The world economy is facing the worst crisis since the 1930s. As the virus was underestimated at the beginning, the economic consequences are now taken too little seriously.

This week I learned a new acronym from the US military language: SOL. That means “shit out of luck”, roughly translated as “bad luck”. I got the expression from a man you have never heard of Robert Kadlec.

Since August 2017, Kadlec – a US Air Force medical doctor – has been Vice Secretary of State for Readiness and Response at the U.S. Department of Health. On October 10, 2018, Kadlec gave a lecture on biological defense programs at the Robert Strauss Center, in which he spoke out clearly for a kind of insurance model against the risk of a pandemic. “If we don’t implement that,” Kadlec concluded, “it’s SOL if we should ever be confronted with it.”


Kadlec’s testimony is so remarkable because the government he works for – President Donald J. Trump’s government – published a 36-page national bio-defense strategy just a month earlier. In June 2019, Congress passed a law that regulates preparedness to avert pandemics and all risks, as well as for progressive innovations. On paper, the United States was ready for a pandemic – better prepared and better equipped than any other country in the world. On paper.

From carefree to panic

The British government was almost as well prepared – on paper. The government chancery correctly rated pandemics as the greatest threat to the country – even before terrorism and financial crises. Ministers were able to count on the epidemiological expertise of the advisory group for new and emerging risks from respiratory viruses and the scientific advisory group for emergencies.

But when reports in China made it clear in January that the new coronavirus, now known as Sars-CoV-2, was both contagious and deadly, catastrophic failure to act on either side of the Atlantic. The American epidemiologist Larry Brilliant, a central figure in the campaign to eradicate smallpox, has for many years spoken the formula for dealing with infectious disease: “early detection, early reaction”.

Other countries like Taiwan and South Korea did both. But without adequate testing capacity, the United States and the United Kingdom could not take the first measure, and instead of reacting early, they decided to hesitate. It was not until March 16, with the publication of fearsome projections by the Neil Ferguson-led team at London’s Imperial College, that the policy of carelessness to panicked.

Without containment (physical distance) and oppression (restriction of economic activity), according to Ferguson, “81 percent of the population in the United Kingdom and the United States would be infected in the course of the epidemic,” with “nearly 510,000 deaths in the United Kingdom and 2.2 million in the United States “. Taking population growth into account, the Covid 19 pandemic would be more devastating than the flu pandemic of 1918 and 1919.

We will never know for sure whether these projections were correct because Ferguson’s warning was hastily heeded in London and Washington. A month ago, the British and American economies have followed the majority of industrialized countries and have scaled back their operations in an unprecedented way.

Satisfied that he had followed his advice, Ferguson revised his forecast of Covid-19-related deaths in the United Kingdom from over half a million to “20,000 or less, of which two-thirds would have died this year for other causes” (net therefore 6700).

Epidemiologists are not economists

Epidemiologists and economists seem to have a lot in common: both like models and math. But this year it has been shown that epidemiologists are not particularly concerned about the economy. Another Imperial College article published in March predicted that physical distance and economic constraints could save between 30 and 40 million people worldwide this year. “We did not take into account the broader social and economic costs of the restrictions”, the authors noted almost on the side, “they will be high”.

That should be the understatement of the year. Last week Gita Gopinath, chief economist for the International Monetary Fund (IMF), provided an estimate of the economic cost of what she called the Great Corona Recession. It will be, she said, “the worst recession since the Great Depression and far worse than the global financial crisis.” The global economy will shrink by three percent. And if the pandemic didn’t go back in the second half of the year, it could shrink by another three percent in 2021.

Unemployment has never been so rapid in the United States. 22 million people have applied for unemployment benefits in the past four weeks – one in eight. For the UK economy, the Office for Budgetary Responsibility (OBR) predicts the worst year is 1900 – a 13 percent drop. While Wall Street’s “bulls” are making their usual predictions of a V-shaped recovery, economists are becoming more pessimistic every day.

Finance ministries and central banks around the world have indeed done their utmost to compensate for the economic shock caused by the large decommissioning – they have once again brought out the tools they put in place against the financial crisis in 2009/10. Quantitative relief – the purchase of all kinds of securities by the central banks – is back and the quantities that are being relieved do anything but relieve me. Since February 26, the Federal Reserve’s balance sheet has exploded from $ 4.1 trillion to 6.1 trillion. Among the recent purchases are scrap bonds.

Deficit financing is also the slogan of the day: the US Corona Virus Aid, Relief and Economic Security Act, a general-purpose bailout law that combines checks for everyone with low-interest corporate loans, carries a $ 2 trillion price tag. The federal deficit for 2020 was expected to be less than five percent of GDP – now it could be 15 percent. The Fed buys all new government debt, not by printing dollars, but by creating surplus reserves at the banks.

