Economic Impact of COVID-19

Lots of discussion on the economic impact of COVID-19.  It will certainly hit GDP in the short term. The real question is what will happen in the longer term.  This has been the source of more fear than actual immediate deaths from the virus, at least in some quarters.

Former Fed Chair Ben “The Bernank” Bernanke has a less severe view that lines up more with what I am thinking.  It all depends on many things, but what happens “after” COVID-19?

Most of it revolves around the idea of “unemployment”.  If COVID-19 is more like a war, then who are the soldiers? In WW II soldiers with guns and supplies in Asia and Europe were considered employed.  It isnt clear to me why, or if that even matters.  It is clear you can yank massive numbers of people from productive work and still get by, perhaps even thrive in some way when they return to work.

On the flip side, most of what we know as unemployment comes from malinvestment or bubbles.  Basically people bidding up assets (like houses) and then causing a banking crisis.  Even these events don’t have to be a catastrophe, if handled well.  And COVID-19 isn’t about an investment bubble, so there isn’t really any comparison.

Lastly, COVID-19 can be seen as a natural disaster.  This can also be a cause of mass unemployment.  Hurricane Katrina in New Orleans caused nearly everyone in the city to become unemployed, sometimes for a long period.  But this is also different.  Capital, in the form of buildings and equipment, were destroyed.  This had to all be rebuilt with massive new investment. But this isn’t what COVID-19 is doing either, and it isn’t a useful model.

Ben Bernanke compares it to a big snowstorm, with everything being shut down.  Yes, a challenge and a big one, but maybe one with a rapid and full recovery.

Bernanke: Coronavirus disruptions ‘much closer to a major snowstorm’ than the Great Depression

 

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