Sarah Jones* reports on United States historian, Stephen Kotkin who believes the economic fallout from COVID-19 will be far worse and longer-lasting than the pandemic itself.
Princeton historian, Stephen Kotkin (pictured) says Governments are approaching a “dangerous situation” if they do not hurry up and find a way to balance the safety of their citizens from the pandemic with their ability to earn a living.
Speaking at Investment Magazine’s Fiduciary Investors Digital Symposium from New York, Professor Kotkin said countries were in “big trouble” if the global shutdown to contain the virus dragged on for too much longer.
He said people would ignore the experts’ advice and stop practising social distance in favour of work.
He also warned of the ‘debt bomb’ that had accumulated in the financial system thanks to extraordinary policy measures which had now become the norm.
“It cannot go on forever,” he said of the strict social distancing measures.
“The people living the decisions aren’t involved in making the decisions and that is a very dangerous situation if it continues for too long.
“The people on the receiving end of those decisions can’t work from home and don’t have salaries.”
He also noted that the COVID-19 pandemic, which has killed hundreds of thousands and put millions out of work, was not unprecedented.
He said the outbreak of smallpox and the bubonic plague between 1300 and 1600 had also resulted in quarantining, social distancing and severe economic costs, but without “the science to understand it”.
“There is no such thing as after COVID-19, there is only with COVID-19,” Professor Kotkin said.
“With COVID-19 it doesn’t have to be as crazy as it has been up until now.
“It’s a long story to discuss whether the lockdown policies made sense or were necessary.
“We can’t do that right now but going forward we have to be much smarter and more nimble.”
He said that Governments needed to reduce the so-called super spreaders of the virus with less destruction of gross domestic product.
Leaders in the private sector stood to command tremendous market share and even monopolies if they figured out a way to operate safely in the current environment.
“We can’t have the status quo continue going forward,” Professor Kotkin told delegates.
“As we come out of this… it will be up to individuals to make those decisions and weigh the costs and benefits.
“People are looking at Australia and Denmark and (are thinking that) maybe we don’t have to destroy our economy to be safe.”
He named Australia, New Zealand, South Korea, Taiwan and Denmark as successfully managing the outbreak.
He also cited Singapore, which after its initial success forgot about its population of non-citizens who came from less advantageous places.
“It’s not just Government policy, it’s also the population’s trust in the Government and people changing their social behaviour on account of their fellow citizens which we are seeing in successful countries,” he said.
Professor Kotkin warned delegates of the debt bomb that had accumulated in the financial system because of measures taken by policymakers to stave off a downturn.
He said this would not end well, citing China’s vulnerability to rising company defaults because it was the biggest lender to distressed companies globally.
“We are doing things like sending cheques to people on a fixed income who have not been adversely affected by the pandemic.
“There is a bunch of craziness and it’s not clear where it’s going. It’s no longer a crisis response, it’s now the system.”
*Sarah Jones is the deputy editor of Investment Magazine. Before moving to the United Kingdom she worked for Australian Associated Press in Sydney covering economics and monetary policy.
This article first appeared on the Investment Magazine website.
