What will the global economy look like after the Corona Virus pandemic? Will this epidemic change the global economic and financial system forever? After several weeks of closures, the tragic loss of life, and the closure of a large part of the global economy, these questions are on our minds, and we ask: Will business be reopened and we will return to our jobs? Are we going to travel again? Will the flow of money from central banks and governments be enough to prevent a deep and lasting recession in the global economy, or is there something worse? Amidst these questions, one thing is certain: the epidemic will lead to permanent shifts in political and economic power in ways that will not emerge until later. To help us understand the nature of the upcoming transformation, Foreign Policy magazine polled nine prominent thinkers, including two Nobel Prize-winning economists, to find out their expectations for the economic and financial system after the epidemic.
There are fundamental changes that occur from time to time - often during times of war - and although the enemy has now become a virus and not a foreign power, it has created an atmosphere like wartime that changes are suddenly possible. This atmosphere, replete with stories of suffering and heroism, resembles wartime, where people come together not only within the country, but also between different countries to fight a common enemy. Those who live in developed countries can feel more sympathy for those who suffer in poor countries, because they all share a similar experience. This epidemic also brings us together in countless online encounters, and suddenly the world seemed smaller and more intimate.
There is also reason to hope that the epidemic will open a window to finding new ways and institutions to deal with suffering, including taking more effective measures to stop the trend towards more inequality. Perhaps the emergency payments to individuals made by many governments is a new method of global primary income. In the United States, health insurance may be taking a better and more comprehensive approach. Since we are all fighting this war, we may now have the drive to build new international institutions, which better help ward off risks between countries. When the atmosphere of war fades again, these new institutions will continue to operate.
Robert J. Schiller - Professor of Economics at Yale University, winner of the 2013 Nobel Prize in Economics.
Economists used to ridicule their countries ’calls for food and energy security policies. These economists argue that in a globalized world there is no problem with borders, and we can always resort to other countries if something happens in our country. Now, the borders are important, as countries suddenly and severely close their borders, and struggle to get supplies. The Corona crisis came to remind us strongly that the basic political and economic unity still lies within the state.
In order to build efficient supply chains, we searched all over the world for the lowest-cost product. But we were short-sighted, because we had been creating a system that was clearly inflexible, insufficiently diverse, and prone to outages, and we now see the system shattered before our eyes due to this unexpected turmoil.
We should have learned the lesson from the 2008 financial crisis. We created a coherent financial system that seemed effective and perhaps good at absorbing minor shocks, but it appeared systematically fragile. Had it not been for the massive government bailout packages, the system would have collapsed with the real estate bubble burst, and this lesson clearly ended before we spent it.
The economic system that we will create after this epidemic should be more effective, flexible and more understanding of the fact that economic globalization has far outpaced political globalization. For all of this, countries will have to strike a better balance between benefiting from globalization and self-reliance.
Joseph E. Stinglitz - Professor of Economics at Columbia University, winner of the 2001 Nobel Prize in Economics.
Over the course of just a few weeks, an impressive series of events unfolded before us - the tragic loss of life, paralyzed global supply chains, intermittent medical supplies of shipments between allies, and the deepest global economic downturn since the 1930s - exposing weaknesses in open border policy. People may themselves assess their individual risks, and decide to limit travel indefinitely, which will affect 50 years of increased international mobility.
If support for the global integrated economy is already declining before the advent of Corona, the epidemic will likely accelerate a reassessment of the costs and benefits of globalization. The companies that are directly part of the global supply chains have seen the risks inherent in their interconnectedness, and their significant losses from unavailability of supplies. In the future, these companies are likely to take into account these risks, leading to more local, but less global, supply chains.
However, the real danger is that this self-centered shift away from globalization by people and companies will be multiplied by what some policymakers do, taking advantage of concerns about open borders. They can impose protectionist restrictions on trade under the guise of self-sufficiency, and restrict the movement of people on the pretext of public health. It is now in the hands of global leaders to avoid this outcome and to maintain the spirit of international unity that has supported us collectively for more than 50 years.
Gita Gopinath - chief economist of the International Monetary Fund.
The First World War and the global economic recession heralded the demise of a previous era of globalization. Regardless of the return of trade barriers and capital controls, an important explanation for this demise is the fact that more than 40% of all countries at that time entered into a state of default, which led to the expulsion of many of them from global capital markets, until the fifties or Much later. By the time World War II ended, the new Bretton Woods system combined domestic financial repression with broad controls of capital flows, with little resemblance to the previous era of global trade and finance, and thus the epidemics of the epidemic may be as deep and long - as they are. The situation in the 1930s - sovereign defaults are likely to increase.
The modern globalization cycle has faced a series of strikes since the 2008-2009 financial crisis: the European debt crisis, Britain’s exit from the European Union, the trade war between the United States and China, and the rise of populism in many countries that favor more local bias.
The HIV pandemic is the first crisis since the 1930s, sweeping both developed and developing economies. Its recessions may be prolonged and deepened. As in the 1930s, calls to restrict trade and capital flows are likely to increase. Doubts about global supply chains, the safety of international travel, and at the national level will likely continue to increase concerns about self-sufficiency in necessities and flexibility, even after controlling the epidemic, the post-virus financial architecture may not bring us all back to the Bretton Woods era before globalization, but from The damage to international trade and finance is likely to be widespread and lasting.
Carmen M. Reinhardt - Professor of International Finance at Harvard Kennedy School, and author of "This Time is Different: Eight Countries Commit Financial Follies."
The epidemic will worsen four pre-existing conditions in the global economy. But it can be repaired through a major surgical intervention, but it will turn into chronic and devastating diseases in the absence of these interventions. The first of these conditions is a combination of low productivity growth, a lack of private investment returns, and an approach to deflation. This will deepen as people move away from risk and save more money after the epidemic, which will continuously weaken demand and innovation.
Second, the gap between rich countries (and a few emerging markets) and the rest of the world will widen in resilience to crises, and economic nationalism will increasingly lead governments to close their economies from the rest of the world.
Third, partly for safety and potential risks in developing economies, the world will remain overly dependent on the US dollar for financing and trade. Even as the United States becomes less attractive to invest.
Finally, economic nationalism will increasingly push governments to close their economies from the rest of the world. This will never result in complete self-sufficiency, or anything close to it, but it will reinforce the first two directions and exacerbate the resentment of the third.
Adam Busin - President of the Peterson Institute for International Economics.
There is reason to hope that the epidemic will open a window to finding new ways and institutions to deal with suffering, including taking more effective measures to stop the trend towards more inequality. Perhaps the emergency payments to individuals made by many governments is a new method of global primary income.
The HIV pandemic is the first crisis since the 1930s, sweeping both developed and developing economies. Its recessions may be prolonged and deepened. As in the 1930s, calls to restrict trade and capital flows are likely to increase.
Robert J. Schiller:
This war-like situation has given us a window to change
Joseph E. Stiglitz:
We need a better balance between globalization and self-reliance
The real danger is that politicians exploit our fears
Carmen M. Reinhardt:
Another nail in the coffin of globalization
The current conditions of the economy have become worse due to the epidemic