When the level of economic activity is subdued in a country, the fiscal measures often prove more effective than the monetary policy instruments, but if both are used together, with a common objective of promoting growth or containing slowdown, it may give far better outcomes.
Corona Virus has hit the world hard. Millions of people are locked down in their homes and thousands of precious lives are gone. Almost every country is hit by the corona disease. This is a peculiar situation where every sector of the economy is either subdued or stressed out.
The employees and employers, housekeepers and children, young and elderly all are restrained to the four walls of their homes on one hand and factories, offices, malls and many retail outlets are closed for business on the other.
The circular flow of money that keeps an economy clicking and healthy is somewhat disrupted and the rhythm of economic activity is likely to be affected. The disruption is so severe that probably no invisible hand will be able to revive the pace and direction of economic activity back to normal, what to talk about the proverbial equilibrium level!
Fastest economies are hit the hardest
It is the first time that a corona virus outbreak has been termed as a pandemic by the World Health Organization. There are no ready prescriptions for this disease which can spread through human transmission. Hence social distancing is the most effective way of dealing with it of course with preventive measures that largely require wearing of masks and frequent washing of hands. Besides, adequate medical infrastructure is required to treat those who get infected from this deadly virus.
But social distancing is perhaps the most difficult thing to do for the humans who are, by nature, a social animal. Hence, there may be severe social and economic consequences of this phenomenon. The fear and isolation are a breeding ground for depression. Lack of physical movement inside homes may lead to a lot other health problems such as indigestion, stress and even frustration. In response to this pandemic, several companies have made arrangements to allow their workforce to ‘Work from Home’ but social distancing may not give conducing conditions for productive work in most cases.
However, there are businesses and services such as hotel, malls, theatres, airlines, beauty parlours, public transport, recreation centres or manufacturing hubs etc. that require physical presence of the workers, other employees, logistic support or clients in their establishments. For many small businesses such as eateries, coffee shops and retail outlets also social distancing and lockdowns would mean substantial dip in revenues or just no revenues at all.
Covid19 has impacted almost every nation. Some of the most developed economies and leading emerging economies have been hit harder because it was difficult to bring a fast moving economy to a complete lock down status. Simply, as when a train or truck is moving at a high speed, even if you apply breaks to avert an accident, sometimes it is hard to stop just in time. At best you can reduce the severity of the impact. You feel grateful if little or no damage is caused on either side to human lives due to the accident that could not be averted. Damages that occur to the vehicle can be recovered, say through insurance, and the vehicle may again be put to productive use but precious lives, if lost, cannot be brought back.
Economy or People: Hard Choice but Clear Response
An economic system comprises of the production activities, allocation of resources among alternative uses and distribution of goods and services so produced in a society or territory. The system helps a society make rational or optimal choices about what to produce, how to produce and for whom to produce.
The governments in a wide array of economic systems ranging from highly capitalist to highly socialist economies assume passive or active roles depending upon the socio political ethos they follow or looking at the intensity of crisis or development goals. We have seen the governments playing a proactive role manifested by giving out of monetary stimulus during the global recession say about a decade back in order to revive the pace of economic activity in their economies.
When an economy is plagued humans can be given incentives or stimulus, to improve the investment climate or sentiment. But when the humans are locked down inside their homes, a stimulus can at best work as a relief rather than as a stimulus in its literal sense of the word!
Even if the interest rates are reduced substantially, say as was done in the United States of America, China or India and many other countries, it may ease out the conditions for businesses such as pharma, food processing, essential goods or health facilities operating under most difficult conditions to deal with the catastrophe brought by covid19 and may even give relief to existing borrowers, yet they may not lift up the level of economic activities to a level which they could have under any normal circumstances.
For governments also the regular sources of revenue are fast evaporating due to mass lock down yet they need to make hard choices between the economy and people – luckily the choice is crystal clear. Whereas economies if devastated by disease, natural calamity or war can be rebuilt or revived by the humans through collective effort or even by support from the international economic institutions such as the World Bank, but if the humans are hurt terminally, what the economic system shall work for?
Hence the governments at this pandemic times should go for direct cash transfers to the people who cannot earn a living because of the lock down. In many countries the government are actually doing so. At least the essential goods and services industry will keep going and the people will maintain their health at sustainable level so that when the pandemic is over, they can resume their work productively as before.
Global Pandemic would require a Global Response
But when the economic outlook is dim at the global level with a common underlining cause, a concerted effort by way of fiscal and/or monetary stimulus by all the nations much at the same time, is most likely to produce synergy and will help the global economy stabilize.
Covid19 is not only a pandemic and a threat to human survival and so it may not even be possible ever to measure the exact magnitude of potential loss occurring to any nation, because people are invaluable for any society and it is difficult to assess how much value is gone when hundreds and thousands of human resources withered away.
In this globalized world, where people move so much across their respective national borders for work, trade, education, or simply tourism, things would not come to normal till there is single covid19 patient remaining in any of the 200 odd countries of the world. It is not the time to look for protecting the national interest be it supply of masks, medical equipment, medicines or other essential goods. It is time to improve your capacities and look for ways that you can help other nations as well. When a nation supports fellow nations, it not a just a service to humanity- it is not even benevolence that a country would help others, but in its own self-interest that it ought to do so.
Many countries in the third world may not be able to give adequate fiscal support to the ailing people and the ones locked down in their homes. The Organisations like WHO, the United Nations and the World Bank should come forward in a more aggressive manner to support the underdeveloped nations fight the global pandemic.
Even the most advanced and emerging economies are facing demand and supply imbalances for the required medical equipment, medicines and other essential goods and so they need to import it from other countries. It is an apt time that countries cooperate with and help each other so the essential supplies are available to all the people in all the affected nations and try to control further transmission of this disease.
To conclude, a well-coordinated global response to this global pandemic shall be highly effective in getting rid of the menace of covid19 faster.