Covid-19: Act Fast & Do Whatever it Takes!

Summary by Benedict Weerasena

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*Total Confirmed Cases of Covid-19 per million
Picture Source: Our World in Data

As of March 24th 2020, there are already over 384,000 cases of Coronavirus worldwide, with 16,591 deaths. Though over 102,000 have recovered globally, this pandemic is not showing any signs of slowing down.

What was initially viewed as a ‘Chinese problem,’ and then an ‘Italian-Iranian-Korean problem’ has nightmarishly evolved into an ‘everybody problem’. In fact, the virus continues to spread in the Middle East and Africa, after paralyzing much of Asia and Europe.

Experts agree that the Coronavirus pandemic will have devastating effects on the global economy, which will be more intense than and distinct from those experienced during the 2008-2009 global financial crisis.

Specifically, this virus has and will continue on to endanger human health and weaken the global economy through both supply and demand shocks. This is through the interruption of global production chains, the loss of income and profitability due to higher unemployment rates leading to severe difficulties to fulfill debt service obligations.

In addition, recent measures to control the spread of the virus such as quarantine, social distancing, closures of educational institutions, temporary shutdowns of non-essential businesses, and the current Control Movement Order as seen in Malaysia; are all causing economies to come to a screeching halt.

In other words, containment policies will flatten the medical curve (reduce the growth of new cases) but steepen the economic recession curve, as depicted in the diagram below:

Source: Centre for Economic Policy Research (CEPR)

As a result, high-profile economists from around the world are calling for swift and radical policy action to mitigate the highly severe economic damage from this global pandemic. These great minds contributed to an ebook published by the Centre for Economic Policy Research (CEPR) entitled “Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes“.

Source: CEPR Policy Portal

In a unanimous call for decisive and coordinated fiscal stimulus, they strongly advocate using heavy fiscal firepower for a “whatever-it-takes” economic response to the Covid-19 crisis.

Helicopter Money
Source: European University Institute

Several interesting yet drastic measures from this book include:

  • Helicopter money,’ where everyone gets a no-strings-attached handout
  • Eurozone countries using eurobonds to issue debt together rather than individually
  • State investment banks providing unlimited emergency lending to firms
  • Reduce the number of personal and corporate bankruptcies, ensure people have money to keep spending even if they’re not working
  • Increase public investment and healthcare spending
  • Households and businesses hit by supply disruptions and a drop in demand could be targeted to receive cash transfers, wage subsidies, and tax relief, helping people to meet their needs and businesses to stay afloat
  • Unemployment insurance could be temporarily enhanced by extending its duration, increasing benefits, or relaxing eligibility
  • Central banks should be ready to provide ample liquidity to banks and nonbank finance companies, particularly to those lending to small and medium-sized enterprises
  • Broader monetary stimulus, such as policy rate cuts or asset purchases, can lift confidence and support financial markets if there is a marked risk of a sizable tightening in financial conditions

The national governments certainly have a big role to play, especially in reducing the economic scar tissue by addressing all the red crosses in the following diagram:

Source: Centre for Economic Policy Research (CEPR)

**For the full ebook, refer to the attachment below:

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