We’re clamoring for data on how to best address the present crisis. We have heard the testimony of health professionals warning us of catastrophic death tolls unless the coronavirus is contained. We’ve heard from the health community about the necessity to avoid non-essential economic activity to help prevent the spread of this virus.
Much of this article is a response to a well-meaning but misguided interlocutor who suggested we, as a society, take a lengthy 18-month reprieve from economic activities to combat this virus. Although few medical professionals are advocating for such nonsense, the question quickly becomes what is responsible in the light of balancing our economic and health needs.
What is constantly being left out of the macro equation is when will our resources dwindle to the extent that economic growth becomes essential? It’s one thing to say that farmers, grocers, doctors, and nurses all ought to go to work, but if their pay cheques bounce this is another issue entirely. At some juncture, they’re going to need to get paid for their labour or they too will find alternative ways of providing for their families.
Goldman Sachs has famously estimated the economic contraction will amount to -24% GDP. By way of comparison, the height of the 2008 financial crisis amounted to a loss of 7.5% GDP in America, while the Great Depression resulted in a 15% contraction of America’s GDP. This crisis, unless we get back to work in a reasonable period, will be more costly than the Great Depression and the 2008 financial crisis combined.
Homelessness, joblessness, breadlines, financial institutions facing collapse, each of these will make containment of this virus impossible. It’s cluttering irrelevances if a health official insists on social distancing if I stand in desperate need of feeding my family I have to leave the house. Economic collapse ensures governmental treasuries are emptied, and -24% GDP eliminates the possibility of raising tax revenues.
There currently exists clamoring for banks to end all monthly collections from debtors. Most of the Canadian financial institutions that I’ve examined can withstand this situation for around four months at which point they collapse. Canada’s banking system is routinely in better condition than our American counterparts. Their financial system is more fragile than our own.
The economic possibilities are damning. There’s the underlying psychology within the remedies to our newfound economic woes that’s highlighting a severe problem with democracy. It’s the tragedy of thoughtlessness.
My fellow Canadians are demanding a universal livable wage. The arithmetic indicates this is a $444 billion expense, while we only have a $350 billion federal budget. They cry out for us taking these funds from the banks, while they haven’t bothered to research the financial statements of our institutions.
When an expense is demanded but the numbers haven’t been crunched, it’s a judgment in the absence of evidence. Endless demands for free housing, paid for at the expense of landlords, without any acknowledgment of the balance sheets and cash flows of landlords is baffling. The current state of affairs is opinion-rich and data-poor.
In Greece, for example, the electorate had demands, and they often still do. Politicians are ushered into office who promise to satisfy those demands. As they arrive in the office, their government treasuries don’t allow for it, and the electorate feels betrayed. It’s notable that in Greece, the electorate still has debates over things that are mathematically possible.
At the moment, we have demands for universal basic income. We have demands for government expenses. The question is who pays for these expenses? During a decline of 24% of GDP, raising government revenues is not an option. This leaves bond issuance (deficits), artificial increases to the monetary supply (which results in inflation — spikes in cost of living), and/or major decreases to government spending. In any event, the lasting impacts will be felt by all.
What a lot of members of the electorate are not quite ascertaining is that particular opinions are irrelevant. It doesn’t matter if someone believes that an 18-month reprieve would be successful. Our resources won’t sustain this level of economic inactivity. We will, at some point, leave our homes to go gather resources.
All of the doctors on the planet can say no, give their orders, and opine, if one’s family is starving the debate is over. Demands of mathematical impossibilities are white noise — hot air and nothing more. What matters at this juncture is data. What can be done? What is the economic capacity to withstand this crisis? We don’t require further opinion, we require further scrutiny.