Is it possible that more people will die as a result of the economic calamity that could evolve from panic over the coronavirus known as COVID-19, than will die of the disease itself? I just learned that an organization I belong to (Young President’s Organization) has just cancelled an event in San Diego that generally draws as many as 3,000 people from all over the world. The economic dominoes are falling. Anything is possible.
A recession is generally defined as two quarters of economic contraction. It usually takes at least another quarter after that, often two, for the numbers to be reported. This is seemingly convenient, especially this year, as it means we won’t know for sure that we’re in a deep recession until after the November elections. Yet there’s no doubt (to me) that the recession has started already. With conferences being cancelled, cruise ships being quarantined, and companies declaring travel bans, about the only industries that might show short-term immunity are the retailers selling Clorox wipes.
The knock-on effects of contraction don’t look to be far behind. Banning travel surely hurts the airlines and hotels, but when Marriott postpones construction of new hotels or American Airlines delays deliveries of 737s, that’s when we’ll have to worry about a slowdown rippling through the economy. A few days ago, Goldman Sachs warned that the virus could wipe out corporate earnings growth for 2020 and that earnings could drop as much as 13%. China’s economy looks to have slowed dramatically, with whole factories and even whole cities essentially shut down. There’s little evidence that life is getting back to normal, despite claims that they are. Satellite views over everything from energy consumption to pollution show an economy that’s all but come to a halt in many places.
The contraction that has begun is happening at the same time that $4 trillion dollars in corporate debt is reaching maturity. Since the great recession, in the era of perpetual low interest rates, companies have loaded up on debt with the cash being used for share repurchases instead of long-term investment. Much of that debt is coming due while corporate balance sheets are relatively light on cash reserves.
On Halloween, just a few months ago, MarketWatch wrote: “If economic growth slows further and lenders become less accommodating, any failure to roll over maturing debt could spill over into other parts of the economy, including the job market.”
This is my concern—that we do more harm to our economy than the disease warrants.
At a time when hospitals see fit to charge people without health insurance as much as ten times or more what they charge people with insurance, the number of people that are going to go without care could explode. Already, an estimated 50,000 people die every year due to a lack of care because they cannot afford it. These people fall between the cracks because they earn too much, yet have too little. What’s going to happen when millions more people find themselves out of work? Millions more is not a large number against the backdrop of even a moderate recession.
We’ve not experienced such a phenomenon in more than a decade, and it was this very problem that contributed greatly to the passage of the Affordable Care Act (the ACA, a.k.a. ObamaCare). The truth is that the ACA has done nothing to provide coverage for the millions of middle-class Americans who earn too much to qualify for any meaningful subsidy, yet have too little to cover exorbitant premiums and deductibles. At the same time, the unintended consequences of the ACA have driven the cost of medical care to grow at more than twice the annual rate of inflation over the same period.
After the 9/11 attacks, the American people were resilient, declaring that we would not let the terrorists change our way of life. We fought back. We got on airplanes, despite our nerves. President Bush even asked us to go shopping, just to help keep our economy going. He knew that there was nothing more important than our economy.
The American economy is the source of our power and our way of life. It is the great enabler. And now we need the same kind of fortitude and commitment to fend off its newest threat. We need Americans to go about their life, and companies to go about their business. Take logical precautions. Wash your hands. Stay home if you’re sick; you know the rest. But, if we don’t defend our economy by going about life and business, the increase in homelessness and the lack of access to good medical care that will result from our next recession could very well lead to more heartache and death than the disease itself. The likelihood that travel bans and cancelled conferences prevent the spread of a virus that’s very similar to the cold and flu has to be weighed against the likelihood that such measures are effective, and the unintended consequences of such measures.
The double whammy, which is becoming increasingly likely, is that we are going to decimate our economy and the disease will still spread. Let’s toughen up and not let that happen. Let’s react rationally, but not overreact in ways that also kill our economy. Let’s be the tough-minded Americans that we truly are.