13 March 2020   Leave a comment

I rely heavily on news feeds that are sent to my email for collecting news about events around the world. Unfortunately, 95% of all the feeds that I have received for the last few days have been on the COVID-19 pandemic. It is an issue of unquestionable importance, but one about which I do not feel comfortable. I have no expertise on viruses and as far as I can tell there is actually little hard evidence about the pandemic that I deem reliable. The problem is that some states, such as China, do not have a good track record on providing information. Other states, such as the US, have not been testing so there is no way to assess the spread in the US. But we have hard evidence from Italy that the virus is truly deadly and that it spreads very quickly.

What became clear today is that perceptions about COVID-19 are driving many decisions about how to respond to the pandemic. Professional and collegiate sports have cancelled their activities. Colleges and elementary and secondary schools are closing. And global stock markets are declining precipitously. And all these decisions were made the day after US President Trump made a speech designed to reassure citizens. In my lifetime, I have never seen a presidential speech fail so abjectly. Today, the President declared a national emergency because of COVID-19 and the US stock market responded with a 2,000 point increase in the Dow Jones Index. The volatility is a measure of how uncertainty affects decision-making.

It is impossible for me to predict how this particular pandemic will play out. We have historical records of previous pandemics, but they all occurred at times when medical techniques were significantly inferior to those available today (we should keep in mind that two centuries from now, people will remark at how primitive medicine was in 2020). The most catastrophic pandemic was the Black Death which peaked in Europe between 1347-1351. The Economist notes:

“The Black Death carried off an astounding one-third to two-thirds of the population of Europe, leaving lasting scars. But in the wake of the plague there was far more arable acreage than workers to farm it. The sudden scarcity of workers raised labourers’ bargaining power relative to landlords and contributed to the breakdown of the feudal economy.

“It seems also to have ushered parts of north-west Europe onto a more promising growth path. Real incomes of European workers rose sharply following the pandemic, which struck the continent from 1347 to 1351. In pre-industrial times, higher incomes usually enabled faster population growth, which eventually squeezed incomes back to subsistence levels (as observed by Thomas Malthus). But in parts of Europe, Malthusian rules did not reassert themselves after the pandemic receded. Nico Voigtländer, of the University of California, Los Angeles, and Hans-Joachim Voth, now of the University of Zurich, argue that the high incomes induced by plague led to more spending on manufactured goods produced in cities, and thus to higher rates of urbanisation. The plague effectively shoved parts of Europe from a low-wage, less urbanised equilibrium on a path more congenial to the development of a commercial, and then an industrial, economy.”

The Economist article continues on a less optimistic note:

“More often, though, a pandemic’s economic consequences are unambiguously negative. Trade links which spread a pathogen can themselves be undone by its effects. During the Roman Empire, a high degree of specialisation and trade lifted incomes to levels that would not be reached again for more than a millennium. Alas, the same links facilitated the spread of disease. The Roman economy was dealt a blow in the late second century ad, when an outbreak of what is thought to have been smallpox ravaged the empire. A century later, the Plague of Cyprian, which may have been a haemorrhagic fever, emptied many Roman cities and coincided with a sharp and permanent decline in economic activity, as measured by numbers of shipwrecks (a proxy for trade volumes) and levels of lead pollution (generated by mining activity). Reduced trade fed a cycle of falling incomes and weakened state capacity from which the western empire never recovered.”

How COVID-19 will ultimately affect today’s societies really depends on how those societies respond to the challenges. It is likely that the pandemic will significantly retard the process of globalization as companies realize how fragile the supply chains they have assiduously constructed actually are. But that process of deceleration was already coming into play because of the economic inequities created by the reliance on low wage workers. We will also have to see how the pandemic affects international travel and the movement of people across national borders.

Posted March 13, 2020 by vferraro1971 in World Politics

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