Ten suggestions to manage COVID-19

Economic growth
Financial crisis
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Macroeconomics - Economic growth - Monetary Policy

In managing the COVID-19 pandemic, time is of the essence. The outbreak triggers two crises in rapid succession - first in the health sector and then in the economy - and puts them in an apparent dichotomy. The goal is to minimize the ‘health versus wealth’ tradeoff by simultaneously: 1) containing the virus (health priority); and 2) avoiding stringent lockdowns (economic priority). Decision makers should, in the following order:

1. Push for global cooperation. The stakes are high: a global depression can lead to conflicts, social unrest and famine. International coordination is a precondition to properly manage the crisis. Political unions and economic areas - e.g. the EU, Mercosur, Asean, the GCC - must define clear, common standards and facilitate collective responses; G7 and G20 countries should do the same. Next, governments need to issue guidelines to: i) organize public health delivery, including treatments and vaccines; ii) set the rules for economic and social life; and iii) coordinate policy stimuli.  

2. Build an in-house multidisciplinary team. Without a multidisciplinary approach any effort will prove futile. Rather than fight for primacy, local experts must work together – each focusing on their area of expertise; for example: i) virologists and epidemiologists need to understand the virus and its spread; ii) statisticians and economists must work on data collection and policy design; iii) managers and software engineers need to harmonize processes and integrate databases across public and private systems; iv) lawyers need to design the legal framework; and v) specialists need to mitigate the social costs of unemployment, mental health and domestic violence.

3. Prioritize organization and logistics. There is no time to address all of the crisis’ complex aspects. Focus on what is critical: getting the logistics right is a priority. Government entities and the private sector need to work together [1] on the daunting organizational challenges at hand. Immediate priorities are: i) health sector strengthening; ii) medical and food supplies (masks, tests, online delivery, etc.); and iii) social services delivery (online schooling, etc.). Infected individuals - symptomatic or asymptomatic – must be identified, isolated, traced and treated – via “test, trace and treat” (TTT). [2]

4. Move from general to targeted interventions. Proper crisis management requires sequencing: first, general measures, such as ‘blanket-lockdowns’ (e.g. the whole country and not a neighborhood) are enacted to save lives. [3Second, with time, interventions need to become more targeted: [4i) selective lockdowns (e.g. a single neighborhood, not the whole country); ii) financial support for the distressed; and iii) rules for “getting back to work”. [5Third, essential production must restart first, then ‘low risk’ activities and finally those involving high social interaction.

5. Prepare for a shock that starts symmetric, but hits asymmetrically. Initially, the contagion spreads across all countries, infecting citizens regardless of sex, religion or race. As time goes by, the effects of the shock become increasingly asymmetric.

Countries’ performance will diverge. The virus magnifies strengths and weaknesses; the most organized countries will come out ahead; those with lower growth and higher debt will suffer the most.

Sectors are unevenly hit. In a normal recession most sectors are hit evenly; economic activity falls across-the-board. Conversely, in this pandemic  some sectors suffer sustained revenue loss (air transport, energy, tourism and hospitality) while others benefit from revenue growth (e-commerce and electronic transactions, large-scale distribution and retail chains, and pharmaceuticals). In the affected sectors, relief is needed.

Rising inequality. We are in the same storm, but not in the same boat. The virus hits the weakest and poorest the most. Private sector employees will experience a loss of regular income, bankruptcies, and layoffs - while others (e.g. public sector employees) keep receiving regular paychecks and, forced to spend less, see their discretionary savings rise.

6. Provide different answers for the short and long term. Short term interventions should be used to buy time to prepare a long term strategy and to develop thought-through policies.

Short term: umbrella policies. On the health front, the spread of the virus must be contained. [6] On the economic front, measures can be both orthodox – e.g. budget support for social safety nets, public guarantees – and unorthodox – e.g. price controls and debt monetization. [7] Cash-deprived households and businesses must receive ‘insurance-like payments’, to cover their cash-flow for three months. Giving to those who are not in need (error of inclusion and moral hazard) is a tolerable mistake, preferable to inaction.

In the long term, a strategic vision for the country is needed.  People need jobs, not government handouts. Growth must be a priority, achieved by improving long-term competitiveness and attracting investment. Counter-cyclical fiscal policies must support needed structural reforms. [8] After the first few months, both errors of inclusion and moral hazard must avoided, making a triage necessary: only healthy companies should be part of the development plan. [9]

7. Communicate in a clear, well timed, and fact-based manner. A complex crisis needs a fast deployment of intelligent policies - able to address both symmetries and asymmetries. To avoid creating confusion in an already disoriented population, clear communication is needed: i) coherence and predictability are priority; ii) changes in legislation should be kept to a minimum; iii) asymmetric policies must be explained as ‘just’, and not as ‘unjust’; and iv) factual messages are key, with no more than one announcement per day.

8. Make the citizens aware of the “COVID-19 trilemma”. Decision makers face a trilemma, i.e. a difficult choice between three alternatives, and cannot simultaneously deliver: a) freedom of movement; b) virus containment; and c) citizens’ privacy. In other words, if citizens are allowed to move freely (economic activity - a), a choice needs to be made between: i) preventing further outbreaks via further lockdowns (pandemic control - b); or ii) asking citizens to be tested and traced (voluntary disclosure - c).

