Coronanomics– What we have actually found out about the economics of COVID-19

Coronanomics– What we have actually found out about the economics of COVID-19

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If trade bought prosperity to all corners of the world, then COVID-19 is showing the dark side of a synergistic world.

Media interest in COVID-19 is increasingly shifting from the public health aspects of the crisis to the economic effects of the biggest global pandemic in over a century. Often the issues associated with battling the war on both fronts end up being entwined.

The pandemic a public health crisis firstly, but in looking at the economic aspects, what have we found out up until now?

It’s completion of Globalisation as we understand it

Globalisation will never be the exact same. It’s not an outright rejection but rather a re-set of Globalisation. The difference in between this crisis and SARS, and even the Global Financial Crisis (GFC) or North Atlantic Financial crisis, is that all significant economies were struck nearly concurrently by the impact of COVID-19

It’s damaged international supply chains in manufacturing and affected people-based markets like education and tourism and other services-based exports a lot more. There’s been disruption, and countries will want to rebuild with a revitalised interest in financial self-sufficiency– particularly in medical equipment and innovation– and never be dependent on imports in an emergency situation once again. The fact that the nation that controls international supply chains in medical equipment is likewise the origin of the pandemic is not assisting matters.

The nation-state is back

Despite the talk of supranational governance, citizens are looking to their nationwide federal governments to handle the crisis. Italians wanted to Rome, not Brussels– the European Union (EU) has actually been very low profile. In China, Beijing took control from Wuhan’s city and provincial leaders once the virus began spreading out. Borders have been shut– within the EU in addition to the EU, and countries as varied as New Zealand, Singapore, Japan, Norway and Australia fasted to shut their borders.

And public ownership of crucial industries is back on the agenda too. Starting with the airline companies, we will see partial nationalisation. It’s mooted for the UK, Europe and Asia. And the primary providers in the Middle East are currently state-owned, thanks to the deep pockets of their federal government owners. And the same for ports and airports. It may stop at bank nationalisation, however in Australian terms, we are going to be seeing a bit more of the economic flavour of Ben Chifley and a little less Paul Keating.

Whither foreign financial investment?

The days of completely mobile capital are gone.

At first, it was stated this would apply to free trade agreement (FTA) partners however this was clarified to apply to all. It appeared directed at Chinese state- owned business looking to select up distressed possessions.

So, what’s the wash-up? Australia has depended on foreign financial investment because Guv Phillip brought convicts to these shores– however we have actually been a trading country well prior to when the native people of Arnhem land traded sea cucumber with the fishermen of Makassar– which will continue.

But Australia is going to take care to spread out foreign ownership, so it’s not controlled by one country; it is going to beware about strategic properties and geo-political threat (say goodbye to Port of Darwin sales) and generally more careful in this space.

Fiscal Stimulus– go early, go households, go again and once again?

Throughout the GFC, Australian Treasury Dr Ken Henry was the mastermind of the “go early, go hard, go homes” approach that allowed Australia to prevent recession– one of the few western economies to do so.

Now the Federal Government is taking a look at a number of stimulus plans targeting homes and small company and picked markets negatively impacted by COVID-19 like the arts, sports, tourist and aviation (the airline companies received a $715 million package).

But this is different from the GFC because there was no social distancing or lockdown in 2008; it was simply an economic crisis, not a public health plus recession. Whilst it is essential to reinforce the safeguard and keep money in the economy, a big stimulus throughout lockdown when international supply chains are log-jammed might not work.

The Federal government might choose to wait up until a vaccine is found for the virus and after that generate a stimulus to assist kick start the recovery. The Reserve Bank of Australia, for its part, like the majority of the world’s central banks, have let interest rates fall to nearly absolutely no and have actually bought back bonds to assist put cash on in the economy.

Labour pains– Will a wage aid do the trick?

In a welcome relocation, the Federal government has actually brought in a wage aid, that permits workers to stay on the books (even if sent out home) and relieves the concern on employers by getting part of the tab in regards to payroll. Nations like Denmark have executed this with some success, and it’s on the cards in the UK as well. This helps alleviate stress and anxiety in the labour market and keeps employees connected to their employer without bankrupting the business. It also helps in recovery as the company simply puts the worker back on, and we avoid deals expenses of shooting and re-hiring. Will it do whatever? Well, it can’t, but it is a needed but not sufficient policy in dealing with COVID-19 The useful function played by the Trade Unions and the Minister for Industrial Relations has actually been a positive to come out of the crisis.

The Tyranny of Social Range

Australia’s terrific financial historian, Geoffrey Blainey, wrote ‘The Tyranny of Distance’ to explain Australia’s place in the world, as well as the large distances within our shores and beyond our coasts.

Will we find we can work at home, without personnel meetings (thank goodness)?

No more bread and circuses– Footynomics and the Arts end of the world

The Tyranny of Range has negatively impacted anything including crowds, from our favourite sports to the arts and culture, and even religion.

The post-corona economy– the Post War restoration of the 21 st century

During World War Two, the Australian Curtin Chifley Labor Federal government was battling a war in the Pacific and possible invasion, whilst establishing the nation for a post-war world of industrial development, complete work and mass migration. This was called Post War Reconstruction, among the most significant social and financial programmes the country has actually undergone.

The modifications in the war economy, with Females operating in munitions factories and so on, made the planners think this might operate in the peace, in addition to the requirement for a larger population, a banking and monetary system, a higher education system (the expansion of the universities) and research programme (by means of the CSIRO).

It could well be that whilst the nation and the world generate temporary procedures to deal with COVID-19; this could also be an opportunity to remake ourselves, establish new industries and brand-new methods of working and handling work, education and domesticity.

The worldwide economy will never be the very same once again after COVID-19, and we might likewise find that neither will the nation and the way we handle work, with business, with play, with family and how we handle the natural surroundings.

Tim Harcourt is the J.W.Nevile Fellow in Economics at UNSW Company School, UNSW Sydney and host of The Airport Economic Expert and The Airport Economic Expert Podcast

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Tim Harcourt

Tim Harcourt

Tim Harcourt is the J.W.Nevile Fellow in Economics at UNSW Service School, UNSW Sydney and host of The Airport Financial expert and The Airport Financial expert Podcast

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