5 April 2020 – Sunday – #21

Where are we today? What’s next?

While most of Asia is going back to work and Europe is seeing the light at the end of the Covid-19 tunnel, the United States, Africa, India, Russia, and the rest of the Americas are just getting started. Most countries had less than perfect responses to Covid-19.

Germany has had one of the most successful Covid-19 responses in terms of mortality, largely due to volume testing and social distancing. For most of the developed world, it is too late now for volume testing during the initial infection, but not too late to adopt other parts of the German model.

Here in Spain, President Sanchez has extended Spain’s lockdown until 26 April. This is no surprise given that Spain is currently second in the world for Covid-19 cases. As slow as Spain’s response was, it’s not nearly as bad as the US response. Growth in the Spain’s mortality curve has peaked and, like Italy and Germany, it now must figure out when and how to safely end its lockdown.

The first 90 days of the US response were disastrous with lack of tests to track the outbreak, inadequate medical equipment stockpiles, confusing messages to the public, and failure of the president to acknowledge the scope of the pandemic until 2-1/2 months after his administration first understood its potential severity. This infographic shows how Covid-19 grew in March to become the number three killer in the country after heart disease and cancer. Next week, Covid-19 will become the largest killer in the US. The week after that, the US will have a 9/11 event every day in terms of mortality.

Many parts of the world including the US will be looking at food shortages not seen since World War II. In the US, some food banks expect to run out of food this month.

In the face of all this it might seem a little premature, but it is both important and possible now to think about what’s next in the Covid-19 pandemic. The data for the pandemic are not yet entirely clear. The economic data are. March and first quarter economic results are coming in and they are bad.

The numbers are so bad that Financial Times compares the Covid-19 pandemic to the end of World War II and calls for an overhaul of government’s role in society.

Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.

Financial Times opinion, 3 April 2020

As WWII drew to an end, the world economy was in tatters. The Western Alliance put in place massive programs and institutions to rebuild the war torn economy. FDR and Winston Churchill set the world on a long-term growth path, a path that lasted 35 years until Ronald Reagan and Margaret Thatcher called for lower taxes and smaller government.

As the Covid-19 pandemic limits trade and transportation, the world economy is once again in tatters. Unlike the situation at the end of WWII, in today’s world each country is responding to Covid-19 largely on its own. The Trump administration has weakened post-WWII alliances with its America First policies and its authoritarian alliances. While the FT is calling for an effort like that of FDR and Churchill to rebuild the world economy, with post-war alliances weakened and nationalism rising, it’s not clear what, if any, international alliances will form to rebuild after Covid-19.

On the same day as the FT opinion piece, McKinsey & Company released its COVID19: Briefing Materials to business executives. McKinsey also compares the Covid-19 economic shock to WWII, estimating its impact somewhere between the 1929 stock market crash and the 2008 mortgage meltdown.

If things go exceedingly well, in McKinsey’s view, the world economy recovers next year. If not, the world economy recovers in 2024. Given the disaster unfolding in the United States, the latter looks more likely every day.

McKinsey says there are two main components to recovery. First is suppressing the virus as soon as possible. In wealthier countries, this means country-wide lockdowns until the epidemic dies down, and then ramping up testing, contact tracking, and quarantine until a vaccine is available. In poorer countries, this means as much social distancing and hand washing as possible, but also inevitable humanitarian disasters after inundation of limited healthcare resources.

The second economic component of recovery is managing cash and liquidity throughout markets while keeping workers safe. How this unfolds depends largely on the availability of testing. Testing must be made available first to workers in essential industries like healthcare, food, and utilities. As testing ramps up, industry can rebuild supply chains.

Once a vaccine is in place, the next phase of the recovery is scaling up vaccine production for seven billion people. How does that happen?

In the absence of coordinated world alliances, it may be that private foundations have to step in. Bill Gates is building seven vaccine factories even though he expects only one or two to operate. The loss of a few billion dollars, he says, is insignificant in the face of trillions of dollars of losses if Covid-19 persists.

I’m like a parrot that can say one word: testing. We need volume testing worldwide in the next 2-3 months for both public health and economic recovery. Don’t believe me? Listen to Trevor Noah interview Bill Gates below.