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The Normal Economy Is Never Coming Back

Falling Consumption

Falling consumption has resulted in 70 percent of Americans losing their income in March, and for many that loss can lead to long-term hardship and suffering.

There is an 88 percent decrease in petrol consumption in Europe, and automobiles sales are now zero.

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The Normal Economy Is Never Coming Back

The Normal Economy Is Never Coming Back

https://foreignpolicy.com/2020/04/09/unemployment-coronavirus-pandemic-normal-economy-is-never-coming-back/

foreignpolicy.com

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Key Ideas

Economic Free Fall

The current pandemic has led to an economic free fall which is unparalleled in history. In the US alone, the unemployment rate plummeted at such a speed that more than 10 million have claimed unemployment insurance in a matter of three weeks.

With over 30 percent of the U.S. population expected to be unemployed by this summer, and the GDP shrinking at a faster rate that the Great Depression of the 1930s, the current situation is uncharted territory, even for the experts.

The Lockdown: U.S.

The Pandemic Lockdown in the U.S. directly affects the livelihood of a shocking 80% of American workers who work in retail, real estate, education, entertainment and restaurants.
Many of these offices and stores are not going to open after that.

The Lockdown: Europe And Asia

  • In Europe, The north of Italy, which is the main tourist hub, is seeing a collapse in economic activity, along with Germany, which is falling at a steeper rate than the United States. Even countries like Japan, which are not hit that hard, are about to witness an apocalyptic fall.
  • In India, with the abrupt 21 days shutdown, which was recently extended by another 19 days, only a small percentage of the 1.3 billion population is covered by any social security, and millions of daily wage or migrant workers, have no hope, future or place to stay.

Injecting Life

Countries are opening up their purse strings and providing stimulus packages and concessions to boost the economy, but these measures will show results after months and may not be enough.

Falling Consumption

Falling consumption has resulted in 70 percent of Americans losing their income in March, and for many that loss can lead to long-term hardship and suffering.

There is an 88 percent decrease in petrol consumption in Europe, and automobiles sales are now zero.

The World In Lockdown

A long period of Lockdown can lead to deep scarring of the economy with a slow recovery, but as there is a risk of a second wave of infections once this dies down, these movement restrictions will need to stay in place.

Dangerous Financial Measures

Many banks are in effect printing money, something that is unprecedented and points towards the extremity of the problem. These measures will lead to complications and politics sooner rather than later.

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Recessions come and go
Recessions come and go
  • A recession is "good" or "bad," depending on who it impacts and how badly it affects them.
  • In the last thirty years, a recession has come and gone somewhere in ...
Recessions are far from equal
  • Banks are better able to handle a financial crisis than a decade ago. The 2008 recession was about the housing market and shares, which affected higher income groups.
  • The present crisis seems to be hitting the lower-income groups, the vulnerable workers, young, and less skilled. It is similar to the late 70s, early 80s recession, which affected young and unskilled workers.
  • Another lesson from 2008 is that recessions don't always lead to significant numbers of job losses. Layoffs were concentrated among a small number of people, and they stayed unemployed for a long time.
  • In this recession, far more workers will be at risk if social-distancing rules remain in place over a long period.
GDP during a crisis
  • A drop in GDP was expected during the 2020 lockdown. Shops and businesses were closed, and the total value produced by goods and services decreased. In turn, this affected the staff of those businesses earning less money.
  • Furloughs. At its peak, about nine million people in the UK were paid a furlough - the government paid 80% of their salaries, and the employer could choose to top up the rest. Other countries have similar state-backed furlough schemes. These schemes will be coming to an end, and employers will have to decide if they have to lay off employees permanently.
  • The losses are not yet crystalising. People are taking mortgage and credit holidays. It means the losses are pushed further down the road. The financial sector bubble will burst, and we will see real turmoil again.

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State Of Emergency
The ongoing pandemic is more than just a gigantic health crisis. The global economic order, for the first time in several decades, is on the path to an imminent restructuring.
Th...
Resolve

The measures to stop the spread of the virus are well-known by now: staying home in lockdown, working from home as a default option, schools switching from physical classrooms to e-learning models.

Not every country has been able to make these choices fast, due to a combination of hesitation, inaction, and paralysis. Before any decision is made, the first thing to do is determine what needs to be done and at what pace and scale.

