By: Mark Glennon*
Please, wake up. A calamity far worse than coronavirus itself is at hand.
Frightening as the death toll from the virus is, a more terrifying consequence looms: a depression, and a major one.
If you think that’s exaggeration, it’s because expert opinion and news on the economy is drowned out by “frightening, click-bait headlines” that are “not useful” on meaningless numbers.
The assessments from sources of all political stripes are everywhere, though you won’t see them mentioned by politicians or most of the media the general public reads. Here are a few:
“We are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries,” Bank of England interest-rate setter Jan Vlieghe said. [Emphasis added.]
The coronavirus collapse has the ingredients to surpass the disaster of the 1930s…. Let’s hope this depression won’t last a decade, but an unprecedented slump followed by years of pain seems inevitable, said a Bloomberg commentary.
From economist Nouriel Roubini: “The best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.”
“Forget recession, this is a depression,” says the left wing Guardian.
The coronavirus pandemic will push the global economy into the deepest recession since the Great Depression, with the world’s poorest countries suffering the most, the head of the International Monetary Fund said Thursday.
“The expectation of market participants is that we’re in the Great Depression and that in a sense, the news can’t get much worse,” said BNY Mellon chief strategist Alicia Levine.
“At this point it would take a miracle to keep this recession from turning into the Great Depression II,” says Chris Rupkey, of Mitsubishi’s economic unit.
We are fighting the last war. Politicians and most of the press talk incessantly about “the curve” on virus infections, the point of which was to ensure that hospital capacity wasn’t exceeded. But we already won that, having excess capacity that is growing every day.
It’s time to bend different, more terrifying curves. Here’s one. It’s unemployment claims, from the St. Louis Federal Reserve Bank:
And take no solace from the stock market, which has held up quite well. It’s artificially pumped up by Federal Reserve Bank stimulants. The reality for most Americans is very different, which was captured beautifully on a screenshot from earlier this month showing the market soaring while unemployment surged:
To contain or head off the looming depression, our policy on the Wuhan Virus must change immediately. Two Stanford experts summarized the right approach as follows:
The appropriate policy, based on fundamental biology and the evidence already in hand, is to institute a more focused strategy like some outlined in the first place: Strictly protect the known vulnerable, self-isolate the mildly sick and open most workplaces and small businesses with some prudent large-group precautions. This would allow the essential socializing to generate immunity among those with minimal risk of serious consequence, while saving lives, preventing overcrowding of hospitals and limiting the enormous harms compounded by continued total isolation. Let’s stop underemphasizing empirical evidence while instead doubling down on hypothetical models. Facts matter.
*Mark Glennon is founder of Wirepoints.