The global economy is melting down. There is no sugar coating that. Catastrophic disruptions like the one coronavirus containment measures are visiting on industries, business and workers are already producing tremendous pain. It will likely get worse, along with the already devastating human toll.
But profound upheavals like the one we are experiencing now also create unprecedented opportunities to remedy distortions in the eco-economic system – imbalances that have fuelled rising wealth and income inequality.
There is an old saying in international economic circles: “Never let a good crisis go to waste.” It is a lesson businesses have mastered. Recent history is flush with examples of industries that have leveraged crises to privatise their profits and socialise their risks. Like the taxpayer-funded bank bailouts of 2008 – a crisis rooted in irresponsible bank lending and gambling with depositors’ money that fed a housing bubble which eventually exploded.
In the aftermath, banks were rescued. Their profits not only recovered, but soared, along with executive pay packages. Meanwhile, ordinary folks – the majority of hard-working taxpayers – got little to no relief. Many had homes foreclosed. Nearly all had their economic lives derailed in some way. Low wage earners were especially hard hit.
The crisis currently gripping us is different in shape and scope than 2008-2009. That was a credit crunch, triggered by a debt bomb that caused bank balance sheets to collapse, along with household fortunes. It took years to build up and years to unwind.
What we are experiencing now is a sharp and sudden shock, unprecedented in modern memory.
Economic activity has ground to a halt as borders shut, cities lock down, and people retreat behind closed doors to stem the spread of COVID-19. Workers are being laid off by the millions. Spending – the engine of the United States economy – the world’s largest and most systemically important – is collapsing.
No one really knows how bad it could get. Uncertainty surrounding the economic fallout of the pandemic has wiped more than a third from the value of the Dow and S&P 500 stock indexes since last month. Further falls are likely. Even old market hands are loath to call the bottom.
Each new piece of data – about the spread of the virus and the hit to business activity – has analysts revising their outlooks downward for global and US growth. Almost everyone thinks the US economy will contract sharply from April through June. Goldman Sachs sees a 24 percent dive from the same period a year ago. Morgan Stanley reckons it will be 30 percent. Those forecasts could easily change again.