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Set an end date for Covid-19 economy shutdowns
THE human and economic devastation caused by the novel coronavirus is multiplying every day. The spread of the virus has vengefully demonstrated that every day we lose in the fight against it, the difficulty increases exponentially.
Just as silently, just as lethally, a parallel contagion is exponentially unfolding in the economy. Every day we lose in containing the economic crisis caused by the virus, the eventual cost increases exponentially.
A vivid illustration of this exponentially increasing costs: Over the course of deliberations in Congress, the US rescue package grew from US$1 trillion over a week ago to US$2 trillion plus now. The Federal Reserve needed to resort to "unlimited" quantitative easing, and even that failed to assuage the financial markets which continue to free fall.
There is nowhere to hide. Even in China - where the worst of the outbreak has passed, and where the markets held up remarkably well during the height of the crisis there - markets finally tanked to new lows in the last week as the virus literally went "viral" everywhere outside China. The economy is global. China might have temporarily won the fight against the virus but it cannot win against a fast-shrinking world economy.
Lengthy economy-wide shutdowns may create a second Great Depression. It is an existential threat. If too much of the tissues and muscle of the healthy economic body have been cut off, economies may not be able to quickly bounce back even after the war against the virus is over - as China's experience so far shows. In this sense, US President Donald Trump is right: "The cure cannot be worse than the disease."
Therefore in the fight against the economic crisis, it is critical that shutdowns have a well-defined horizon. After a three to four week period, policymakers must encourage normal economic activity to resume. How can they achieve this?
Mass antibody test is the answer. These tests would allow us not only to understand the true extent of the infection - providing statistics needed to understand the virus - but also, crucially, to identify the healthy and newly immune population that can go back to work and restart the economic engine. Compared to the diagnostic tests, antibody tests are easier and cheaper to scale up. There are already commercial versions available. Singapore is the first in the world to have devised such a test.
Green shoots of hope are emerging. Italy has now seen two days in a row of a reduction of new cases. The turn started on March 22, exactly 14 days after the country was locked down. These numbers match well with those from China. We should have hope. But we must also be courageous. The virus cannot be eradicated, and that should never be the goal of the shutdown. Instead, building natural defence is a better long-term strategy in the absence of effective treatment and a vaccine.
The re-opening of the economy should be accompanied by other policy pillars. Bolstering defence of nursing homes and protecting the most vulnerable remains a policy priority. Making sure that the sick and those with pre-existing conditions stay home is another. Their lost incomes should be backstopped by the government.
But the key is that allowing the healthy and immune population to go back to work is the only way to ensure we can emerge from this crisis whole. In addition, if we take this opportunity to make strategic long-term investment in infrastructure - both physical and intellectual - we will have turned a crisis into an opportunity for long term growth.
As Winston Churchill put it: "Never let a good crisis go to waste."
- The writer is INSEAD professor of finance, and AXA chaired professor in Financial Market Risk