Pandemic vs. Economic Armageddon

Countries, corporations and even small businesses are in a very tenuous position because of the pandemic. It’s a fact that returning to normalcy is the only way to avoid financial Armageddon. Yet, the risk of higher incidences of coronavirus that will likely result from normalcy could be catastrophic for those leaders and businessmen who move forward with this strategy.

Let’s discuss the two options available to leaders in a general way.

Getting the economy back on track is clearly one of the highest priorities for everyone. Millions of people in the US are receiving unemployment support and other benefits, but there is no way these entitlements can last too much longer.

It’s important to appreciate that the country is already deeply in debt. Our leaders decided to give a boost to companies in dire straits and to individuals that were furloughed or summarily fired. It was the right thing to do, but it added several trillion dollars to our already bulging national deficit.

Basic economic theory tells us that printing too much money can weaken a currency. Excessive spending may cause a devaluation of the dollar and fuel hyper-inflation. Exacerbating the situation would be the short-term impact of declining GNP. Ironically, less spending by consumers and businesses could possibly bring on a serious recession, or a depression that could rival the one in the early 1900s.

If the economy does not improve soon, it’s likely that millions of smaller businesses will be closed permanently. Consider the plethora of small mom and pop businesses that are domiciled in our cities. No one bankruptcy is significant, but hundreds of thousands of them would be unthinkable. These businesses will fail and never open again, if Americans are forced to continue to eschew them as part of an effort to fight the virus. Similarly, many larger businesses could face financial demise if workers are not allowed to return in the face of federal, state and local governments edicts.

A decision to stand tall and confront the coronavirus by continuing with isolation and distancing may be beneficial in the battle to rid us of the disease, but it will ultimately tank the economy. And with this contingency, citizens will suffer in unimaginable ways.

The other alternative is for governmental leaders to encourage people to reopen their businesses. The stock market is waiting for this existential moment, but the euphoria might be short lived. There is evidence worldwide that those countries who return to normalcy experience a ramp up of new cases of the virus. Given that therapies and more importantly vaccines have not been approved, resurgence could affect millions of people health-wise.

So, a decision to move forward with the economy is equally dangerous for our leaders. A better economy with a million more cases of the virus may or may not be a good trade-off. A decision may very well be impacted by projected new deaths.

Government officials in the US and around the world are in a precarious situation. What are the trade-offs of the two alternatives available? If leaders guess wrong and a lot of people become sick and die, they will be ostracized? If they are correct, they will be heroes and reap the political benefits.

The best strategy for the US and any large corporation may be to wait a short period of time until the results of others can be analyzed.

Note: This last analysis also holds true for CEOs of big companies who must decide when to ask their employees to return to work. Waiting to see how other similar companies fair maybe the wisest thing to do.

 

 

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