Resilience

As the current health crisis steamrolls into an economic crisis unparalleled for the last 100 years, the decline in economic activity is already at par with the great depression.

This crisis of global proportions requires resilience, both for near-term issues like liquidity and cash flow, as well as long-term issues like uncertainty, personal financial stress and recovering from multiple challenges that were already present and are now further complicated due to the pandemic.

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The Great Depression

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Wall Street Down

On 29th October 1929, the infamous crash of Wall Street happened, where 30 million dollars were lost in a week, leading to customers rushing to withdraw their money, known as the ‘bank run’.

The entire world felt the capitalistic fall and realized that a boom leads to a bust, eventually. The disastrous effects felt around the world showed how economically interconnected the world had become.

A New Deal

In 1933, then-President Franklin Roosevelt promoted his recovery path of Relief, Recovery and Reform, to give shape to the slow and arduous reform process that will take decades.

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A new playbook

Growth evangelists are right when they state that severe lockdowns produce a parallel human misery of unemployment, looming bankruptcies, and extreme financial anguish. Yet, opening the economy too...

The false choice

“Save the economy or save lives” is a false choice.
A group of economists published a paper on the 1918 flu outbreak. Their findings revealed:

  • Early and aggressive interventions saved lives and triggered a faster rebound, such as job growth and banking assets.
  • Without a healthy population, there can be no healthy economy.

The hope is for a deep, short recession, to show that people have shut the economy down to limit the spread of disease.

A living wage

Asking millions of able-bodied workers to stop working creates a crisis of unemployment.

During this time, the U.S. is expanding unemployment benefits and are also delaying tax filing. In northern-European countries, the government is directly paying businesses to maintain their payrolls to avoid mass layoffs and furloughs.

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WWII and the NHS

The National Health Service (NHS) was established in 1948 and is funded from general taxation. Before the NHS, people were expected to pay the hospital or a private doctor if they needed to use medical services.

WWII necessitated government-supported medical services to become freely available for everyone.

More people go to university

Recessions and the lack of jobs that ensues can lead more people to pursue education. This progress also affects subsequent generations.

A more educated workforce tends to make an economy more productive and profitable. The knock-on effects include society's health, lower crime rates, voting, and volunteering.

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While fighting the new virus economy worldwide has seen a huge growth in unemployment. Therefore, measures are to be taken and this as soon as possible. Maybe the most significant factor into getti...

Immunity vs. privacy

Getting the worldwide economy back on track requires workforce. Providing this workforce requires healthy individuals able to work hard enough to help things get better. Governments are now trying out ways to officially have people's health checked: by providing different types of certificates, for instance. The major concern, however, is in regards to everybody's privacy: while these certificates do prove our immunity, research institutions are working on developing tools that can also protect our data.

Certifying immunity and its advantages

It might be that only by certifying workers' immunity, states can help their economy know growth again. However, in order to make the people who get certified take up positions that require direct contact with customers, there will be a need for encouragement from employers' side, such as pay raises. As this is maybe the only real option, countries worldwide are going to have to apply the method.

Restarting the economy
Restarting the economy

The economy shut down almost overnight. But reopening it will not happen the same way. It may take months and possibly years to fully open, even under the most optimistic estimates.

Implementation is complicated

The proposed three-phase plan will allow many businesses to open in the first phase.

Schools and daycare centers can open in the next phase. But that means millions of working parents could be asked to return to their jobs before they have someone to take care of their children.

Partial reopening

In the early phases of reopening, businesses could be required to operate at a reduced capacity.

Offices might operate in rotating shifts, but other businesses could have a harder time. Restaurants may have tight profit margins even in better times. Operating at half capacity may mean working at a loss.

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Netflix And Chill In Lockdown
Netflix And Chill In Lockdown

The global crisis of the 2020 Pandemic, resulting in billions in lockdown, has resulted in 16 million people signing up for Netflix in March, taking the total subscribers to 183 million.

Clueless Companies

Consumer companies around the world are in limbo. They are groping in the dark due to a lot of variables in the current situation.

Many are non-essential businesses, others rely on logistics and physical goods to be delivered. Many businesses are forced to close by the government, due to the social distancing norms, even though the consumers need them.

What Makes Netflix Tick

.. is that it is:

  • An internet-only business model, with no physical goods to deliver, having no interruption due to the lockdown.
  • Not dependent on advertisers, being a subscription-based service.

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