Summary: Every week more nations get COVID-19 under control, slowing its growth rate. Next comes the hit to the world economies. Will it be a deep or shallow decline? Of long or short duration? Will we handle it well or poorly?
Martin van Creveld has a typically brilliant new column, “At Six after the Corona Crisis“, looking at life after the pandemic. In it, he looks at attempts…
“to divine what the world will be like once the current corona crisis is gone (for gone, and even more or less forgotten, it will be). …Having spent much of the last eighteen months or so researching the methods people use in their attempts to look into the future, I cannot say I am impressed by their efforts. Almost all of which appear to be ill-supported, superficial, and biased – very often, without the authors even being aware that they are.”
I agree with his conclusions about attempts to predict the results of the COVID-19 pandemic. This sentence caught my special attention.
“To divine what the world will be like once the current corona crisis is gone (for gone, and even more or less forgotten, it will be).”
True, it will be forgotten. Everything is forgotten, eventually. As the 1873-1879 global Long Depression has faded from the public’s memory (a longer but shallower contraction than 1930s event, horrific because there were no safety nets then). But the 2020 Covid-19 pandemic might be remembered for many generations, as the Great Depression has been.
The casualties from COVID-19 seem unlikely to be large, as pandemics and wars go (i.e., as a percent of the population). But its effect on the economy might be catastrophic, causing immense and long-lasting suffering. Many nations have put their economies into something like a coma, an induced economic depression. We do not know for how long this will continue, or how competent the process of revival will be. The programs to defend against and mitigate COVID-19 were incompetent in most of the developed nations. (See China begin to restart their economy.)
Forecasting the effects of COVID-19 is little more than guessing. There are few precedents (that is one reason for the incompetent execution so far), making reliable predictions difficult to impossible. Quantitative models are usually useless without useful precedents to model (but their results still are useful to build fame and fortune for their designers).
A global recession is commonly defined as real GDP growth slower than 2%. A global depression seems probable (i.e., deeper and longer than a recession). A severe global depression – several years long, with a big drop in GDP – is possible, in which some sectors and even nations collapse. Journalist Peter Goodman collected some predictions by economists for his NYT article “Why the Global Recession Could Last a Long Time.”
“I feel like the 2008 financial crisis was just a dry run for this. This is already shaping up as the deepest dive on record for the global economy for over 100 years. Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”
— Kenneth S. Rogoff, Harvard economist and co-author of This Time Is Different: Eight Centuries of Financial Folly
“I am attached to the notion that this is a temporary crisis. You hit the pause button, and then you hit the start button, and the machine starts running again. …The longer this goes on, the more likely it is that there will be destruction of productive capacity. Then, the nature of the crisis morphs from temporary to something a bit more lasting.”
— Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva.
For another opinion, see “The Three D’s and High-Frequency Leading Indicators” by the Economic Cycle Research Institute.
“In terms of depth, this recession is extraordinarily deep. Already, 26.5 million people have filed for jobless claims, compared with a total of 8.7 million jobs lost during the Great Recession. And it’s not over. …But on the third ‘D,’ duration, this recession could be among the shortest on record. Here’s why.”
Not mentioned in this article are the aftereffects of the massive fiscal and monetary stimulus programs employed to stabilize the economy. No matter how necessary, there are always side effects. Some obvious, like unwinding the monetary stimulus. Some subtle, such as this additional lesson that the Federal Reserve will protect gamblers in the financial markets, if they have sufficient political influence.
Bigger issues
The speed and magnitude of the recovery depend on the resilience of the global economic system. Doomsters assume, as they always do, that our systems are a house of cards and will easily collapse. Hence their confident predictions of the End Times following Y2K and the 2008 Crash. They are almost always wrong, but not always wrong.
For example, see Raul Pal’s April issue of the Global Macro Investor. The analysis is mostly intuitive plus the usual bogus technical analysis. But he is brilliant, and makes some important points. His bottom line …
“When I look ahead, all I see is the potential risk of the failure of our very system of money, or less dramatically, our current financial architecture. I doubt it will go in one big boom, but more a long drawn-out bleed. Literally every single institution on Earth will be trying to save it. I don’t think it can be saved without becoming even more of a Frankenstein’s monster. It is already a deformed beast after the last crisis and barely functions.”
