The Great Contagion

The COVID-19 pandemic is the biggest shock to hit the global economy since the financial crisis more than a decade ago. But, unlike that crisis, the COVID-19 outbreak is hitting the economy’s supply side as well as demand, and monetary and fiscal policy may be of little use in addressing it. The extent of the economic damage will depend on how quickly the new coronavirus is contained.

In this Big Picture, Cornell University’s Kaushik Basu calls for the urgent establishment of a task force of economists and other experts charged with designing a coordinated global policy response. But as long as US President Donald Trump remains in office, says Anders Åslund of the Atlantic Council, it is hard to envisage any credible international effort to resolve the financial crisis caused by the pandemic.

Barry Eichengreen of the University of California, Berkeley, says that economic stabilization today depends primarily on the actions of public-health authorities, which should be given the kind of autonomy enjoyed by independent central banks. Similarly, the University of Texas at Austin’s James K. Galbraith argues that, in the United States, regular direct communication from relevant government agencies – rather than from politicians and the media – would help to promote low-risk behavior and avoid panics.

Meanwhile, London Business School’s Lucrezia Reichlin thinks the pandemic is an opportunity for the European Union to create a powerful crisis-management mechanism that can provide a coordinated fiscal stimulus. Likewise, Koichi Hamada of Yale University says Japan’s government should quickly adopt bold fiscal measures and not be distracted by exaggerated fears regarding the level of public debt.

Arkebe Oqubay, a senior minister and special adviser to the prime minister of Ethiopia, says that African governments, in cooperation with communities and international actors, can take steps now to limit the damage from COVID-19. But Adaora Okoli, a medical doctor who survived the Ebola virus, fears that the outside world once again risks being too late in providing necessary support to Africa. She therefore advocates the creation of a permanent global emergency-relief fund focused on disease outbreaks, which could be deployed as soon as they erupt.