Covid-19 has confronted the world with its biggest challenge in living memory. It is necessary now to manage both the disease and its economic impact. This is no simple trade-off. On the contrary, bringing the disease under control is a necessary condition for bringing the economy back to life. But time is also limited. Governments must use what they now have wisely and effectively.
Economies are going over a cliff. Last week’s 6.7m in US unemployment claims was an order of magnitude bigger than ever before. The OECD suggests that each additional month of shutdown will lower growth this year by two percentage points. Unless the cessation of activity is brief, this will be the biggest contraction in history.
The implication, however, is not that lockdowns should be abandoned, but that they must be made to work as fast as possible. Letting the disease rip, instead, risks collapse of health systems and a loss of life comparable to those of world wars. A large proportion of leading economists agrees that a steep contraction is a price worth paying to secure control over infections. In any case, economies would not be humming in the absence of the lockdowns. Many people would lock themselves up voluntarily, instead.
Once we take into account the loss of life and all the other damage done by an unchecked pandemic, the lockdowns are wise. But tight containment cannot go on for very long without unbearable damage. That damage must be mitigated, wherever feasible, by ensuring that everybody has adequate incomes and viable businesses survive. Aware of this, governments with fiscal space have created a host of new programmes. Central banks have also intervened aggressively.
Now the focus of policymakers must turn to the need to mount a global response to this pandemic. The chain is only as strong as its weakest link.
Yet it is vital that the authorities also achieve at least four other concrete things during the lockdowns: the upward curve of infections must be brought right down; health systems must be made capable of handling the flow of patients until cures or vaccines are found; capacity for testing, tracing and quarantine must be created, in order to keep a post-lockdown return of the virus in check; and ways must be created to keep the vulnerable safe.
Governments should seek to achieve these four essential objectives within very few months. They are unlikely to have very much more time than this before the economic costs and social unrest become unbearable, although the more generous and effective the support they can offer, the longer they will have. In managing the return to work, governments should also seek advice from economic and business experts, as they do on health aspects.
Even if governments of high-income countries do achieve all this, that will not mean a return to normal. They will still have to control cross-border movement of people from countries that fail to control the pandemic. Many vulnerable residents will still have to stay at home until a cure or vaccine is available. Much effort will still continue to be necessary, to manage the global spread of the virus and help counter the damage to the most vulnerable countries.
Yet now come the crucial weeks. Governments have rightly decided to close their economies down. But they must make the sacrifices worthwhile. Having to do this again would be agony for societies. There is but a brief period in which to gain secure control over the disease and so be able to reopen the economy relatively safely. That opportunity must not be thrown away. Make these lockdowns work. All the blundering of recent months has to end.
Source: Economy - ft.com
