4 Finance Essay Questions

Martin Wolf MARCH 24 2020

The coronavirus seeks only to replicate. We seek to halt that replication. Unlike the virus, humans make

choices. This pandemic will pass into history. But the way in which it passes will shape the world it leaves

behind. It is the first such pandemic for a century. And it comes to a world that — unlike in 1918, when

the Spanish flu hit — has been at peace and enjoys unprecedented wealth. We should be able to

manage it well. If we do not do so, this will be a turning point for the worse. Making the right decisions

requires that we understand the options and their moral implications. We now confront two

fundamental sets of choices: within our countries and across borders. In high-income countries, the

biggest choice is how aggressively to halt transmission of the virus. But we also need to decide who will

bear the costs of that choice and how. Some continue to argue that it is wrong to force the economy

into a depression to suppress transmission of the virus. This, they suggest, will cause unnecessary

disruption. If, instead, the virus is left to spread relatively freely, we can achieve “herd immunity”,

sustain the economy and still focus resources on the vulnerable. Yet it is not clear that the economy

would fare better under this relatively laissez faire “mitigation” policy than under one of determined

“suppression”. Long before government-imposed lockdowns, many people stopped travelling or going

to restaurants, cinemas or shops. Decisive action to suppress the virus and follow up with testing and

tracking of new infections could well end the inevitable economic slump even sooner than otherwise.

What seems quite certain is the global health system would fare much better under suppression than

mitigation. Under the latter, argues the Imperial College Covid-19 Response Team, the health systems of

the UK and US would be overwhelmed: large numbers of predominantly old people would be left to die

untreated. It was presumably to prevent this from happening across China that the government

suppressed the virus so fiercely in Hubei. Could a health calamity that is unacceptable in China be

acceptable in the UK or US? Yet the critics are also right: it will be impossible to close large parts of our

economies for very long. If suppression is to be tried, it must be successful quickly and resurgence of the

virus must be throttled. Meanwhile, central banks and governments must seek to keep as much of the

economy going as possible, preserve as much productive capacity intact as possible and ensure that the

people, above all the vulnerable, are generously protected in whatever way a country finds practical.

The solidarity between countries needs to be as strong as within them. The financial instability and

looming recession (probably depression) we see coming will inflict huge harm on emerging and

developing countries. The IMF states that investors have already removed $83bn from emerging

economies. The fall in the prices of commodities, upon which many emerging and developing countries

depend, is also deep. These countries must also grapple with the domestic spread of the virus and the

weakening of their own domestic demand. Their ability to manage these internal and external pressures

is limited. The outcome could be huge economic and social disasters. The IMF itself already faces 80

requests for rapid financial support. The aggregate external financing gaps of emerging and developing

countries are likely to be far beyond the IMF’s lending capacity. These vulnerable countries will benefit if

high-income countries succeed in suppressing the disease and rescuing their economies. But this will not

be true in the short run. Emerging and developing countries will need much assistance. That will also

help every country’s economic recovery. The virus is a shared challenge. So, too, is the coming global

slump. Practicality and the demands of solidarity justify generous help. The same is true within the

eurozone. The defining characteristic of a currency union is that individual members have given up the

insurance of fiscal autonomy and a sovereign currency in favour of collective mechanisms. During the

global financial crisis, that largely failed a number of member countries. Yet, in that case, a moralistic

argument could plausibly assert that it was in good part their own fault. This pandemic is not anybody’s

fault. If the eurozone cannot show solidarity in such a crisis, its failure will be neither forgotten nor

forgiven. The wounds will be deep, perhaps mortal. Without visible solidarity in a crisis for which nobody

bears blame, the European project will be morally, maybe practically, dead. Any cross-border aid

cannot, moreover, be purely financial. Medical help will be needed too. A crucial step will be ending the

spate of export controls that are destroying medical supply chains. Fortunately, the disease we now

confront is nothing like as bad as the plagues that repeatedly devastated the lives of our ancestors. Yet it

is still something virtually no living person has experienced. It is a practical challenge that must be met

with well-informed decisions. But it is also an ethical challenge. We should recognise both aspects of the

decisions we must make. Do leaders project calm and use reason? Do we defeat the disease, while

minimising the economic damage? Do we ensure that the weakest people and countries are protected?

Do we choose solidarity over hostility and global responsibility over inward-looking nationalism? Do we

seek to bequeath a better post-pandemic world, not a worse one? Unlike viruses, human beings have

choices. Choose well.