I have recently completed my series on Covid-19. In this series, I explored the possible economic and social impacts of the Covid-19 pandemic and the measures used to combat it. There is an enormous amount of information available on the internet regarding Covid-19. Most of this information pertains to the direct health impacts of Covid-19. I believe the economic and social impacts of Covid-19 will be as significant if not more significant than the health impact.
I have done quite a bit of research to gain more knowledge about Covid-19, the measures taken to reduce the spread of Covid-19, the possible economic and social consequences of Covid-19, and the responses to mitigate the extent of these consequences. On top of the information I discovered, I applied my own economic analysis to create a picture of what we could be facing. My work and effort amounted to a significant amount of content. Therefore, I divided the work into 8 parts. In this ‘summary’ post, I wanted to bring all eight parts together by summarising the key points from each of the 8 posts. To read the full posts, just click on the headings of each section.
Part 1 is important as it identifies and describes the possible health threat of Covid-19. This is the only post in the series that focuses on the health aspects. It is important to understand the health threat, as the responses to the health threat are the fundamental causes of most of the social and economic problems.
The post investigated the data available at the time. The website worldometers.info keeps data from each country affected by Covid-19. The website is updated regularly to keep track of the latest figures. The two main statistics displayed on the website are the number of Covid-19 cases and the number of Covid-19 deaths.
The number of Covid-19 cases cannot be considered reliable. The number of cases are directly related to the number of people tested. As the number of tests increase, so do the number of cases. Many people are asymptomatic, therefore not tested. The testing is also not entirely reliable, there are both false positive and false negative results (The Conversation).
The number of Covid-19 deaths are also not reliable either. Different countries count Covid-19 deaths differently. Some countries count a Covid-19 death as anyone who has died with Covid-19. While other countries only count a Covid-19 death, if Covid-19 is identified as the main cause of death. The death toll for most countries only includes hospital deaths.
The post briefly explores the measures taken by Government to prevent and/or reduce the spread of Covid-19. These measures include social distancing, testing and tracing, closing of non-essential shops and businesses, closing of international borders, wearing of protective equipment, and granting of additional power to police to enforce measures.
Much of the mainstream media present the measures taken by Governments as being fully supported by experts. However, several experts disagree with the measures taken as well as with the reported seriousness of the virus.
The post took a brief look at the possible causes and theories about the origin of Covid-19. There are plenty of theories but the evidence, currently, supporting any of theories does not appear particularly compelling.
Part 2 examines how the pandemic and the responses to the pandemic could create serious social, economic, and financial problems. The key message from this post was the extent of the vulnerability of our existing economic systems. This vulnerability is mostly because the economy needs to be in a constant state of motion. The Covid-19 measures has put many economies on pause, which means the economy cannot function as before.
The closure of economies may not have been entirely necessary. Before many of the enforced closures in western countries, people were advised not to make unnecessary journeys and social distance themselves. Businesses selling goods or providing services that are not essential were also advised to close. It appeared that many did respond to that advice and the outbreak appeared to be worsening. The advice became enforcement of rules. Part 2 contains an example of how South Korea approached the Covid-19 pandemic without needing to shutdown the economy.
Part 2 lists and explains several factors that would determine how badly an economy would be affected by the Covid-19 measures. These factors included:
- how long social distancing is required
- the nature of social distancing strategies
- the importance of close interaction within communities
- community culture
- level of cooperation built in society
- the ability to operate remotely
- the extent of spare capacity
- the extent of reserves of resources
- the ability to adapt to new circumstances
Part 3 looks at the impact Covid-19 and the measures used to combat it could have on demand and supply. The post divides goods and services into two main groups. These groups were goods and services that experienced an increase in demand (e.g. hand sanitizer), and goods and services that experienced a decrease in demand (e.g. restaurants and pubs). Supply is expected to fall for both groups but with the exception of certain essential equipment, which is experiencing an increase in supply as manufacturers have switched to producing them. An example is ventilators.
The post analyses the impact on prices and quantity of goods and services provided from expected changes in demand and supply. For all goods and services that experienced a fall in demand, quantity will fall. If demand falls by more than supply, there is pressure on price to fall. If supply falls by more than demand, there is pressure on price to increase. The terminology ‘pressure’ is used instead of ‘change’ because price changes tend to lag changes to demand and supply and the changes in demand and supply could be just temporary and therefore price changes are not required.
Quantity supplied can be generally assumed to increase for goods and services that experienced an increase demand. However, this might not be the case if supply decreases by more than the increase in demand. There are likely to be many cases where supply falls but by less than the increase in demand and therefore quantity supplied still increases. In most cases, when demand has increased there is pressure on price to increase, a fall in supply would add further pressure on price to increase. If price does not increase, we can expect to see shortages for these types of goods and services.
All changes in demand and supply analysed in Part 4 are based on changes in the absence of any financial support by the Government.
Part 4 discusses the various types of Government financial stimulus and support. The economic impact of Covid-19 and the measures used to combat it are expected to bring about considerable financial hardship to many. Governments intend to intervene in an attempt to alleviate some of immediate hardship. Part 4 discusses the following possible strategies.
- Apply a less stringent and less costly response to the virus.
- Do nothing to address the economic impact.
- Target businesses that are most likely to fail.
- Target people most that are most financially vulnerable.
- Target small businesses and low earning self-employed.
- Target businesses most affected by the virus and implemented measures.
- Offer a broad stimulus package to all businesses.