9. Don’t bet against globalization, enhance your reputation through proper COVID-19 management. Inevitably, over the next two years globalization will suffer as: 1) security will prevail over efficiency; 2) a more localized approach - including activity reshoring - will bring about shorter supply chains; and 3) states will intervene in ‘national-interest sectors’ (e.g.: energy, telecommunications, health-care and pharmaceuticals). However, pandemics have been the byproduct of trade and integration for millennia. COVID-19 is not the first pandemic in the history of the world [10] and will not change human nature. Globalization will return, and the effective (or not) management of COVID-19 will work as a “reputational test”. Successful countries will benefit exponentially. [11]

10. Embrace probabilistic - rather than deterministic – thinking. Sheep spend their entire life in fear of the wolf – to eventually be eaten by the shepherd. [12] Less cause-effect, linear thinking would help. To predict the coming years, a shift to a ‘more complex way of thinking and analyzing’ [13] is necessary. In complex systems, events follow discontinuous ‘random walks’, not predictable trends. Decision makers need less inductive and more deductive quantum thinking methods. [14]

Policymakers need to manage complexity. The pandemic’s future trajectory and the duration of the economic crisis depend on the speed and the quality of the response.

1. Governments and firms need to: i) agree on modus operandi (e.g.: organizational processes); ii) automate data collection; iii) redefine privacy; and iv) integrate the chosen technology across local health systems.

2. TTT: 1) widespread, randomized Tests on representative samples of the population; 2) Tracking by mobile phone (contact tracing - as in South Korea, China and Singapore), to reconstruct past interactions; and 3) Treatment through: i) quarantine of asymptomatic patients; and ii) treatment of symptomatic patients in ad-hoc structures (fever clinics).

3. In the long run ‘timely draconian measures’ also save livelihoods. As demonstrated in past pandemics, countries that went in ‘early lockdown’ performed better later on.

4. Given a lack of knowledge of where the infected or sick citizens actually are, ‘early blanket-lockdowns’ are an ‘admission of ignorance’. As time goes by, the more general they are, the costlier they become; indeed, prolonged lockdowns: i) halt economic activity; ii) hamper trade; and iii) reduce income – jeopardizing short-term livelihoods.

5. To save lives and safeguard livelihoods, governments need to: 1) ‘buy time’ with ‘early lockdown measures’, which: i) suppress the virus; and ii) ‘flatten the curve’ – i.e.: reduce the number of infections within the capabilities of the health system, namely intensive care units (ICUs); 2) support people and businesses affected by lockdowns, and prepare to get back to work safely when the virus abates; and 3) find cures - treatment and drugs - and vaccines.

6. The goal is to reduce to ‘less than one’ the number of ‘new infections per person’ (R0). In other words, for the passage of time to extinguish the pandemic, R0 needs to be less than 1 (R0<1).

7. Two crises are likely to be approaching: an economic and social crisis in the fall of 2020, and - if growth does not kick in – a debt crisis, with loss of market access, in 2021.

8. Expansive fiscal and monetary policies need to support both demand and supply, to restart economic activity at least at 70 percent of its potential.

9. Conditions should be kept simple: for example, request as conditionality ‘three profit-making P&Ls in the last three years’.

10. Black Death. Between 1346 and 1353 the Black Death killed 75-125 million people in Eurasia and North Africa, raising labourers’ bargaining power relative to landlords and contributing to the breakdown of the feudal economy, lifting real incomes. Most economies moved from a low-wage, less urbanized equilibrium on a path more congenial to the development of a commercial - and then an industrial - economy.

Spanish flu. Between 1918 and 1920 it killed between 20 and 70 million people. The economic consequences of the pandemic included: i) labor shortages and wage increases, but also ii) an increased use of social security systems. By adulthood the flu-born cohort: 1) achieved lower educational attainment; 2) experienced higher physical disability; 3) enjoyed lower lifetime income and a lower socioeconomic status - than those born immediately before and after the flu pandemic.

11. Countries able to: i) provide successful policy responses; ii) remain open for business, with functional trade relationships; iii) retain a skilled labor force and a solid technological base; and iv) invest in renewables - will eventually lure talent, strengthen their industries, and attract foreign direct investments (FDI).

12. Bertrand Russell’s inductivist turkey is another example. “This turkey found that, on his first morning at the turkey farm, he was fed at 9 a.m. However, being a good inductivist, he did not jump to conclusions. He waited until he had collected a large number of observations of the fact that he was fed at 9 a.m., and he made these observations under a wide variety of circumstances, on Wednesdays and Thursdays, on warm days and cold days, on rainy days and dry days. Each day, he added another observation statement to his list. Finally, his inductivist conscience was satisfied and he carried out an inductive inference to conclude, “I am always fed at 9 a.m.”. Alas, this conclusion was shown to be false in no uncertain manner when, on Christmas eve, instead of being fed, he had his throat cut. An inductive inference with true premises has led to a false conclusion”. Bertrand Russell, 1912.

13. See Deleuze and Guattari, 1980. A Thousand Plateaus. Trans. Brian Massumi. London and New York: Continuum, 2004. Vol. 2 of Capitalism and Schizophrenia. 2 vols. 1972-1980. Trans. of Mille Plateaux. Paris: Les Editions de Minuit.

14. To predict what’s coming, probabilistic concepts (quantum physics’): 1) non-linearity; 2) quantum jumps; and 3) network relations, where connections matter more than components, work better than deterministic concepts (‘classical physics’): 1) linearity; 2) cause-effect; and 3) a central authority.

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