McNutt
McNutt

The COVID-19 pandemic has now affected over 180 countries worldwide. It has been like taking a sledgehammer to the economy. Some economists wonder if we are prepared for a temporary collapse of economies? For the near term, it’s like the world is on fire. It could take time to recover.

Opening the economy back up must be disciplined, and must include constant testing to avoid a second flare up.

The world economy has been described as a perpetual motion machine. We buy the things we want and need, and in exchange give money to the people who produce those things. Those people in turn use that money to buy the things they want and need.

It’s an amazing system. A supply chain brings products from all corners of the world into your home. Sometimes it happens in the matter of a week, or two. It gives us instant gratification, but we are now reminded that the system is more fragile than we might have imagined.

The economic projections from December were very rosy, but are now obsolete. The global economy was a robust $126 trillion. Again, it represents one person’s spending and another person’s income.

In the span of a few months, the world as we knew it, and most of the bold projections about what lies ahead have been upended. Confident world leaders were talking about addressing climate change, trade and technology challenges, artificial intelligence and other futuristic advances. That has suddenly taken a back seat to defeating the ravaging effects of the coronavirus pandemic.

America’s leaders have pledged to spend whatever it takes to defeat this invisible enemy and keep the economy from falling into a recession, or worse, a depression. Those who feared having a $1 trillion annual federal deficit, and a $24 trillion National Debt, are embracing rescue plans that call for as much as $10 trillion in relief spending.

The cost of doing nothing could be much greater. Most Americans shrug off trillion dollar deficits. They have an attention deficit disorder when it comes to such big numbers. The American economy is so huge that a trillion here and a trillion there is meaningless.

There are other mega economies around the world but the vast majority of economies are smaller than the economies of California or Texas. For some countries having a $50 billion annual deficit will set off alarms. For them, recovery from this pandemic will send shock waves through their financial markets.

Using China for analysis, Bloomberg Economics says auto sales in recent months have plunged 80 percent and passenger traffic is down 85 percent due to the coronavirus pandemic.

China matters because it is the world’s biggest producer of manufactured components, when Chinese factories shutdown, the widgets that go into everything become harder to find…supply chains need time to ratchet up.

If this economic disruption was limited to five to ten areas of the world, we might see a quick rebound, but because this epidemic is worldwide, it might take longer to return to the old normal.

Some people want manufacturing to return to the U.S. but that has unintended consequences that do not bode well for many U.S. companies. There are offsetting benefits to a global economy which can not be underestimated or forgotten.

The pandemic recovery will require a concerted worldwide rescue plan. We can’t have people from infected areas traveling. In most news reports, we see people around the world wearing masks when in public. Americans may need to do that also, and for an extended period of time.

The fact is, any vaccine will need to be available to as many as 5 billion of the world’s 7.5 billion people. That will take time to develop, produce and administer. If 2019 is the normal, it could be years before that normal is attained. Yes, Americans are very resilient, but many of our industries are dependent on those global supply chains.

We are all aware of our differences and how they have hurt our unity in America. Congress is promising to make everything right. Will they also try to solve all perceived problems at this time? Will they try to use this crisis to push for major health care reforms, student loan debt forgiveness, income equality, climate change programs and pass a $2 trillion infrastructure program?

How will they subsidize the airline industry and the cruise line businesses until travelers get over their fears? They claim no one will be left out. These rescues could result in enormous numbers.