How would you decide to restart the economy?
By Mohamed A. El-Erian
April 9, 2020
The tentative optimism in parts of Europe and the US about a turning point in the rate of coronavirus infection is encouraging more people to start thinking about how and when to restart economies. It is a crucial and complex issue involving an unusual range of risks, uncertainties, difficult judgments and trade-offs.
I certainly don't have an easy answer, and neither do people I talk to whom I respect greatly. With a view to generating ideas, how about collectively engaging in the following thought exercise?
Imagine you, as the leader of a liberal democracy, have to make the decision based on the following conversation among three sets of experts - which, for simplicity, we will aggregate into a single expert each on health, the economy and social behaviour.
Health expert: I have good news. Because of our social-distancing policies, we are seeing a turn in the rate of infection of citizens.
Social behaviour expert: That's great news, especially as I hear that more people are starting to wonder whether the huge disruptions to virtually every aspect of their daily lives were worth it. Adjustment fatigue is really setting in.
Economic expert: It's great news indeed. We need to urgently lift the sudden stop to economic activity. Unemployment is soaring. Even otherwise-viable businesses are facing bankruptcies. And our relief efforts are not just costing a lot, but they are less effective than we had hoped for because of the need for better delivery pipes. Can we start normalising economic activity as soon as possible?
"The longer we maintain this economic standstill, the more we risk turning an already unavoidable deep and sudden recession into a financial crisis and, with that combination, a multiyear depression."
Health expert: Not so fast! Yes, we are doing better, but we are nowhere near out of the woods. Immunity is at least a year away, if not longer, be it through a vaccine or herd immunity. Our ability to treat the ill is still limited essentially to just keeping them alive and comfortable as they fight this dangerous virus. We don't have proper drug treatments yet. And let's not forget the difficulty we have in identifying the asymptomatic carriers of the virus. Without that, we can't even think of effective tracking and tracing. If we lift social distancing now, we risk a dangerous relapse that will overwhelm our health system.
Social expert: Wow, that's well said. We would also risk a general loss of trust in medical advice. The government would lose credibility. And the risk of social unrest would increase.
Economic expert: Yes, but if we continue with the sudden stop, we invite multiplying short- and longer-term problems. Our economy, indeed our society, is not wired for social distancing. We are inflicting real damage that risks undermining not just this generation but future ones. The longer we maintain this economic standstill, the more we risk turning an already unavoidable deep and sudden recession into a financial crisis and, with that combination, a multiyear depression.
Social expert: You have a point there. We are worried already about the risk of domestic violence and a deeper opioid crisis.
"Every day we gain is a big victory, and not just in terms of flattening the curve. We are also getting to know this terrible virus better, helping us in efforts to develop better treatments and vaccines.
Health expert: You all have valid points. But every day we gain is a big victory, and not just in terms of flattening the curve. We are also getting to know this terrible virus better, helping us in efforts to develop better treatments and vaccines. Our testing capabilities are increasing, as is the supply of personal protective equipment, ventilators and other crucial material. And let's not forget about what we are learning from other countries that were hit before us, including on testing and post-crisis tracking. Time is in our favour. We are seeing an enormous effort by private industry, and not just pharma and tech.
Social expert: Tracking and testing? You mean this idea of a passport that would allow us to run a multi-track society, with one "safe" segment re-engaging in normal activities and another having to wait? This needs to come after we develop more buy-in for the intrusive method of granting and maintaining the passport, especially as we will have to do a lot of random testing and disseminate sensitive health information, not just about the coronavirus but also pre-existing conditions. It only works if we have broad-based buy-in and, even better, if there's a bottom-up effort that we can capitalise on. We are not China. We are a liberal democracy with more respect for privacy and individual rights. And we also have to be honest about the need to address both conscious and unconscious biases that such selectivity brings out, even if it's health based.
Economic expert: Can't we at least start with partial reopenings. The answer to unusual risk and unsettling uncertainty is not paralysis. There is risk in whatever we do. I would opt for opening up parts of the economy before it's too late to avoid the cure being worse than the disease.
Health expert: Yes, there are risks and uncertainties involved. And that's exactly why we cannot afford a relapse and the spike in infections and deaths that would come with that.
And if we reopen too early, households themselves may hesitate to re-engage in normal life. That would defeat the point of taking the risks in the first place.
Now it's up to you, the decision-maker. The best that these three experts can do is to offer you alternatives and to make explicit the trade-offs that come with them. And it's far from perfect, given that we are still operating in a fog-of-war context.
There are likely to be unknown unknowns and, with that, a high risk of collateral damage and unintended consequences - whatever decision you make.
Well, this is part of a generation-defining moment, and it's your decision. What's your call? .
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton.