πŸ”’ WORLDVIEW: Coronavirus & the economy – no way to avoid the pain

South Africa is entering a coronavirus lockdown. Starting on 26 March, South Africans will be confined to their homes, permitted to leave only to buy food and medicine or collect social grants. Only essential workers will be allowed out. Only essential businesses will remain open. For three weeks, normal life will be suspended.

The country is being scaled back, cut down to just the very basics of life. Like a nation at war, only what absolutely must be done can be done. This is no time for the nonessential.

As these 21 days pass, South Africans will learn much about what is truly essential. We will discover that fancy meals out can be replaced with family meals eaten together. We will learn that so many of our shopping trips were nonessential, but that time spent playing board games together is essential. We will learn that so many jobs that seemed important weren’t, that the really essential workers are the ones who care for the sick and vulnerable, who empty the bins, stock the shelves with groceries, drive the trucks carrying food. We may, perhaps, emerge from our homes next month wiser than we went in.
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Unfortunately, we will also emerge poorer. Despite the many valiant and commendable efforts by the government and individuals, this is going to hurt. Jobs will be lost. Businesses will close. Incomes will fall and households will struggle. South Africa’s creaking economy will struggle to bounce back from the blow.

The same thing is happening around the world. Across Europe, countries have locked down, sacrificing their economies to protect the vulnerable from coronavirus, to save lives. The cost is adding up fast. While stock market collapses are dramatic, they are not necessarily real – the market is not the economy. What is real, however, is the exponentially growing job losses and the shuttered small businesses lining the streets.

In some quarters, politicians are asking whether it’s worth crushing the economy to save lives. In the US, for example, a growing chorus of Republican politicians and business leaders want to see the lockdowns lifted. They argue that, while the deaths that are likely if the coronavirus spreads unchecked are tragic, the deep and lasting harm done to the economy may be too high a price to pay to prevent them. Sacrificing the elderly may be a price the US must pay to keep the economy alive for the young.

The trouble is that the choice is not:

  • Enter lockdown, prevent deaths, hurt the economy
  • Or cancel lockdowns, accept deaths, the economy is unaffected

The choice is actually:

  • Enter lockdown, prevent deaths, hurt the economy
  • Or cancel lockdowns, accept potentially millions of deaths and an overwhelmed healthcare system, the economy is still hurt

There is no real way to escape the economic consequences of the coronavirus. Does anyone seriously believe that the Italian economy would be just fine if the virus had been allowed to freely ravage its way through the population? That everyone would keep shopping as usual while the bodies of the elderly are piled into mass graves?

Covid-19 is not a head cold, despite what some people say. It is true that a percentage of the infected are only mildly ill – especially those under 25 – but many are very sick indeed. They have high fevers that prevent them from leaving their beds. They have trouble breathing. They are exhausted. And symptoms last weeks. Less than half of the people who have confirmed cases of the coronavirus have recovered. Many of them will recover, but it will take time, and during that time these folks are not carrying on with daily life. They are very, very sick.

If the virus moves freely through the population, a lot of people will be out sick from work. This will come with an economic cost and it will hit us unpredictably. It may be that suddenly 20% of truck drivers are unable to work and our food supplies collapse. It may be worse than that, or better, but there will be an impact. We cannot know how the illness might affect us, but it’s unlikely to be good.

And even if we can deal with millions of additional global deaths and widespread illness without tanking the economy, it’s hard to imagine that people’s behaviour will be unaffected by the health crisis around them. Some people are still keen to travel despite the coronavirus, but as infections grow exponentially, trips will be cancelled. People will avoid the malls; they’ll think twice about going out for dinner. More importantly, they will be scared to make major purchase decisions or investments in the face of major uncertainty.

There is no way to avoid the economic impact of the coronavirus. Lockdowns are painful, they are causing major, sudden, coordinated economic damage that will take years to repair and will cost trillions. But allowing the virus to grow unchecked will cause significant, long-term economic dislocations. Infections will spike in different places at different times, many people will die, hospitals will struggle to cope – or fail to cope – and people will be very afraid.

The coronavirus is already infecting the global economy. Like a Covid-19 patient, we have no immunity to this type of economic infection, no cure, no vaccine. All we can do is treat it as aggressively as possible and hope we can keep our economic β€œbody” alive long enough to allow it to heal.