The possible economics of COVID-19



The world-wide chaos caused by the outbreak of the coronavirus has underlined a lesson that was only partly learned in the Global Financial Crisis of 2008. In a more interconnected world the understanding of system-wide risk needs to be much better than it is.

Blue piggybank wearing facemask (Getty images/ bob_bosewell)

Risk can rarely be eliminated; it is usually only moved elsewhere. The aggressive moves to deal with the coronavirus have created other dangers, including stopping other medical procedures and creating economic havoc that will itself have health implications. It is thus essential to look at the whole system to see the implications.

Two other things are critical. It is vital to act early; a principle of quality management is that problems get worse in tenfold leaps as time elapses. And there should be redundancy, or excess capacity, to manage shocks (the best explanation of this comes from the Australian pioneer Fred Emery).

Irrational behaviour, such as frenzied purchasing of toilet paper, is uncommon in the wider community but is routine in financial markets. The impact of the cratering of the world economy, which has seen entire industry sectors flattened, should be possible to outline using historical precedents. Here is a preliminary list of what could occur.

Global debt, already at unsustainable levels, will blow out even further. Before the pandemic hit, global debt was running at over 320 per cent of world GDP. With governments spending heavily, indebtedness will increase sharply. Will this lead to some form of debt forgiveness or debt redefinition?

The world’s system of money will become further removed from reality. The global financial system is dominated by the US dollar: about $US4 trillion spins around the world each day in the global capital markets (which are digital, so not subject to lock downs). That is why the American authorities could, unlike other countries, just invent $US10 trillion out of thin air to throw mainly at banks, corporations and Wall Street. America and China are both excessively printing money (China with its domestic currency, the renminbi), raising grave questions about the future of money, and monetary value.


'The COVID-19 crisis has demonstrated how the world has become far more interconnected.'


Global supply chains will be unwound, and international travel will be understood as itself constituting a risk. The crisis has underlined the risks of cross-border, interconnected supply chains. There will be more emphasis on redundancy and less emphasis on just-in-time efficiencies.

There will be re-nationalisation and changed thinking about government’s role. US President Donald Trump has flagged the idea that if government is to provide bail out funds then it should receive shares in return. That was never mentioned during the 2008 global financial crisis, when the US government should have re-nationalised the banks it was rescuing.

Meanwhile, the award for the most disgusting response to the crisis surely goes to David Calhoun, the chief executive of Boeing, who suggested the discredited aircraft manufacturer would not accept government money if it meant giving the Treasury Department a stake in the company (second place goes to Delta Airlines, which urged its sacked staff to go into further financial distress by applying for the company’s credit card).

Governments who understand interconnection within their society will do better. When markets fail, governments have to provide redundancy: extra capacity to absorb shocks. The Australian government has displayed an excellent understanding of this with its $130 billion JobKeeper worker wage subsidy. In choosing a quick, flat payment there has also been an acute understanding of the value of acting speedily. America, by contrast, is disgracefully rewarding its elites, which will have lasting political consequences. Sooner or later, having a destroyed American middle class will undermine those elites.

Private health will be seen as the scam it is. Public health is not only cheaper — in Australia and the United Kingdom it is about 8 per cent of GDP compared with 16 per cent in the US — it is also clearly better in a crisis (as could be seen with the threat to close private hospitals in Australia).

Asset bubbles will be pricked. In Australia, the residential property market is especially vulnerable. About two fifths of purchases are investors taking advantage of negative gearing: a strategy of losing money in the short term in the hope of making a windfall in the long term. Investors who are under financial pressure will be unsentimental about selling.

Surveillance will be further legitimised. The level of surveillance of the population is now at extreme levels, with police and troops monitoring activity. To say that this is troubling is an understatement.

The COVID-19 crisis has demonstrated how the world has become far more interconnected. It spread quickly because cross border travel had become so intense, and the economic after shocks will be magnified because most countries’ economic and financial systems are heavily intertwined. When the danger has passed there will need to be a new way of thinking about government, society and risk. It is likely to change politics forever.



David JamesDavid James is the managing editor of He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image: Blue piggybank wearing facemask (Getty images/ bob_bosewell)

Topic tags: David James, COVID-19, economics



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Existing comments

Its a worrying thought that a significant proportion of working Australians are deemed not to work in essential services /industries as defined by this crisis but professional sporting people are eligible for Job Keeper payments. If future governments here are to pay down $trillions in debt, then they will need to reshape the economy with a focus more on the production of essential items and services and a sure winner will be medical R&D in virology vaccine and PPE development.

Rhubarb Zentel | 01 April 2020  

I'm pleased that "possible" was included in the title, not that I'd disagree with the article postulations but just with deference to the currently cloudy crystal balls and volatile uncertainties. Australia's risk exposure is fraught because we have the PM and Home Security Minister at odds; ambitions aside, the PM is determined to stimulate the "business as usual" economy with consumers to the extent that the regulations for pandemic control were set aside to allow tourists and then returning expats through immigration without the required screening, result: Ruby Princess. We may protect our borders and minimize the medical impact in Australia but I have grave reservations for global economies - particularly those largely depending on importing've gotta eat and some currencies may not weather prolonged loss of trade. Heavy-hitters like India, UK and Europe are significantly exposed to both the pandemic fallout and trade; devalued currencies don't buy much food. It will be helpful if Morrison and Dutton can get past their differences and protect us with the home security we deserve.

ray | 01 April 2020  

“Just in time” efficiencies are not efficiencies. On the contrary they are gross monopoly inefficiencies that can only exist because of massive concentrations of capital that are the source of gross global supply chain failures and much else besides.

David | 02 April 2020  

I waited to see if David - one of ES's more thought-provoking contributors - would evoke more responses from what has, regrettably, turned out to be a somewhat narcoleptic readership, some of which appears more interested in attributing the hand of God to the horrors of the coronaviral crisis than in thinking about its human-ecology consequences. While indebted to David for introducing us to Fred Emery, I am keenly interested in the application of Emery's ideas to the global provision of schooling. Until the C19th there was no universally recognised provision, nor right recognised thereto, of schooling, and while this has reaped a harvest of advantages where ignorance once triumphed, I wonder just how much of global school provision hasn't lost touch with the original reasons for making schooling transformational. In my career as an educational researcher, the most insightful exchange I ever had was with a brilliant priest and mentor who once asked me why children were kept compulsorily at school for eight hours a day because it was thought essential for their benefit. Surely now is the time to engage in a public conversation about how to make education less self-serving and more attuned to the common good.

Michael Furtado | 16 April 2020  


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