I assume our systems are resilient, hence my predictions have been fairly accurate in these things. But the severity of 2008 crash is evidence that I was wrong. There was a debt-fueled housing bubble in the US (bubbles are a common and natural event in free-market economies, predating central banks, fractional reserve banking, and fiat currencies). Many people predicted that its popping would cause a recession in the US, perhaps a severe one. It should not have sent the world into a financial meltdown and near-depression, with most of the world’s major banks collapsing like dominoes. This was like slamming the door and having the ceiling collapse. I have not found anyone who predicted this (see here, here, and here). The Crash was a 1929-1932 magnitude shock, but compressed into two years. Its effects were mitigated, but only with extreme fiscal and monetary measures – whose effects (e.g., the debt) remain.
This is evidence that the US and global economic systems might be much less resilient than I and most others imagined. That would be bad news. Societies whose foundations and infrastructures are not resilient tend to die, unpleasantly.
This is yet another way that the lessons of COVID-19 can help us prepare for the probably larger challenges that await us in the 21st century.
News from economists
From NBER Working Paper No. 26989, April 2020 – a survey of small businesses. 43% have closed, hopefully temporarily. They asked owners if their businesses will survive if the crisis lasts 6 months. The answers, by industry: retail (except grocers) 33%, hotels 27%, personal services 22%, restaurants and bars 15%.
Summary by Tyler Cowen (professor, George Mason U) at Marginal Revolution.
“If we keep the economy closed at current levels, it will continue to decay, and at some point turn into irreversible, non-linear damage. No one knows when, or how to model the course of that process. …If we keep people locked up at current levels, fewer of them will be exposed to the virus, and in the meantime we can develop better treatments, and also improve test and trace capabilities. No one knows how quickly those improvements will come, or how to model the course of that process, or how much net good they will do. The relative pace of those two processes should determine our best course of action. No one knows the relative pace of either of those two processes. Yet commentators pretend to be increasingly knowledgeable, moralizing based on the pretense of knowledge they do not have.”
Posts about COVID-19
- Hidden news about the epidemic sweeping across America! – Fake news drives out good news.
- A devastating epidemic spreads across America – An epidemic of panic and ignorance.
- The info superhighway makes us stupid about COVID-19.
- Blaming China soothes an America fighting COVID-19.
- Lessons for America from COVID-19.
- COVID-19 is a harsh teacher. Let’s learn from it.
- COVID-19 reveals the greatest threat to America.
- Let’s learn from COVID-19. Start with the big lesson. – About crisis management.
For More Information
Ideas! For some holiday shopping ideas, see my recommended books and films at Amazon. Also, see a powerful and disturbing story about “Birth of a Man of Steel …for the Soviet Union.”
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about Reforming America: steps to a new politics, about propaganda, about the importance of clear vision, and especially these…
- See the ugly cost of the next big flu pandemic. We can do more to prepare.
- Stratfor: The superbugs are coming. We have time to prepare.
- Posts debunking the hysteria about the 2009 swine flu in America.
- Posts debunking the hysteria about the 2015 ebola epidemic in America.
- Important: A vaccine against the fears that make us weak.
Two new books about out perilous future
I often have written about the many threats to America, and proposed a first step to rationally cope: “We face so many threats, like pandemics. Let’s prepare.” Recognition is the first step. James Howard Kunstler’s new book helps at that: Living in the Long Emergency
I also highly recommend Martin van Creveld’s new book, Seeing into the Future: A Short History of Prediction
I remember that hysteria that Obama was going to cause 70’s style stagflation was very common on conservative forums back around 2009-2010
Bob,
I had some fun with that right-wing nonsense.
Lessons from the failed forecasts of inflation since the crash.
https://fabiusmaximus.com/2013/10/05/qe-monetary-central-bank-inflation-56328/
Inflation is coming! Or so we’re told. Instead look at the evidence.
https://fabiusmaximus.com/2011/02/07/24601/
Can Obama turn America into something like Zimbabwe?
https://fabiusmaximus.com/2010/02/22/zimbawwe/
Larry: “I have not anyone who predicted this”
I think you’re missing a word but I can’t figure out what it should be.
Pluto,
Thanks for catching this!
“I have not found anyone who predicted this.”
Dear Larry,
have you seen Michael Hudson’s “The Coming Real Estate Collapse” (2006)?
As for predictions–better: explanations–of the 2008 crisis, I recommend Mark Blyth’s recent (2019) talk “How we got here and why”, available below. Irrespective of whether or not you’re aware of either item, as a long-time reader of your comments (which I greatly appreciate, btw), I’d like to solicit your take on either of them or both.
