Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the king’s horses and all the king’s men
Could not put Humpty together again
One year ago, the World Health Organization warned about the impact of COVID-19. WHO urged the global community to take action to bring the pandemic under control. At that time, there were fewer than 100 cases of the disease and no deaths outside of China. The world has now passed 100 million reported cases. The pandemic has impacted 200 countries and every U.S. state. Globally, we are approaching 2.2 million deaths. The U.S. death toll exceeds 530,000, surpassing World War I and World War II combined.
COVID-19 has created both a public health and an economic crisis. The human costs in terms of lives lost will permanently affect global economic growth. In addition, the pandemic raised poverty levels by more than 100 million, upended lives, derailed careers and increased social unrest. Global trade declined by 9%.
In the second and third quarters of 2020, the Bureau of Economic Analysis (BEA) recorded the steepest drop in U.S. economic output on record, 9.1%. Since 1947, the greatest decline had been 3%.
Black and Hispanic communities in high-density urban locations have been most adversely affected on two fronts: their health and their employment status.
After the Great Depression and World War II, Americans supported more government intervention into the economy. The pandemic has ripped up the rules on social spending. More than 75% of Americans support President Joe Biden’s $1.9 trillion stimulus bill.
To date, the global pandemic has extended to a wide range of industries such as:
- Medical supply
- Consumer electronics
- Financial markets
- Energy
- Transportation
- Restaurants
Despite massive spending, some industries such as those dependent upon the movement of people have been devastated. The outlook for U.S. manufacturing that employs 13 million workers remains beleaguered. By contrast, industries that rely upon the movement of information have been relatively unscathed.
Cities and metropolitan areas often specialize in select industries. For example, the auto industry is headquartered in Detroit, finance in New York and information technology in Seattle and San Francisco. Las Vegas and Orlando, which rely upon tourism, have very high unemployment rates. Because Seattle enjoys a robust technology sector and Washington, D.C., houses many government workers, these two cities experienced relatively low unemployment.
The combination of vaccine progress, the coronavirus aid packages and the Federal Reserve’s commitment to maintaining its unprecedented accommodative monetary policy stance has generated expectations for reflation in 2021. This reflation trade has led analysts to project further downside momentum for the U.S. dollar. The dollar dropped 6% against an index of developed world economies in 2020.
Given the extreme health and economic dislocations caused by the pandemic, economists and politicians throughout the developed world are tempted to stoke the economy more than necessary. According to the Congressional Research Service, the world in 2020 launched at least 1,600 new social-protection programs. On average, developed countries have spent 5.8 % of Gross Domestic Product (GDP) to help a record number of workers.
Treasury Secretary Janet Yellen addressed Congress: “We think it is very important to have a big package that addresses the pain this (COVID-19) has caused. In the last 12 months, the United States has approved three stimulus packages, totaling more than $5 trillion. This amounts to greater than 20% of our GDP.
I worry about our mounting federal deficits. At some point we need to reign in deficit spending and embrace tight budgets. In brief, the safety net must in the long run be affordable.
Instead of spending trillions fixing Humpty Dumpty, make omelets! Stated differently, instead of just restoring our previous way of life, create an economy that incorporates the newest technology and ideas.
Originally published in the Sarasota Herald-Tribune
