The Pandemic Economy

Economists Carmen Reinhart and Vincent Reinhart write in Foreign Affairs that we’re in The Pandemic Depression:

Although dubbed a “global financial crisis,” the downturn that began in 2008 was largely a banking crisis in 11 advanced economies. Supported by double-digit growth in China, high commodity prices, and lean balance sheets, emerging markets proved quite resilient to the turmoil of the last global crisis. The current economic slowdown is different. The shared nature of this shock—the novel coronavirus does not respect national borders—has put a larger proportion of the global community in recession than at any other time since the Great Depression. As a result, the recovery will not be as robust or rapid as the downturn. And ultimately, the fiscal and monetary policies used to combat the contraction will mitigate, rather than eliminate, the economic losses, leaving an extended stretch of time before the global economy claws back to where it was at the start of 2020.

The pandemic has created a massive economic contraction that will be followed by a financial crisis in many parts of the globe, as nonperforming corporate loans accumulate alongside bankruptcies. Sovereign defaults in the developing world are also poised to spike. This crisis will follow a path similar to the one the last crisis took, except worse, commensurate with the scale and scope of the collapse in global economic activity. And the crisis will hit lower-income households and countries harder than their wealthier counterparts. Indeed, the World Bank estimates that as many as 60 million people globally will be pushed into extreme poverty as a result of the pandemic. The global economy can be expected to run differently as a result, as balance sheets in many countries slip deeper into the red and the once inexorable march of globalization grinds to a halt.


In its most recent analysis, the World Bank predicted that the global economy will shrink by 5.2 percent in 2020. The U.S. Bureau of Labor Statistics recently posted the worst monthly unemployment figures in the 72 years for which the agency has data on record. Most analyses project that the U.S. unemployment rate will remain near the double-digit mark through the middle of next year. And the Bank of England has warned that this year the United Kingdom will face its steepest decline in output since 1706. This situation is so dire that it deserves to be called a “depression”—a pandemic depression. Unfortunately, the memory of the Great Depression has prevented economists and others from using that word, as the downturn of the 1930s was wrenching in both its depth and its length in a manner not likely to be repeated. But the nineteenth and early twentieth centuries were filled with depressions. It seems disrespectful to the many losing their jobs and shutting their businesses to use a lesser term to describe this affliction.

One can leave it to economists to decide – and for society to adopt as a common expression – whether this period of economic loss is worthy of the term depression. It’s enough to note that hopes of a quick rebound – a v-shaped recovery – have proved unrealistic.  If America could have prevented worse by slowing the spread of the novel coronavirus across this continent, then one can at least say that she has not done so.

The re-opening debate, however fraught, assumes there was ever a thorough closing. If where America is now assumes a proper closing, then the term proper closing has no serious meaning.

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