All best!
https://youtu.be/tJoe_daP0DE
Stephen,
I have not read Hudson’s books. But I have followed his articles. From memory, he – along with a large number of others – predicted a real estate bubble. But Hudson saw this as a bigger doom. As he wrote in the March 2006 issue of Harpers, “The New Road to Serfdom – An illustrated guide to the coming real estate collapse.”
Nope. It was a big event, but quickly forgotten (imo, too quickly).
Stephen,
Re: Blyth
He has a rep of being a brilliant and incisive observer. But I’m not familiar with much of his work. From a quick look, most of it is paywalled or YouTube, neither of which I will/can read.
I have quoted some of his insights about Brexit. Such as here: https://fabiusmaximus.com/2016/07/08/mark-blyth-roots-of-brexit-98159/
I enjoyed Martin’s article and the passage you quoted was apropos. But I especially enjoyed this one, * Finally, environmentalists, vegans and any number of other spoilsports will continue to blame mankind (themselves only excepted) for breathing, eating, drinking, farting, excreting, consuming, traveling, and having children; in short, for daring to exist on this earth.
From the Raul Pal excerpt:
“When I look ahead, all I see is the potential risk of the failure of our very system of money, or less dramatically, our current financial architecture.”
If that system of money were to fail, what would take its place? Cryptocurrency?
AK,
The failure of a regime’s system of money is an existential challenge. Some, like Weimar Germany, issue new money and continue. Some are replaced, with the new regime issuing new money.
Well, in case of monetary failure (which also depends on what one considers “failure”, e.g., loss of purchasing power, a drastic fall relative to other [FIAT] currencies, etc.), there’s also the option of redenomination, as in, replace, say, 1,000 by 1 [add your currency], as the Poland did in the mid-1990s: they kept their currency but “deleted” three zeroes.
Also, there appears to be an additional issue, that is, who gets to issue (new, or different) currency: the government, as in: the Treasury, or the Central Bank (which, depending on where you are, is either a part of the gov’t, fully independent thereof and thus subject to “private” pressures, or a “chimera”, that is boasting a mixed ownership structure/responsibility).
Stephen,
Despite lies by the far-right, the US central bank is an fully an agency of the Federal government.
The regional banks, which have no powers over the US currency or monetary system, are mixed public-private entities – a model widely used in the US regulatory system.
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Have they start culling hogs in Iowa?
Sven,
Not in my little city. But then I haven’t seen a hog outside a supermarket or dinner table since I got here. They must keep them out in the endless fields.
Osage has a huge operation. As I understand it they mostly keep in huge barns and small lots.
You OK Larry?
Just busy. And depressed. America has gone bonkers during COVID-19.
My posts during the beginning WP were among my best ever, IMO. Got low traffic, however. Writing now amidst the media flow of nonsense seems like making nice glass figurines and throwing them in the town manure pile.
Worse yet is watching the broad institutional collapse. That I’ve predicted this for years is no consolation.
I’ve got some interesting posts on what’s happening – like watching conservatives fall in line with the Let’s Fight China music like children – and what comes next. But they’re all depressing.
My hope was to arrives anger and an urge to act among readers. That goal for the project has failed utterly. Now it’s musings watching our decline. Not as stimulating to write.
Hang in there! The darkest hour is just before the dawn.
I agree with many of your observations and diagnoses, and watching America lately from a distance, its a worrying and sometimes frightening evolution. Its not just a worry for Americans, its a worry for the whole of the West.
I would not say efforts like yours are wasted. The real effect is articulating a position which your readers had partly in their minds at an incoherent and inexplicit level. This isn’t a failure if they do not immediately go out and act. What happens is that a mood develops over time, and then at a certain point it crystalizes, and your efforts contribute to the preamble that makes the crystalization possible.
I have seen several moments like this in Europe recently. A few have come when watching UK election results. A confident group of commenters on the main broadcasters getting ready for the results they want and expect. And the look on their faces as they see that something has gone terribly wrong. This cannot possibly be. Blyth Valley has voted what? Or in the Brexit referendum, Sunderland voted how? Or when Johnson started winning all the Labour seats in the Midlands and North.
One of these moments will come when its least expected, and it may only be visible for what it was later. It can be as apparently trivial as an actor suddenly saying on a talk show that he’s not having any more of this while male privilege stuff. That in itself is not remarkable. But this time the usually rabidly politically correct audience applauds.
The world had changed. This was just the moment when everyone could see it and realize it had for lots of people besides them.
Wait and hope. Something like this will happen. Who knows, maybe at the Democratic National Convention? Don’t know, doubt it, but it will happen at some point.
