Tag: outbreak

• WHAT THE HELL HAPPENED IN 2020?

  November in Italy is the “Panettone” time of the year, rain falling on passengers walking by Fontana di Trevi and Duomo Milano and preparing the big Christmas trees in the main squares. Going a bit to North and across the Alpes and towards Germany, Christmas markets already must have been flooding the narrow and rainy streets. But 2020 brought us a brand new version of life that we had never experienced before: stay home, wear a mask and watch the President of the United States calling the US elections a Fraud. By the way, they are recounting!

  

  Whatever these odd events led to, with the discovery (invention, development, you call it) of the Covid19 Vaccine, the tensions have been relieved and concerns have been lessened quite a lot. Let’s not forget that in the spring, we were somehow told that there is a chance that there will never be a vaccine. Some expected that it would not be possible to get the shots until 2022, and they estimated millions and millions of deaths across the globe. After having lost almost two millions of lives until January, the first official calls will have been announced for vaccinations in the EU, and maybe even before that in the US and the UK. Now we have a reason to be relieved: the elderly, medical staff and vulnerable individuals will be vaccinated up to a certain extent and the restrictions will start to lift. Life without a mask, what a pleasure that we did not adore and appreciate enough.

  If we used to deem WWII as the latest global crisis, Covid19 might have replaced it for the upcoming decades, until global warming or an environmental crisis rings the bell. However and as well as Covid, I would take it as an exogenous crisis that we will solve by using technology and science. Before that, we have to remember that we still are not sure about the role of humans in the acceleration of warming. We were already at the end of the ice age. Humans activities such as carbon emissions might have marginally expanded the crisis but has not caused it. Amplification is not the same as causing. It is hence important to stop blaming ourselves and mass production of goods. Without them, we would be still living our probably miserable medieval lives.

  In the end, as a minimal member of the academic community, I would like to urge everyone to participate in the problem-solving stage of the next crisis. Still, scientists are not meant to be magicians. They shall not be left alone to solve our troubles with these exogenous shocks that hit our lives once every couple of decades. A very small step will be my paper, which I expect to publish online at the beginning of the next summer. Until then, stay tuned on my blog. I have promised myself that I must write more.

  2020.11.12

• How to Bounce the Economy Back

  The current crisis will end soon, as well as other recessions throughout history that ended after a relatively short period. Despite the fact that some markets, most importantly, the labour market will remain affected for a longer period of time, a rational set of policies shall help the economy back in its previous setting. Our reaction towards the two great slumps we have experienced in the last 100 years were quite different, and both were approximately effective in short-term. During the 1930 depression, the governments increased their expenditure and caused debt. This fiscal policy led to bigger governments (obese governments), where the government became a new and active agent in macoeconomic-scale. The response during the Great Recession, starting in 2007 and lasting until 2009 was wholly different. This time, the Central Banks intervened in the money market and operated via asset management. Quantitative and Qualitative Easing policies commenced and the financial markets moved sluggishly back to their long-run growth. The Corona outbreak is entirely different, in all of its aspects.

  The most significant difference of this recession is that it is fully exogenous. No one could predict such pandemic back in December 2019. It almost has no economic or financial background. Either way the authorities, whether in monetary or fiscal sector are expected to intervene in the economy as soon as possible. Our toolbox of theory and policy sets did not contain any solution to such an exogenous force attacking the markets. Hence the governments started to increase their spending in the health sector. It could include setting up new and emergency clinics, importing medicine or granting funds to research centres to speed up the procedure of vaccine and medicine production. The second reaction was to transfer cash flows to enterprises, families and people who are directly affected by the virus or the quarantine time. France provided the sick leave, China spent billions of Yuans to support the businesses and Italy is helping the individuals by direct payment. But these sources are not infinite, and if the outbreak lasts until summer, some countries may adopt printing money policy and transfer the crisis to long-term, but deeper and more difficult to solve.

  

  When the epidemic virus settles and we can go back to work, the suppressed demand will be the initial force to boost the economy. Many households are already planning long vacations in or out of their countries. On the supply side of the story, the European Central Bank might plan to issue Corona bonds to finance its intervention in the monetary sector in a longer window of time. Perhaps asset management actions to help the European enterprises will be effective again. We should remember: the rates of unemployment were at their lowest levels in decades, financial markets were performing well for a long period of time. The economy will revive and be growing again. The question that governments and central banks are pursuing right now is if there is a low-cost shortcut to lessen the time of moving back to our previous position.

  2020.04.01