"There is your regular economic crisis, and then there is this."
"There is your regular economic crisis, and then there is this."
The world economy has experienced four crises since the start of the 20th century, namely, the crisis brought about by the 1918 pandemic, the Great Depression of the 1930s, the financial crisis that occurred in 2008, and the current crisis. The 1918 crisis related to public health; the current crisis is likewise one of public health. The Great Depression and the 2008 crisis had their origins in purely economic phenomena.
Economic crises are the results of either excessive behavior on the part of consumers and producers on deteriorating market sentiments or disruptions in supplies of goods and services. An economic crisis usually responds to the application of the appropriate fiscal, monetary, trade or administrative remedy. Thus, expansion or contraction of the money supply is mistaken if the problem is deflation or inflation, respectively. Tax rates and/or government expenditures levels are adjusted if the problem is fiscal in character. Embargoes, stepped-up imports and foreign exchange controls of its problem is trade – related. Privileges and penalties are enacted if the problem is administrative in character.
The current crisis and the crisis of 102 years ago are different. Not being purely economic in nature, they do not respond to the usual economic remedies. They respond only to health-related measures – more specifically, measures intended to stop the spread of a biological element called a coronavirus.
No economist can personally attest to the manner in which the world economy dealt with the 1918 pandemic-induced crisis and the Great Depression, but most of today’s economists have personal knowledge, and perhaps experience of, the turmoil and pain caused by the 2008 financial crash. (commonly referred to as the Great Recession). And of course, they are practically trying to find feasible solutions to the problem created by the COVID-19 pandemic.
In effect, there are two kinds of economic-crisis management. One is the normal kind of economic-crisis management. The other is the kind of economic-crisis management associated with a pandemic or other biological catastrophe; this kind we could christen “pandeconomics.”
The usual way of dealing with an economic crisis is to deploy, in counter-offensive fashion, all the weapons – fiscal, monetary, trade and administrative – available to the economic antibiotics. No weapon is withheld the effort to solve the crisis or the earliest possible time related factors of production – workers, factories, and transportation facilities and distribution channels – one quickly brought back into play to hasten the return to normalcy.
This is not possible under “pandeconomics.” The managers of national economies have wanted – and have tried – to maintain high levels of economic activity while containing the novel coronavirus. This has been unsuccessful because locking down entire countries and cities has been the most effective way of preventing transmissions of COVID-19 and minimizing mortality rate. Given the production limits set by the health protocols and grounding of transportation facilities, output of goods and services – and GDP (gross domestic product) figures – have gone into tailspins. Striking an acceptable balance between lives and livelihoods has proven to be a very difficult and frustrating job for the practitioners of “pandeconomics.” But a number of countries – New Zealand, Taiwan, South Korea, Denmark and Sweden – have shown that, through difficulty, the job can be done.
The increasing frequency of coronavirus outbreaks in the century indicates that the branch of economics called “pandeconomics” is here to say, and that traditional economists will ignore its unique requirements at their peril.