Till then, don’t work too hard, and count your blessings. And don’t catch Covid!
Larry: “That goal for the project has failed utterly. Now it’s musings watching our decline.”
Can I offer a different perspective?
The Fabius Maximus website, because of its requirements of fact-based writing with leading (bleeding?) edge theories on how the government could be more effective, was never going to stir the masses.
Facts are sharp-edged nasty things to most people that cut in unexpected ways. Goebbels knew this and offered simple, fact-free calls to action that stirred the masses against innocent and defenseless targets. Your targets, the corrupted people in charge of the US political scene, were neither innocent nor defenseless.
But the FM website can play a different and vital role in our current era of revolutionary government. Your best readership has always been among the well-educated and thoughtful American public. These are the people who lead discussions among the public and who are generally respected even if they are not political leaders.
What the American people need most right now is a clear understanding among the intelligentsia (your readership) of what was lost and what can be achieved, both in the short and long terms.
The key candidates in the 2020 Presidential election are already proving that neither is capable of effective leadership. The sole remaining question and hope is who Biden will select as his Vice Presidential candidate. Personally, I’m predicting he’ll make a poor choice there as well. But there is still hope.
For example, I’ve stated for the last year or so that the State governments are far less infested with gridlock than the Federal level (mostly because there’s been vastly less power and money at the State level). Now, because of the leadership vacuum at the Federal level, the States are leading the pandemic response.
They have mostly been caught off-guard and still don’t have the financing they need but well-explained opinions, backed by facts, would go a long way towards helping them better use the resources they have. Such articles have been the backbone of the FM site for decades. Success in the COVID arena could lead to discussions on better tax laws, programs to reduce the wealth gap, and how to prevent (or at least reduce the effects of) Gerrymandering.
This is hardly the first time the US government has taken a dramatic shift in how it organizes itself within the framework of the Constitution, with a small amount of luck and guidance, it won’t be the last.
I know that you’re mourning the fall of the post-WWII moment of enlightenment, and you should. But the people who made that happen had endured two massive and horrific events (the Great Depression and WWII) and were determined to make sure that their children would never endure that again. They burned themselves out after only 15 years and everything since then has been a long slow decline.
You are correct that the FM website has failed in its original goal but this does not have to be the end, it can be the end of the beginning if you choose. What do you say?
Based on my conversations with folks in other corners of the net, I think more people are willing to hear the message “it’s our fault.”
The nice thing about that hard-to-swallow fact is that once you accept it as true, it means this mess isn’t insoluble.
Keep the faith, sir.
Christopher,
That’s nice to hear.
Please post links to anything you find with that message. I’ve seen such things occasionally (I’m not the only one saying it), but rarely.
If you believe that you have failed at your original goal what were the apparent mistaken assumptions in that initial goal?
Worm Wood,
That’s a good question. Perhaps that it was possible. As I have thought more about causes – and seen more during the past 13 years – this looks more like a large historical event. Nothing small can change our course. Only a large mass movement – something like a political movement or religious revival – can change our course.
Just guessing, of course. That’s an inevitably corollary of what’s above. It’s too large to see while we are in it.
I agree that the forecasts are not promising. I think a crisis cannot be avoided …
Daniel,
Nicely said, very temperate. Rare these days.
The other side of the coin is that there was an immense fiscal and monetary stimulus. Gigantic, record breaking, done with fantastic speed. And, inevitably, poorly designed. This will mitigate the downturn – we can only guess how much.
There will be bankruptcies, usually the best indicator of economic stress. They have already began.
And what will be the after-effects of the stimulus programs? Not just the obvious ones – such as the government debt. What about the moral hazard, as investors in risky financial assets decide that the Fed “put” is real? And regular Americans realize that the government will spend billions to protect the wealth of Wall Street gamblers and little to protect them?
It’s a new era!
Larry, have you read ‘The Fifth Risk’, Michael Lewis? What did you think if so?
Henrik,
The mainstream media’s coverage ofTrump is a wonderful demo of America’s institutional collapse. Between screams of (Lewis) “they don’t know anything” to “Trump’s a Putin agent” to “Trump will make himself a fascist dictator” they have demonstrated that Americans will believe almost anything – so long as it matches their tribal truths.
We went through this with 8 years of Bush Jr, and 8 years of Obama,and three years of Trump. Every year was the dawn of the End.
I doubt that future historians will see large differences between the 3 presidents. They will, IMO, note with astonishment the folly and ignorance of the American public – another continuity during this period, and probably the factor most powerfully determining the future.