The pace at which the COVID-19 pandemic is spreading is exponential. This crisis is the greatest challenge faced since the end of World War 1. It is bigger than the Great Depression and the Global Financial Crisis. It is the COVID-19 economic depression.
The difference between a recession and a depression is that a recession is part of the business cycle. It will last a couple of months, perhaps even a year, but there is a view to the other side, and through belt-tightening and some restructuring here and there, most firms can make it to the other side.
An economic depression because of COVID-19 is very different. The scale of the shock to both the demand and supply side of the economy is enormous. There is a massive labour supply shock to the downside as well. The entire economy is facing considerable changes in demand and supply chain reliability in an unprecedented fashion.
When the public health advice and evidence so far is that reducing the growth rate of infection requires complete lockdown, the cost/benefit analysis becomes apparent at a high-level. If the number of those infections is in the millions and the potential death rate is in the hundreds of thousands, then spending tens of billions to avoid that outcome is worth it.
In Australia today, the queues around Centrelink offices show how rapidly the private sector has responded to the uncertainty. It doesn’t matter what support the government offered up to businesses – many made rational decisions when faced with zero revenue for an indeterminate period and laid people off immediately. Most of those business owners will be ruined financially within weeks just the same as their laid-off workers.
Because of the increase of casualisation and part-time work, many who have lost their job had no opportunity to build up an emergency fund. They are unlikely to have a cash cushion to survive this uncertainty because they never had enough hours of work in the first place.
The situation of anyone on a temporary visa is particularly dark. This fact will slowly become a humanitarian crisis for governments around the world – how do you respond when many can’t return home given travel bans and extortionate airfares? The response will be telling. This situation could break globalisation and free movement of people across borders for a generation.
The behaviour of many people over the past few weeks with their hoarding behaviour may be rational at an individual level but has caused new panic and hysteria that means strict law and order enforcement is the only path forward.
The Anglo countries, in particular, have many cultural traits that mean responding correctly to this sort of crisis is very difficult. In essence, the Bondi Beach crowds on the weekend mindlessly going about their weekend business without a care in the world about social distancing are a prime example of this individualist streak.
In regular times, these traits are a strength. When a pandemic with no vaccine is growing exponentially, they are deadly. There’s no surprise that Spring Break crowds in Miami were behaving similarly to Britons going out to pubs and Australians just going to the beach as usual. It’s the common law vs civil law difference.
The COVID-19 economic depression is moving so fast that following the public health guidelines and practising self-isolation for you and your family right now is the most practical and rational thing you could do. This suggestion applies even if your particular government hasn’t moved to a lockdown yet.