The British OBR estimates that net public sector borrowing in the UK will reach £ 273 billion this year – 14 percent of gross domestic product (GDP) – bringing total public debt to over 100 percent of GDP. The Bank of England funds some of these bonds directly by increasing the government overdraft on the bank.

Debts follow debts

Worldwide, the IMF’s fiscal surveillance estimates the cost of the additional pandemic-related health and relief efforts to be $ 3.3 trillion. This is followed by public sector bonds and corporate capital ($ 1.8 trillion) and guarantees and other contingent liabilities ($ 2.7 trillion). Public debt is skyrocketing all over the world, even though poor countries submissively ask the IMF whether their old debts could be canceled.

We know that at least one political goal has been achieved. Thanks to government actions, the large shutdown – so far – has been far less costly for investors in almost all categories of securities than during the global financial crisis, although the real economy has suffered more.

However, no one should say that governmental activities are stimulating. A decommissioned economy cannot be stimulated – you cannot accelerate in a car that lacks two wheels. All you can do is clandestinely implement a policy that was once dismissed as too radical – basic income and modern currency theory – and hope that people and business will stay afloat long enough to return to normal services to be included when the public health emergency is over, whenever that may be.

Even in the worst-case scenario, there will be a huge fiscal and monetary hangover. In the IMF nightmare scenario with a multi-year depression, a point will come where the discrepancy between economic realities and security prices will no longer be sustainable.

Was it a mistake or not?

So have we made a terrible mistake? Will we look back someday and say politics overreacted – Trump and others had been right all along about the cure becoming more expensive than the disease? After the growing evidence from China and Italy that the victims of Covid-19 were disproportionately over 65, some right-wing politicians and experts had made the mistake from the start, saying that there was a raw conflict of objectives: either the economy or the old.

Last month, Dan Patrick, the Vice Governor of Texas (he is 70), was condemned all round when he asked: “As an elderly citizen, are you willing to risk your survival so America that loves America for your children and grandchildren preserved? … If that’s the exchange, then I’ll be there. ” Andrew Cuomo, the governor of New York, replied on Twitter: “My mother is not expendable. Your mother is not dispensable. We will not set a dollar amount on human life. ”

That was a stupid argument – on both sides. Economists routinely set “a dollar amount for human life” when assessing the costs and benefits of public policies. The central concept is known as the “quality-corrected year of life”, and the current amount in the United States today is between $ 50,000 and $ 150,000.

But brutal utilitarian calculations – how many units of economic output should we be willing to sacrifice per year of life? – are not possible in the case of Covid-19 because we still know too little about it. We have only rough estimates of such crucial variables as the number of asymptomatic people infected, the actual death rate, the time survivors remain immune, whether the virus recedes when spring transitions into summer in the northern hemisphere, and which neurological or permanent ones cardiovascular damage the virus may do.

The wrong way to think about this problem – and you can already see people on social networks who do it – is to say: “They ruined the economy, even though only 29,000 Americans died. That is less than in some normal flu years! ”

First, it’s not over yet. Historically, most pandemics have occurred in more than one wave, and a second Covid-19 wave later in the year is all too likely. Second, it is the price based on physical distance and closures. No one has any idea what it would have been like if we hadn’t done anything.

The alternative was never between a deadly hunt for “herd immunity” and the great corona crisis. We only had and can choose between extremely expensive and affordable containment of the infection until we understand it so well that we can control it through vaccination and effective therapies.

Together with Israel and the more intelligent northern European countries, the democracies of East Asia show that it is possible to avoid economic standstill through mass tests and technical follow-up of the contact persons. The problem is that neither Britain nor America even meets the two criteria even though political pressure – particularly in the states ruled by Republicans – is growing to return to work.

I’m afraid that means we may end up in the worst of the two worlds: so many closings that we’re doomed to economic depression, but not enough to avoid a far higher mortality rate than we expect.

Sure, people die every day. But in the week leading up to April 3, there were 6082 additional deaths in England and Wales – 59 percent above average for the same period in the past five years. The number of deaths from Covid-19 was responsible for more than half of this excess (3801). And it’s almost certain that the week will look even worse until April 10, as there have been Covid-19-related deaths this week in NHS 5353 clinics – 88 percent more than the previous week.

Comparing these numbers and similar data for the United States to the much lower death rates in countries that have practiced early detection and early response is gradually beginning to understand what American soldiers mean by SOL. Bad luck shouldn’t matter how a well-managed country deals with a pandemic.

Niall Ferguson is a senior fellow at the Center for European Studies at Harvard and is currently researching as a Milbank Family Senior Fellow at the Hoover Institution in Stanford, California. The essay above is a column that Ferguson wrote for the British “Sunday Times” – it is published exclusively in the German-speaking world. We thank the “Sunday Times” for the possibility of reprinting. – Translated from English by Helmut Reuter.

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