As the battle for our lives against the novel coronavirus pandemic rages, another battle is being ready to be fought: for the economy. It is not an exaggeration to say that that the second quarter of 2020 will see the most severe decline in global economic activity in the history of human civilization, and the question is whether we can come up with the right policies to ensure that the this does not deteriorate into another great recession or worse, another great depression.
For starters, let’s understand the scale of the carnage. Entire sectors of the economy like restaurants, hospitality, and travel have already collapsed. Entirely collapsed. The millions of workers that are now unemployed or which will be soon unemployed as a result of this will require a social safety net of epic proportions in order to survive the 3 or more months of lockdowns, with no guarantee that their jobs will still be there when the crisis is over. For countries that have pushed forward a comprehensive package of corporate lifelines and worker’s support (pay guarantees, moratorium on interest, utilities, mortgages, and rent, etc.), it is estimated that these may end up costing as much as 10% of GDP (maybe even more), putting further strains on national finances which in many cases have not yet recovered from the 2008-09 crisis. And for developing countries, with masses of informal workers and lack of social safety nets, the outlook could end up being as apocalyptic as the virus itself. Continue reading