COVID 19 is an unprecedented global health crisis. No doubt about that. The speed of spread is astonishing. I have full sympathy for the people affected across the globe. Governments should do whatever is possible to help the affected and stop the spread. Economic costs to contain it don’t matter.
But currently, I worry less about its impact on global economy because that is transitory. One can debate how long it will take to solve this pandemic. There is no need to debate whether it will be solved or not, simply because it will be. But for sure global slowdown is upon us due to this pandemic. It can last for 1-2 years may be 3 years and not more. This is not the end of world or humanity.
I am more worried about the long term after effects of actions of governments and central banks across the world in response to this pandemic. These after effects can last for really long time and can be very sever. Everyone in my view should devote more time than they currently do, to think about these after effects. But i guess this has not been done primarily because there was an urgency to act and a perceived readymade solution was available.
Across the world, sense of urgency to act has been given priority over debate for suitability of the action and it’s after effects. In some countries like the US, urgency to act is also driven by the upcoming elections. Moreover monetary easing has worked in the recent past to solve global financial crisis of 2008/09. This successful experiment was readily available to central banks when COVID 19 hit the global economy. Hence global central banks in sense of urgency applied the readymade solution to a totally new problem instead to wasting time to think otherwise. It can be a typical example of man with a hammer syndrome (People are biased to use the tools they possess to solve problems at hand even though these might not be the right tools).
I worry how effective a solution to a global financial crisis is to a global health crisis. How can two totally different crises have exactly the same solution? Moreover even if it’s an effective solution, it’s possible that it’s no more so, simply because world has already used it once. Think of it in a medical analogy. You take some sleeping pills its fine. You will sleep. But you take it again or take an overdose and you can sleep forever. We also know that monetary easing significantly created income inequality across the globe and it might accelerate now. Is the world a better place with such a high level of income inequality? Till how long the democracies will tolerate such a steep increase in income inequality?
During 2008/09 financial crisis, president Obama said – “While the cost of action will be great, I can assure you that the cost of inaction will be far greater”. I am worried this time it might be the opposite. No one knows for sure. But we should be prepared for all eventualities. Currently everybody is demanding actions from central banks and governments without thinking about “eventualities” that might follow. That worries me a lot.
This is not to say that some people do not need economic/health support. They do and they should be helped. But scale and generosity of stimulus by governments and central banks deserves a more careful thought w.r.t its long term consequences. We should not forget that we and our children will, for sure, survive this crisis to bear the after effects.