- Offer a broad stimulus package to all residents or citizens.
- Provide full bailouts to businesses considered ‘too big to fail’.
- Provide universal basic income.
- Combination of some of the above
Part 4 also discusses the difference between support from loans and grants as well as why expansionary monetary policy, in the traditional sense, would not be an effective tool to support people or businesses during the pandemic.
Part 5 analyses the potential impact of some of the Government support and stimulus strategies discussed in Part 4. The strategies analysed were as follows:
- Do nothing.
- Broad support for businesses.
- Broad support for people.
- Targeted support for vulnerable and small businesses and the self-employed.
- Targeted support for vulnerable people.
Part 5 explains the impact the strategies have in the broader context of the economy (i.e. macroeconomics). The AD-AS Model is used to explain how the strategies affect aggregate demand and aggregate supply and therefore price (i.e. inflation) and output (i.e. national income). The Phillips Curve is also used to illustrate the impact the strategies have on unemployment and inflation. Some strategies are likely to reduce the extent of unemployment such as the ‘broad support for businesses’ strategy. Some strategies are likely to reduce the extent of inflation such as the ‘targeted support for businesses’ strategy.
Part 5 investigated the methods for funding the Government support and stimulus strategies. Three methods were identified. These were taxation, sale of bonds, and increasing money supply. Increasing tax did not appear plausible or palatable considering that the Covid-19 economic crisis is likely to be very widespread. Sale of bonds also appeared unlikely to be sufficient to cover the majority of the stimulus costs. Increasing the money supply seemed to be the most feasible option. The Central Banks can increase the money supply very quickly and this money can be distributed to Government, people and businesses. An increased money supply is likely to have medium and long run ramifications, the most harmful of these is likely to be higher inflation.
The economic costs of the Covid-19 pandemic can be expected to be high but these are not the only costs. Part 6 explores the many other social costs that could be caused by the Covid-19 pandemic. These costs were described under the following categories.
- Health and Social Wellbeing
- Family and Community
- Quality of Living Environment
- Institutional, Legal, Political, and Equity
Part 6 briefly looked at some of the possible positive impacts from the pandemic. These included environmental impacts, reduced crime, and lower prices of oil. These positive impacts appeared to be temporary and unlikely to have any medium to long run benefit beyond the lockdown period for the pandemic.
Part 7 focused on the likely winners and losers from the pandemic. The Covid-19 pandemic has affected the majority of people and businesses negatively. However, there are a few groups of people and businesses that are likely to be better off because of the pandemic. The following groups and businesses were identified.
- Big Pharmaceutical Companies
- Central Banks
- Market Speculators
- Some large companies
Big pharmaceutical companies stand to benefit from increased sale of drugs and eventually a vaccine. Central Banks stand to benefit from larger balance sheets and increased influence over Governments. Governments stand to benefit from increased control and power over people from enforced measures, many of which will remain in place to some extent after the pandemic. Market speculators stand to benefit from fluctuations in share prices. Some large companies stand to benefit from online business, less competition from failing businesses, takeovers of struggling businesses, and bailouts if given ‘too big to fail’ status. The debt accrued by Government from support and stimulus strategies could lead to privatisation of some Government industries.
Understanding who benefits and who does not is important as it can help us understand the motivations behind particular actions.
Part 8 is the final part in the series. Part 8 looks at what could happen after the pandemic. Unfortunately, the likely outcome is quite bleak. We are likely to be faced with more Government control and intervention, domination of markets by large businesses, hyperinflation, and trapped by debt. Part 8 also highlights that this does not have to be the case. The pandemic creates an opportunity for the economy to reset itself. We can learn why the economy was so vulnerable to begin with and therefore make it more resilient.
Government intervention has interrupted the natural businesses cycles of the economy. The economy grows in cycles. There are periods of strong growth and periods of reduced or negative growth. During strong growth there is utilization of underemployed resources but this can lead to inflation, which is corrected by slower growth. Slower growth eventually leads to underemployed of resources, which will spark higher growth and the cycle continues. Governments attempt to maintain continuous growth through stimulus rather than let the economy rectify itself. This approach is not sustainable and will eventually lead to the collapse of the economy.
The Covid-19 pandemic could pave the way for the blockchain economy. National fiat currencies could be replaced by cryptocurrencies. The blockchain could have multiple applications, which could be used to help distribute resources based on consensus rather than Government officials. A cryptocurrency could even become the world reserve currency.
What happens next is still largely in the hands of the people. People can make their voices heard if they do not like the changes being implemented. People can choose to support initiatives they believe in. People can work closer together to achieve common goals. People can seek new opportunities in the post Covid-19 world and be successful.
What is next?
The eight part Covid-19 series was aimed at shedding some light on the possible social and economic impacts of the Covid-19 pandemic and measures used to combat it. The health aspect has dominated the mainstream media but social and economic consequences are likely to be even more significant in the long-run.
For now, this will be my last post about the Covid-19 pandemic . I believe events need to play out a little further before I can revisit the topic with new insight. I would like to look at the statistics in a lot more detail. This includes death tolls in 2020 compared with previous years’, unemployment rates, price changes and inflation, and the amount of debt accrued during the pandemic. It would be useful to make comparisons across countries. This will be a lot easier after the pandemic, as many countries are currently in different phases in regards to the spread of the virus.
If you want to read any of my other posts, you can click on the links below. These links will lead you to posts containing my collection of works. These posts will be updated frequently.