The (Potential) Effects of Covid-19 Panic on the Chinese Economy


As mentioned on other occasions, our expertise pertains to matters of economics and as such, we will not formulate opinions when it comes to the medical dimension. What we will (try to) make clear, however, is that the economic dimension is also worthy of our attention, especially in light of the arguably unprecedented fiscal stimulus journey pretty much all Covid-19-affected nations have embarked on (more on that in a future article).

Isn’t it selfish to talk about economic numbers when people are dying?

No, it is the exact opposite due to the fact that economic calamities can, as peculiar as it may seem, lead to an even greater number of long-term deaths than pandemics if things are not kept under control.

As a bit of an extreme example, let us refer to a random country (Country A) that is affected by a pandemic, just like its neighbors. To combat the pandemic in question, the entire country enters a long-term lockdown period, with economic activity essentially grinding to a halt and fortunately, the medical issue eventually becomes a thing of the past.

Does this mean Country A is safe?

From the virus in question, yes.

From the economic ramifications, no.

It is vital to understand that we live in an over-leveraged paradigm, where recessions can prove to be nothing short of deadly. To understand this, please try to remember how devastating the effects of the Great Recession risked becoming and then, try an experiment: locate a chart which depicts the evolution of let’s say the United States Gross Domestic Product over a period of many years. You will notice on the chart in question that the Great Recession seems anything but “great” and on the contrary, it looks more like short-term noise on the chart in question.

An interesting preliminary conclusion arises: even a less than Earth-shattering recession can be enough to risk bringing the global financial system to its knees. From financial industry companies (commercial banks, investment banks, insurance companies, etc.) to even auto industry ones, “systemically relevant” entities had to be bailed out via unprecedented measures so as to save the financial system status quo after, again, a recessionary environment which now seems to be a mere blip on the radar.

Fast-forward to the present, and a common sense question comes to mind: in light of how devastating the effects of even a moderate recession can be, shouldn’t decision-makers also pay enormous attention to the economic ramifications of the pandemic?

Make no mistake: in China and elsewhere, the social ramifications of economic miscalculations can be more devastating than that of a pandemic in a “perfect storm” situation. From deteriorating economic conditions that lead to local unrest in vulnerable countries and end up causing anything from violent revolutions to a long-term economic depression, with its many consequences that can/should also be expressed in lost lives… to, yes, even World Wars, it is humbling when you think about how many of the greatest disasters of humanity can be traced back to economics.

Does it mean aggressive containment measures are unwarranted?

Of course not… as long as they are science-based and take advantage of everything 2020 has to offer in terms of technology, with South Korea representing a textbook example to that effect.

As the Covid-19 situation made clear, that is unfortunately not always the case. Instead, what oftentimes tends to happen is that everyone (from mainstream as well as alternative media outlets to politicians) is too afraid to state something that goes against the “time to panic!” narrative for fear of public ridicule and as such, ends up more or less voluntarily playing the fear mongering game. A fear mongering game which revolves around the idea that no measure is too aggressive, an idea powerfully emotional rather than rational and if there is anything readers have learned from, it’s that reason needs to always prevail because if not, disaster is usually right around the corner.

Again, the scientific method needs to prevail.

In a volatile environment such as the one we find ourselves in, making sure our message has been properly understood is paramount.

Which is why we want to make it perfectly clear that:

  1. We believe in disaster preparedness, anything from economic preparedness for the average citizen to nation-wide preparedness
  2. We do not think pandemics should be underestimated in light of the exponentially-growing threat they can represent if improperly tackled
  3. We believe that yes, decisive action is required to tackle pandemics

… but only as long as the measures that are employed remain firmly in the realm of reason. To put it differently, only as long as the measures in question are taken because they represent a sound science-backed approach rather than an effort to appease an overly-alarmed general public because the latter can lead to unintended consequences that are difficult to the point of impossible to quantify, consequences that might end up being exponentially greater in the long run than the consequences associated with the initial crisis itself.

We realize that our opinion isn’t exactly popular (in light of the fact that we point out that even too much of a good thing, for example shutting down economies indefinitely rather than embracing the South Korean model) but at the end of the day, economic thinkers owe it to their public to voice their honest opinions, even if it means going against the flow. And in our opinion, from the average individual who is too busy panicking to see things clearly to political decision-makers, pretty much all stakeholders in this immensely complex equation are greatly underestimating the economic (which leads to social) consequences of policies that are emotion-driven rather than backed by a meaningful understanding of the scientific method.

The team will keep monitoring the manner in which things develop worldwide as well as in China, in an effort to put forth a balanced perspective on an extremely delicate topic, a perspective backed by rational rather than excessively emotional arguments. At the end of the day, it is the duty of any self-respecting economic thinker NOT to give the public what it (thinks it) wants but rather what the thinker in question genuinely believes the public needs.

And in our view, may countries are making the mistake of not utilizing enough in the way of scientific method and technology-backed approaches due to anything from bureaucratic red tape (the European Union’s ridiculously excessive privacy protection policies) to election-related rigidity (Donald Trump refusing to wear a mask, for example), which is… once again in our opinion, just plain wrong.

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