Covid-19: how to fix the economy | The Economist

[Music] covert 19 has brought the global economy to its knees the pandemic has been an enormous synchronized global economic shock on a scale which has not been seen since the second world war by the end of 2020 the world's gdp may be about seven and a half percent lower than it would have been without the pandemic globally more than 15 percent of young people who were in work before covert 19 have lost their jobs widespread lockdowns have turbocharged changes that were already affecting the world economy in technology finance and trade how governments adapt to these seismic changes will determine how rapidly countries economies can recover [Music] in april this year american unemployment was the highest since the depression back then around a quarter of americans were jobless but from the bleak depression of the 1930s was born the new deal an ambitious federal plan to create jobs and kickstart the economy 40 of those speaking works have funded we have a long way to go but we are on the way the crises of the 20th century forced governments to change their policies for the better it's often been the case that after big periods of economic upheaval you've had a reforging of the relationship between the individual and the state the second world war was followed by an expansion of the welfare state in europe and high unemployment and inflation of the 1970s led to ronald reagan's and margaret thatcher's free market economics but in the 21st century the largest economic shocks have not led to such a change the global financial crisis people thought maybe you'd have a rethinking of how banking worked but in the end you only got incremental reform the effects of trade with china were not adequately anticipated by western policymakers they did not think about the impact it would have on some workers who were exposed to it and i don't think that enough thinking had been done about the implications of of big tech for the economy and society [Music] those on the losing side of these economic shifts have felt left behind the result is you've got the rise of populist politicians like president trump to vote for brexit the rise of of of right-wing economically nationalist populism around the world and then among the young you have this leftward drift this support for politicians like bernie sanders for checkmate corbyn the pandemic is the fourth economic shock of the 21st century this time governments could choose to respond differently in the aftermath of the global financial crisis many governments especially in europe chose to tighten their belts rather than spend the result was slow economic recovery you had governments which turned to fiscal austerity to cutting spending to balance their budgets too soon which also weakened the recovery uh and made it slower than it otherwise could have been now we have the pandemic an economic downturn that's very deep and i think it's important that governments don't repeat the mistakes of the 2010s so far spending is exactly what governments have been doing and to pay for that spending governments have been borrowing a lot to keep borrowing costs down central banks in america britain japan and the euro area have created new money worth almost four trillion dollars that money has financed household income payments furloughed millions of workers and bailed out businesses [Music] at the moment interest rates are very low and so despite the fact that you have this enormous debt that's been run up as a result of the pandemic the costs of servicing it are not high so there is no doubt that there's space for governments to support the economy but no one knows if or when interest rates are going to rise and should that happen it'll be the taxpayer force to shoulder the burden of this vast public debt the balanced governments have to strike is not turning to austerity too quickly but then once if and when interest rates start to rise to be aware that they are very indebted and they need to ensure that their fiscal policies are sustainable [Music] the pandemic has brought about enormous changes perhaps the biggest is that for many people the office has gone from here to here and on the whole they seem to prefer it sixty percent of americans who can work from home want to continue doing it at least one day a week after covert and in the long term it could boost economic growth and actually decrease inequality one of the chief constraints on growth was the fact that it was very expensive to live near cities where jobs were increasingly congregating especially good jobs places like london paris san francisco new york tokyo so there is clearly an opportunity if people do shift towards working from home to ease that constraint working remotely has been made possible thanks to a fast and widespread adoption of technology which existed before the pandemic but wasn't being used to its full potential this digital push that's now taking place as a result of the pandemic will lead to accelerated change in the economy ultimately disruption is what drives long-term living standards the important thing is that governments i think embrace this change rather than standing in the way and seeing it as a scary force that must be stopped of course not everyone will benefit from the remote work revolution the urban service sector in particular is expected to shrink but voters may be more likely to support disruption if the risks are shared more equally [Music] when the world went into lockdown millions of businesses found themselves unable to operate and with no way to pay their employees so governments were forced to respond in an innovative way i think that's because there was this widespread sense that you couldn't do anything about the fact that you were uh unemployed as a result of your the restaurant at which you worked being shut lockdowns were bolt from the blue and so the government stood behind everybody and replaced household incomes to an extraordinary degree in america congress announced a stimulus package worth two trillion dollars which included direct cash payments to almost every american the british government rolled out a 30 billion pound job support scheme and in europe's five largest economies more than 40 million workers were placed on government-funded short work schemes the downside to furlough schemes is that they do have this potential to keep people locked in zombie jobs which aren't coming back when the economy recovers but the principle the household incomes in some sense can be underwritten during a large economic shock over which those households have no control is i think an interesting one that uh that could be applied in future what we've seen this year is the governments can move pretty fast to put money in the pockets of households directly and the households will spend that money direct cash transfers to households uh do work fairly well and are not subject to quite the same level of of haggling and perhaps the same degree of waste you might get with other forms of fiscal stimulus while governments have sought to intervene domestically internationally there's also been an increase in protectionism when countries shield their industries against foreign competition the crisis has caused panic about the fragility of global supply chains stalled production lines across china the global supply chain right now is disrupted a lot of firms this year pay a lot more attention to their supply chains and it's more fashionable now to think about the robustness and resilience of those supply chains which often means bringing them closer to the home or at least diversifying your suppliers there was concern in particular around personal protective equipment many countries blocked export of ppe and similar items according to the imf there have been almost 120 new export restrictions this year this is uh coinciding with a movement towards protectionism on a global scale with a trade war between america and china and it's clearly a risk that coming out of the pandemic you have leaders who are very concerned about promoting national champions less concerned about competition rules and really want supply chains brought home despite this shift towards protectionism there is reason to be optimistic government economic response to the virus has been swift and on a massive scale i don't think many people would have predicted that government would act that fast and that capably they've acted much better i would say on the economic side than they have in terms of controlling the disease in many countries as with the economic shocks of the 20th century covert 19 presents an opportunity for a reforging of the relationship between government and the individual in ways that many hoped would follow the previous shocks of the 21st century the question is whether today's politics is up to the job hi i'm henry kerr the economist economics editor i've written a special report on the effect the pandemic is having on the world economy you can read it by clicking the link opposite thanks for watching [Music]

Channel: The Economist

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Keywords: The Economist, Economist, Economist Films, Economist Videos, Politics, News, short-documentary, covid-19, coronavirus, coronavirus news, covid 19 news, coronavirus pandemic, covid 19, economy, economics, stock market, finance, money, recession, world economy, global economy, gdp

Id: p0tCPwyJ6JI

Length: 10min 54sec (654 seconds)

Published: Fri Oct 23 2020