by Sean Kelly
Yesterday President Trump tweeted, “We cannot let the cure be worse than the problem itself.” He was commenting on the trillions of dollars of economic output that has been lost as U.S. cities and states have shut down in an effort the flatten the curve of the coronavirus outbreak. While the hope is that ‘social distancing’ will dramatically dull the spread of the virus, the adverse impact on the economy is irrefutable.
In a matter of weeks, the various stay-at-home orders implemented across America which now include 12 states: California, Connecticut, Delaware, Illinois, Indiana, Louisiana, Massachusetts, Michigan, New Jersey, New York, Ohio and West Virginia – have distressed businesses large and small. The impact on airlines, hotels, restaurants, retail, travel, and tourism has been particularly devastating. U.S. unemployment, which sat at a pre-pandemic low of 3.6%, will likely explode in the coming months with some estimates projecting a jobless rate as high as 20% to 30%. Federal Reserve Bank of St. Louis President James Bullard is also warning that we could see GDP cut in half and a subsequent $2.5 trillion loss in income.
This begs the question. Are we in a Zero-Sum game? While mandatory self-isolation is the only strategy we have at the moment, the economic disruption of closing down society is decimating businesses, jeopardizing jobs, and pushing the American economy to a dramatic breaking point.
According to the Foundation for Economic Freedom, state intervention and extreme mandates can sometimes make panics worse. We’re reminded of the infamous gasoline crisis of the 1970’s when the federal government tried to reduce soaring prices at the pump by implementing price controls that triggered a national fuel shortage. Americans were faced with mile-long gas lines, gas rationing, reduced speed limits, extended daylights savings time, and even violence. The stock market also crashed during this period followed by a deep recession.
The current panic-fueled selloff on Wall Street has undone years of market gains. Since mid-February when the Dow was hitting daily, all-time highs, the index has plummeted by over 37%, the S&P 500 has dropped by over 34%, and the Nasdaq has tumbled by over 30%. When we consider those actively saving for or nearing retirement, COVID-19 has been life-altering as 401(k) and IRA holders are now reporting losses of up to 30%.
The outlook for the world economy is equally bleak. The Organisation for Economic Co-operation believes the economic destruction posed by the coronavirus has already surpassed that of the 2008 financial crisis, and it will take years for the global economy to heal. The 36-member body has called on world governments to do whatever it takes to test and treat the virus, and they see no quick recovery or post-pandemic bounce-back on the horizon.
Angel Gurría, OECD secretary general, compares the current climate of uncertainty to the dark days following the September 11th attacks, “We don’t know how much it’s going to take to fix unemployment,” he says, “because we don’t know how many people are going to end up unemployed. We also don’t know how much it’s going to take to fix the hundreds of thousands of small and medium enterprises who are already suffering.”
The world’s leading experts on epidemics including those, as The New York Times reports, “who have fought AIDS, malaria, tuberculosis, flu and Ebola,” are very clear as they list the steps that must be taken to defeat the COVID-19. They’re dramatic, some may even consider them excessive and include extreme social distancing, reduced travel, minimal human interaction, and the complete isolation of infected persons outside of the home to break the momentum of the pandemic. But the question is will it also break the back of the U.S. economy and send us into a social distanced depression?
And then there’s an even larger question. Can Americans actually do what it takes to stop the spread? According to the Times, it’s “not at all clear that a nation so fundamentally committed to individual liberty and distrustful of government could learn to adapt to many of these measures, especially those that smack of state compulsion.”
Lest we forget that ‘Zero Sum’ means a gain on one side is a loss on the other (and vice-versa) which makes the heart of this struggle an existential one. Any epidemiological gains made against COVID-19 will likely come at the expense of the freedom, independence, and economic security that we so cherish. So, as we navigate the ‘game’ in the weeks and months ahead, we must do our part to stop the spread but also take critical and timely steps to preserve our wealth and secure our financial future.