat of widespread infection, governments and political commentators are discussing and hopefully preparing the healthcare systems to cope with an expected rise in demand for hospital beds. However, perhaps an equally large proportion of time is being spent discussing the economic consequences of the coronavirus and trying to come up with steps to mitigate those consequences. As usual there is much talk of getting the central banks to intervene by lowering the price of money to assist the economy.
Although the economy will need some sort of stimulus if it falls into a recession, I am not sure this is the time for it. There are many reasons for taking this point of view.
1. Providing incentives to boost economic activity from the natural rate dictated by the existential threat we face is bad health policy. One could easily see a strong correlation between economic activity and the spread of the coronavirus. Think of the marginal worker receiving extra pay to get on public transport to come to work, whereas he or she might otherwise stay at home. We should instead focus everyone's minds, including those obsessed by fortunes available on Wall Street, if they are able to distract themselves, to stopping the virus and let that dictate our economic activity, however dire the economic outcome. Reducing economic activity temporarily might help to reduce the spread of the virus.
2. If we are then successful at facing off this threat and containing it, only then should the relatively bare cupboard which contains the central banker's remaining toolkit be opened to deal with a recession. Using the tools now means, if worse is to come, the central banks will have even less firepower when they need it most.
3. We should be prepared to suffer a recession and declining living standards for a short period than have 1/2 the world infected. For an economic policy standpoint, the latter would in any case result in a far worse economic outcome.
I think you're probably right. The only coordinated response that matters is in terms of medical research, treatments, public health
ReplyDeleteThanks you for this. Your cogent views are a much-needed tonic to help us fight the unbelievable greed with which investors seem to be preoccupied with when it comes to this virus.
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