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What can we expect from the day after?

by on 07/04/2020

Following the events since the outbreak of the pandemics, we can observe several trends and happenings:

  1. The private consumption, that was about 70% of the US GDP, 50% in the EU and 40% in China, dropped dramatically. Certain items like tourism and cultural events, ceased to exist.
  2. Certain industries, dependent on component suppliers from China, were forced to close their production. 
  3. The governments took over the leadership on the everyday life, leaving no space to the non governmental institutions to intervene into the decision process. Only at war times existed comparable situation. 
  4. Aware of the danger of destabilisation of the political system, the governments at first tried to avoid destabilisation of the economy. At the end all the governments gave up, and joined the others, by imposing quarantine on the whole population and closed most of the economy.
  5. Learned from the economic crises at 1929 and 2008, the immediate major economic instrument to stabilise the economy are again the central banks. Their policy will be to pour unprecedented amount of money into the financial system. Since central banks are instrument of government for regulation and stabilisation of financial system, with authority limited to monetary operations, most of the financial liquidity will be directed to the commercial banks.
  6. The fiscal policy is the prerogative of the governments, dependent on the parliaments or other legislative institutions. An immediate response to this situation could be tax relief and securing minimum income to every family or individual. The second phase of fiscal intervention could be investments into big infrastructure projects, that were postponed because of tight budget and limited resources. But most of these programs need years of preparation and planning,  and cannot be used immediately. 
  7. In the longer term, due to expected massive unemployment, the government will have to  invest in social infrastructures, as, education, not only of the young, but also of the adult, health care, sciences. Culture may look as the flavour of the cooking, and it will need special attention from the governments to support creative people in every field of their activities, who will help out the people from the new gloomy mood, the world population will find itself following the Corona virus. 

The major question still remains, how will the societies operate after the pendemics is gone. Few weeks into the pandemics, we can observe total collapse of some economic activities, mostly connected to private consumption. Tourism, public transportation, shopping culture in shopping malls, mass entertainments, cultural events, restaurants, etc. All these activities practically ceased to operate. Most of these activities are provided by small businesses, financially exposed to drop in income. We have to expect, many of them to collapse. Tourist agencies, private hotel businesses,  restaurants and bars, shops with high rents, all these businesses are based on everyday purchases, while their existence in same location, sometimes for years even generations, gives them the exposure to their clients. These businesses are built with patience and persistence. If they will collapse, they will probably never return to operate on the same way as before. The comunistic regime entirely destroyed this kind of business network. Even 30 years after this regime has gone, you can still feel the lack of these locally based small family shops. 

One relatively new phenomena, is wider adaptation of internet, as major tool for commerce and communication between people. Internet shopping became the only option for purchasing. 

Joint decision making processes were transferred from direct meeting to virtual meetings, using different tools available on the web, free of charge or for very low fees. Executives learn to manage their activities, without the need for personal contact. These new ways of communication are implemented in education, social gatherings, cultural and sport performances, etc. What economic consequences will have these changes? Will these changes be permanent or temporary? 

What about unemployment? Will the sudden enormous growth of unemployment be permanent or temporary? What level will unemployment reach? Already before the pandemics the economists predicted big upheaval in employment due to new technologies expected to enter our life. The best example is transportation. Today, costly and inefficient private transportation, that took over the urban spaces, was expected to be changed, due to self driving cars, reducing the need for taxi and truck drivers, but even of privately driven cars. Political opposition to such a change, that needs also new regulations of traffic, was expected from taxi drivers associations. This would have also heavy impact on the demand for cars, a very important part of many industries. 

The stock exchange indexes before the crisis skyrocketed, and were expected to make some corrections already before the crisis. The first wave of correction was a result of this expectation, even if the cause was the appearance of the pandemics. The realisation of enormous permanent economic damage the pandemics made, seems to drive new waves of destruction of values on the stock exchanges. Before the crisis many public companies were involved in buyback operations, purchasing their own shares and bonds due to low interest rates. These companies may find themselves with liquidity problems.

If unemployment will remain on high levels even after the pandemics was gone, unemployment allowances will become major form of social care. Probably the administrative procedures will be liberalized and simplified. Maybe even minimum income payments will be introduced, without the need to prove entitlement. Politically it seems unexceptable, to bail out big corporations and financial institutions, and not to help millions of people, whose businesses or employments were destroyed. 

The question remains, will the change in world economy include solution of major long term problems of the humanity, as the global warming and global pollution, or in contrary the accumulation of these problems will rather intensify, due to attention of decision makers on more acute problems. 

As the scientists predicted with high probability the appearance of certain kind of pandemics with devastating consequences, the same and even worse consequences are predicted due to environmental imbalances caused by overpopulation and over consumerism. Will the politicians give more sincere attention to these warnings after the pandemics, than they have, before the Corona pandemics, or they will continue neglecting these warnings with arrogance,  and vanity as before the outbreak? 

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