Coronavirus and the global markets

It is unlikely the world will be the same again for a long time after the unprecedented coronavirus pandemic raging across the globe today. Like the 14th century Black Death that decimated Europe’s population by a third, its origin also lies in China and both are viral in nature. Europe’s population took 150 years to recover from 25 million deaths.

The onset of the recent coronavirus pandemic has quite suddenly exposed the world’s many fault lines and its unembellished vulnerabilities. It will now test its resilience as never before. Yet, it is still the twentieth century that holds the record for manmade and natural deaths, though the seventeenth in Europe was also dire. The historic Asian record of recurrent massive deaths due to famine were a tragic counterpoint to the grim fate of humanity elsewhere as well.

The speed at which economic activity across the world today is being brought to a halt, in the attempt to combat the spread of the coronavirus infection, is nothing short of astonishing. Economic and social activity everywhere is being terminated, as people are forced to stop engaging with each other in groups, daily diminished in size by successive government edicts over maintaining social distance. Many are restricted to working from home; for travel, restaurants, sport and other similar business activities that occur in a group situation, no such possibility exists.

There is also a multiplier effect in the shape of the spreading economic activity curtailment because supply chains have become inoperable and there is an accentuated decline in consumption, with consequences for demand. Many otherwise solvent businesses will suffer cash flow problems that will impact the ability to pay for fixed costs. They will have to close, or go bankrupt.

The success of the curbs on human interaction and associated economic activity in resisting the coronavirus pandemic will depend on the dynamics of exactly how it is being transmitted and by how many. The possibility that some carriers may not display any discernible outward symptoms is alarming and threatens a worsening of the situation that current measures may not suffice to interdict.

In the meantime, equity and bond markets have panicked and the sell-off echoes the worst days of the past financial crises in 2008 and 1987. The outcome of the Minsky financial cycle hypothesis, anticipating the 2008 collapse of markets, which was overdue, has struck with a vengeance. Increasing levels of leverage and some highly regarded growth companies reaching record price equity ratios, compared to an historic average of 20:1, that their profitability could not justify, was already presaging a major setback. It unfolded over three weeks, somewhat perilously, since the peak to trough of such equity price declines can take anything up to 3 years. Yet the rapid 30% collapse in equity values is not as large as that of previous episodes of markets crumbling over longer time periods.

The economic and social impact will be manifold despite any reassurances to the contrary about the long-term, in which we are all dead, as Keynes once observed acidly. The immediate issue is for pension incomes that need accessing over the next few years. Other incomes and payments dependent on equity prices and returns will also suffer significantly.

At the same time, the stock market setback has underlined a deeper conundrum of the failure of economic models that once celebrated the supposed permanent overcoming of most types of economic cycles, with Nobel prize awards for its rational market protagonists, who have since been proven uproariously wrong. The cyclical nature of economic activity that Minsky’s analysis of financial markets pointed to highlighted an inherent propensity for instability in markets. The coronavirus pandemic has merely highlighted the reality, if prematurely, of the current cycle.

The navigation of the ongoing health and economic crisis is revealing socioeconomic fissures in many countries. The U.S. healthcare system is apparently unable to even test the many whose infectivity needs examination, leave alone treat those with the disease confirmed, potentially in large numbers and expensively. The U.S. quasi market healthcare model is being shown up for what it has always been, a graphic economic, health, and human failure.

Indeed, much of humanity everywhere does not have the economic wherewithal to survive without an income for a month; 62% of the families in the U.S. lacking even a buffer $2000. For the daily wage labourer, the collapse of economic activity is nothing short of catastrophic and will require urgent public action to feed and sustain.

In the aftermath of the coronavirus pandemic and the unknown, potentially, millions of deaths and economic devastation, a thorough examination is inevitable of the cultural practices and culinary preferences of nations that so severely endanger the rest of humanity. The irrational and antediluvian penchant for cavalier consumption of wildlife cannot survive scrutiny and precipitate boycotts of such countries by the public itself, averse to intimate association with them.

Views are personal.

The author taught international political economy at the London School of Economics and Political Science for two decades.