Do not let appearances deceive you. There is a clock that although not heard is ticking, measuring the time left before the economic collapse occurs. We just cannot stay home on money printed by central banks. We cannot hold onto our wealth in a country that stopped producing wealth. We cannot go on living off savings already made. They will eventually run out. We cannot postpone paying taxes and other liabilities owed to the government and expect the same government to provide bail-outs from money it does not have. Budget deficits cannot rise indefinitely because we will end up being a persona non grata for investors. The National Bank cannot indefinitely sell its foreign exchange reserves to protect the national currency, as this leads to reserve depletion. And it shouldn’t!
We are at a point in time when even in the US, where debt as a percentage of GDP is expected to exceed post-WWII levels, questions are being raised about who will be willing to buy American debt as foreign investor purchases had been dropping for quite a while. And Russia and China are no strangers to the situation.
We are still dreaming of staying quietly at home as long as possible, until the virus has vanished. The problem is that we do not know when or even if that will happen. And the affected economies will not be able to hold on until that point based on the current mode of “operation”. As time goes by, malfunctions will start to produce effects: unemployment, poverty, personal bankruptcies, riots and chaos. The headlines announced that in desperation, people in southern Italy banded together to rob stores while the Mob was seeking to take control of those regions.
Most of the countries affected are not there yet because they have sufficient wealth to afford to sustain the current economic anomaly for a while. But how long can India or the African countries stave off a generalized mayhem? And the sands of time will eventually run out even for the rich economies bringing them on the verge of collapse.
I have no doubts that restarting the economy and social life at any cost is by far preferred to an economic meltdown that would set us back 50 to 100 years. This means that we need to learn how to live with viruses of the present and of the future by operating radical changes across the society in terms of social, work, health behavior etc. It stands to reason, though, that the economy must be restarted and resources must be kept for when that happens.
I am not questioning whether the epidemic was or not overly publicized or blown out of proportion with no grounds. At the end of the day, the overwhelmed hospitals are a fact that no one denies. So were the life-or-death decisions that doctors had or have to make. But the prospect of society coming apart will soon become such a raw and threatening reality that no leader will be able to ignore.
The cost-benefits analysis conducted will show that the effects of delaying the restart of the economy and social life will take decades to overcome and lead to a widespread destruction of wealth. This will be hard to accept and the signs are already here: in Germany, Austria, Italy, the US, to mention just a few.
We continue to be under the delusion that the governments must help as many businesses to survive. That would be dumb. Many businesses have no future, and an indiscriminate money allocation would only mean it is squandered away. We will be seeing a process of “creative destruction” of significant proportions whereby many businesses will go under while many more others will be set up. The governments should support this creative process by aiding forward-looking and resourceful entrepreneurs.
Governments should not punch above their weight. They should prioritize projects and provide preferential funding to those with immediate effects and then to those with medium-term results. Governments should continue to collect taxes or risk becoming powerless.
And Romanians, employees or employers, will have to understand that the country’s biggest weakness lies in its budget size, puny relative to the value of its economy and other European countries’ budgets. It is a weakness that clearly limits our options to one: return to work and normal life in no more than two months. It also forces us into arranging an epidemiologic and healthcare setting that would allow us to do so.
Have a nice weekend!
