Pandemic economics: knowns and unknowns

It risks stating the obvious to assert that the COVID-19 pandemic is a calamity beyond the experience of all but the oldest Americans. Only those who lived through the Great Depression can recall something comparable — and that was without a pandemic. Current indicators paint a dire picture. Deaths from the virus are expected to exceed 60,000 (down from earlier projections) and on the economic front unemployment is already over 20 percent of the workforce and climbing. Broad imposition of “social distancing” nationwide has dramatically reduced a projected death rate that in some models saw 2 million Americans dying if nothing was done. But the same measures have — to use a medical analogy — put the economy into an induced coma.

But what of the future, near and longer term? We are more likely to get some reliable predictions from the health professionals than from the economists. Epidemiologists are relatively familiar with large disease outbreaks up to and including pandemics. The picture emerging for the United States is of growing infection and death into the early summer, but then a fairly rapid diminution in most of the country by August. But even this fairly primitive picture comes with large uncertainties in three respects. First, there is still a lot that virologists don’t know about this particular virus, including how it will respond to warmer weather and to what extent those who have contracted the virus and recovered carry immunity to new infection. Second, the wave of infection that spread from Asia to Europe to America is now poised to hit Africa, the Middle East and South Asia — regions with high population densities and weak health care systems. In short, from a global perspective the worst is yet to come. Even Russia, with its ramshackle health care and a bureaucracy trained to cover up bad news, is ripe to become a new COVID-19 epicenter. How likely is all this to produce a new wave of infection that will rebound in Europe and North America? The third category of health-related uncertainty involves the development of antiviral therapies and a vaccine. The only true silver bullet is a vaccine and that, by all reports, is at least a year away — plus additional time for mass production and inoculation.

The economic future is far less clear. The immediate casualties of social distancing requirements include small businesses. There are an estimated 30 million such businesses (firms with fewer than 500 employees) in this country providing nearly half of all private sector jobs. Many Mainers work for very small enterprises or are independent contractors. One such sector, fishing and lobstering, has been decimated, first by the trade war with China, and now by the pandemic shuttering of restaurants. Many small businesses simply cannot survive an extended shutdown.

All this puts a heavy premium on federal government support. And the government has responded with an unprecedented rescue package aimed at both businesses and individuals. It’s now clear that even this is not enough — in part because much of the “small business” aid went instead to large corporations. The ultimate economic impact of all this is quite unknown. Hopefully, it will mean most of the economy can ride out the course of the pandemic and return to some approximation of normal operations. But that assumes that the memory of the pandemic will soon fade. If it does not, consumers and businesses will be in a whole new environment.

The one sure economic outcome that we can predict with absolute certainty is public debt on a scale never seen in peacetime. Currently, the federal government is on its way to spending nearly $4 trillion more than it collects in revenue.

Remember that big tax cut for corporations that the White House promised would “pay for itself with increased economic growth”?  Well, it didn’t. What it did do was greatly reduce government revenues. On top of this, major corporations have been borrowing at a record rate and incurring debt to match. Experts can identify post-pandemic remedies — but they will require policymakers and politicians to act in a rational bipartisan manner that has not been seen in Washington for a long time.

All this has geopolitical effects on America’s international standing and influence. If the United States is awash in red ink, does the dollar retain its status as the de facto global currency? China is determined to supplant the United States as the world’s most consequential country. Beijing is already touting its relative “success” in controlling the virus compared to American “failures.” At the center of all this is an absence of traditional U.S. leadership in times of crisis. One senior European (pro-American) official put it this way: “[In past crises] the U.S. administration would step forward and say that ‘we’re going to make sure all the pieces of the jigsaw fit together, that no one is causing trouble … We are America, and we are going to do it.’” Now, he laments, such leadership is missing and “it does leave everybody short.”

Marvin Ott

Marvin Ott

Columnist at The Ellsworth American
Marvin Ott is a professor at Johns Hopkins University and a Public Policy Scholar at the Woodrow Wilson Center of the Smithsonian Institution. He is a summer resident of Cranberry Isles.
Marvin Ott

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