The false dilemma during the Covid-19 pandemic
There is no such a thing as a choice between lives and the economy.
The coronavirus pandemic has put the world on its knee. Experts’ advice and the WHO recommendations emphasize social distancing and abundant testing of suspected cases as key to slowdown the virus spread. Quarantine and self-isolation are tough but necessary measures to allow healthcare systems in affected countries (all of them at this point?) to get ready for an unusual inflow of patients in need of intensive care.
Human interaction drives the economy, which means the world needs to pause most of its activities to contain the virus outbreak. That is conditio sine qua non to fight Covid-19 effectively. Some governments and business owners have not received the news with content. Understandably, these are not great news for millions of employees and informal workers either.
A global scale crisis of any nature always carries with it the economy. A pandemic would be no different. Country leaders can address the unprecedented crisis by spending more to alleviate the impact of the economic meltdown on firms and jobs’ survival and on households’ debt and consumption. Here are some state interventions already in practice during the virus outbreak: tax reduction to firms, exempting firms from certain fixed costs as long as they keep the employees, cash transfers to families in financial risk, unemployment benefit for a prolonged period, taking full control of strategic firms on the edge of filing bankruptcy.
Central banks can cut interest rates as the FED, for example, has already done. Even though most developed economies have already low or even negative interest rates, there is still room to stimulate investments. This can lead to more banks borrowing and increasing credit line for society. New loans at lower cost can save SMEs that abruptly lost liquidity as well as preserve jobs. Banks can also roll over debt contingencies. Unlimited buying of bonds injects liquidity to the market. In terms of production, the supply shock can be mitigated by converting industrial plants into manufacturers of health care items from masks to ventilators and hand sanitizers.
The impact of the pandemic on the economy is inevitable and the moral dilemma of saving the economy now to avoid social turmoil later is a sophism. First, the obvious fact lost lives cannot be recovered, but economies can. Second, is the false belief the world as we know still exists. We cannot resume our routines because they have irreversibly changed, if not permanently, for a long time. Almost all countries will close 2020 in a recession. Fiscal and monetary stimulus now can avoid that the recession turns into a depression.
The counterfactual, in other words doing nothing to contain the virus, avoids neither a recession nor a depression in the world economy.
The Spanish flu is the most comparable previous pandemic. Social distancing, extra care with hygiene and swiftly actions to isolate cases were among the recommendations at the time. Not very different from now. A recent study from the FED and MIT shows that U.S. cities that have taken action earlier and with stricter rules, have grown faster after the pandemic was over. This is evidence pointing out that waiting to act or reopening businesses and schools before the virus is contained can be disastrous for the economy.
Yet, some world leaders of today have a hard time accepting they need to enforce strict measures of social distancing to overcome the new pandemic. Political agendas and short-termism are part of the problem.
The latest government leader to oppose the idea of lockdown is the Brazilian President Jair Bolsonaro. He has repeatedly defended the end of the lockdown imposed by some local officials, mainly in Rio de Janeiro and São Paulo. The president has accused the state governors of destroying jobs and destroying the country as he continues to dismiss coronavirus as a “little flu”. He also criticizes the media coverage of the pandemic. In an address to the nation some days ago, Bolsonaro urged people to go back to work while only the vulnerable group should stay at home. He questioned the reason for closing schools given children are less vulnerable to the virus and he claimed his “athletic past” would protect him from complications if he falls ill. His arguments collide with the recommendations of his own health minister.
In summary, he proposes a vertical isolation or herd immunity strategy to protect the economy. Meanwhile, Brazilians have been protesting from their windows and balconies by banging pots and pans and by shouting against the way the president is handling the crisis. The protests have become part of a daily routine of quarantined Brazilians. Bolsonaro has also replied to journalists this week that Brazilians “jump in the sewage and don’t catch anything” and, therefore, are protected with antibodies. As for most of his claims, this is also not true. In the past 5 years, over 11 thousand deaths in Brazil are related to poor access to water and sanitation according to the Ministry of Health. Almost 4,000 people tested positive for coronavirus in Brazil and 114 have died so far. Bolsonaro’s last move is a campaign video, paid using almost US$ 1 million from public money, incentivizing people to return to work with the slogan #BrazilCannotStop.
He was not alone. The discontent with the inevitable recession has prompted some similar campaigns in other parts of the world. Milan is the striking example of how deadly relaxing quarantine rules could be. On February 26, the city launched a campaign called “Milan cannot stop”. At that point, the Lombardy region had a few hundred cases confirmed of Covid-19. We all know the region became the global epicenter of the virus for some weeks counting almost 5 thousand deaths. The mayor Giuseppe Sala said last Friday that he regrets sharing the hashtag #MilanWillNotStop.
In the UK, Prime Minister Boris Johnson was reluctant to adopt strict rules of isolation. For a while, herd immunity approach was driving the recommendations until the government received a study from the Imperial College London. Researchers built a model showing that, without intervention or only spontaneous physical distancing, the UK could reach over 500 thousand deaths in a few months. The United Kingdom is now on lockdown but the wait resulted in over a 1,000 deaths. Among people who tested positive for Covid-19 are the Prime Minister Boris Johnson and Prince Charles. Another study, from the University of Oxford, estimates half the UK population is infected.
In the U.S., coronavirus denial is over after months of inertia. Trump has abandoned the dismissive speech and urged people to stay at home. The authorities have wasted precious time to isolate the virus back in January when the first infected traveler arrived. The delay in response has led the U.S. to register more than 100,000 cases, gaining the status of new epicenter of Covid-19. New York can experience a collapse in the health system at any moment.
It is certainly preferable that humanity does not experience pandemics, but as this reality imposes itself upon us with Covid-19, it is an opportunity to rethink an economic system that hurts peoples’ welfare deeply if paused or slowed down. It does so to the point of being placed as more important than thousands or millions of potential deaths. There is something fundamentally wrong in a way of life not designed to sustain pauses. Climate change has been a great cause of concern recently, and yet little is done to reduce the emissions. The perception of a slow threat to humanity makes us ignore global warming and its associated effects. All in the name of productivity and endless flow of goods and services. A pandemic forces us to stop. No time and no alternative choice to minimize losses. There is no economy if the agents no longer exist. Economy should serve us, not the opposite.
