The economic impact of the Coronavirus through the lens of history
The COVID-19 is an invisible, insidious enemy. The war against this pandemic is different from lens other warfare styles, which involve generals, military troops, and deadly weapons. Still, there is some semblance between Coronavirus and also previous wars in terms of economic effect. A peek into history paves the way for balanced expectations around the rate of recovery, the changing face of governance, and likely winners and also losers. The economic cycle indicates the trend of mobilizing masses that happened in the era of World Wars I and II. However, it is taking place in the reversed form, where residents. Have to follow stay-at-home orders, let off their salaries and face job loss.
The government is spending on this reverse mobilization by sending money to employees either directly or through employers. It is comparable to paying the soldiers in war. Almost half of the American Coronavirus and economic relief packages cover household expenses, unemployment benefits, and business loans. The current mobilization efforts amounting to $1.23 trillion, makes up about 6% of the country’s GDP, which reminds of the military expenditure of 1941.
The role of the government
In the time of the world wars, the government stepped in as the main driver of the economy. This is not so evident lens in this crisis; however, its responsibility has undoubtedly increased. The US government consumption jumped from 15% of GDP to 48% in three years between 1940 and 1943.
The American central banks’ assets have seen a steep rise in their assets from $4 trillion in 2019 to $7.1 trillion. It shows the pressure on the public. Still, if the impact of the pandemic lingers till two quarters, government consumption. Will boost the GDP despite households and businesses cutting lens costs and exports going down.
The winners and losers
Some sectors will do well, while others will suffer, just like the war times. During wartime, one lens needs to transport resources from one location to another quickly. The government decides everything from tanks to food as a part of their strategic move. In the meantime, industries that earn from discretionary income could experience a downfall in production. From 1941 to 1944, many urban families. In the US cut down their expenses on furnishings, recreation, entertainment, and appliances by 25%. In this lockdown phase, different sectors also faced economic losses. At a different scale, with entertainment and leisure, hospitality, and transportation having the major setback.
Going back to the era of two world wars shows that mobilization helped the economy by controlling the labor market and increasing inflation. There were no job losses. Today, it is difficult to expect that mobilization can do the same magic by absorbing a large number of the 33 million unemployed American workers. However, the country can expect to reach half normalcy, with travel and hospitality businesses working at a lower strength, debt defaults happening at the same pace, and also the fear of facing the next wave of the virus. The pandemic has bared the economic insecurity of the people. Like the previous times, social reforms can still bring a lens in a desirable change. Such as income security, prosperity, technological access, and also more.