Juggling Dynamite

Economist Stephen Roach’s latest piece in Project Syndicate is worth reading, see America’s coming double-dip. The fallout will not be contained in America.  Here’s a taste:

The daunting history of the US business cycle warns against complacency. Double dips – defined simply as a decline in quarterly real GDP following a temporary rebound – have occurred in eight of the 11 recessions since the end of World War II. The only exceptions were the recessions of 1953-54, the brief contraction of 1980, and the mild downturn of 1990-91. All the others contained double dips, and two featured triple dips – two false starts followed by relapses…

Partial and asynchronous normalization in the aftermath of the worst economic shock on record signals lingering vulnerability in the US economy. And failure to contain the virus underscores the distinct possibility of aftershocks. This is precisely the combination that has led to previous double dips. Yet frothy financial markets are wedded to the narrative of a classic V-shaped recovery. The rhymes of history suggest a very different outcome.

Studies show past major pandemics led to higher wages for survivors. However, fatalities from COVID-19 have, so far, been highest among the elderly, so it’s unclear what impact that may have on the labour force.  On the other hand, new studies show that even survivors can be left with lasting impairments that may reduce their productivity and ability for years thereafter.  See:  COVID debilitating effects and economic costs may linger for years:

It’s now known that SARS-CoV-2 will leave a portion of the more than 23 million people it’s infected with a litany of physical, cognitive and psychological impairments, like scarred lungs, post-viral fatigue and chronic heart damage. What’s still emerging is the extent to which the enduring disability will weigh on health systems and the labor force. That burden may continue the pandemic’s economic legacy for generations, adding to its unprecedented global cost — predicted by Australian National University scholars to reach as much $35.3 trillion through 2025 as countries try to stop the virus’s spread.

I have long thought that fitness, whole foods and healthy body weights would come back into popularity and official policy targets when present habits and sick care systems are understood as too financially destructive to continue.  COVID may well accelerate this process, of necessity.

Nouriel Roubini, professor at New York University’s Stern School of Business, says markets aren’t pricing in what he sees as a dire economic outlook amid the ongoing coronavirus fallout. He speaks on “Bloomberg Surveillance.”  Here is a direct video link.