Wednesday, May 27, 2020

Damage Control, Is It Possible?

The economic damage done by the COVID19 pandemic is enormous.  Unemployment has soared, leading to a collapse in personal consumer expenditure (70% of GDP). Loan delinquencies are also climbing fast.

 Unemployment At Unprecedented Level

Consumer Spending Collapses

Can this damage be reversed quickly?  Some of it will be, as economies around the world come out of lockdowns and adjust to a “new normal” mode.  But, IMHO the level of economic activity will be significantly lower than before.  Consumers will reduce spending for non-essential goods and services (eg travel and leisure) and will add to savings, where possible.  After all, the virus is expected to make a comeback in the coming months.

 Personal Saving Rate Highest In 40 Years

Faced with this unprecedented economic collapse, can governments do anything beyond temporary, one-shot income subsidies?  Yes, of course:  they should create new jobs.  How?  Invest heavily in necessary infrastructure, a type of New Deal for the 21st Century.  We need a new energy system (renewable electric, possibly even nuclear) and sustainable, environmentally friendly plant-based food.

I don’t have any hopes of this happening under the present administration, however...

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