Coronavirus
is first a health problem, second an economic one
Greg
Jericho
During the
GFC we needed to get people spending; now we have to ensure it is safe for
people to go out to spend
@GrogsGamut
Sat 14 Mar
2020 19.00 GMTLast modified on Sat 14 Mar 2020 19.07 GMT
‘The level
of resources being put towards urgent and rapid coronavirus testing should be
jaw-dropping.’ Photograph: David Crosling/EPA
After the
share market fell 7.4% on Monday, 3.5% on Wednesday, and more than 5% on
Thursday you could be excused for thinking everything is buggered.
Do we need
perspective? The market is around 23% below the peak of the past 12 months,
which is much less a fall than in the October 1987 crash, and also the global
financial crisis. In both cases the stock market lost about half of its value.
So that’s
the good news.
The bad
news is, oh boy, it can fall a lot more yet.
Yes, the
long-term performance of the stock market is good – a 6.2% annual return over
35 years. But these hits take time to recover from.
Coronavirus:
many infections spread by people yet to show symptoms – scientists
Read more
It took
around eight years to return to the pre-1987 crash peaks, and 11 years after
the GFC.
That does
not mean all our super is gone. This year will be carnage, but over the past 10
years the median annual rate of return for industry super funds has been 8%
(for retail funds it is 6.3%).
The problem
of course is what if those were the good times? Perspective is great only if
normality returns.
A 2006
Treasury department paper on “The macroeconomic effect of an influenza pandemic”,
coincidentally co-authored by the current Treasury secretary, Steven Kennedy,
concludes that “GDP could contract by over 5% over the first year following an
outbreak of a highly contagious pandemic”.
But such a
study did not consider that the world’s biggest economy is run by a
megalomaniac with an aversion to reality. Consider that Trump gave a national
TV address in which he stated at least three errors, all of which sent the US
markets into their biggest fall for 33 years.
The lack of
any international co-ordination is damning – no urgent meeting of the G20, not
even a phone hook-up.
Trump has
made the world more insular, at the very moment it needs to be the opposite.
And what
about our government’s response?
It has been
less than stellar.
The lack of
a public information campaign is damning. Where are the health advice ads
playing on TV? They haven’t been able to even get a cheap YouTube ad up to
share on social media.
Should you
get tested? How do you get tested? When should you stay home?
We should
all know the advice by rote.
The
economic stimulus, I think, also contains far too little on the health side.
During the
GFC we needed to get people spending; now we first need to ensure it is safe
for people to go out to spend.
An absolute
priority must be to ensure people who are sick stay home. I would have
considered providing casual workers with at least access to a 14-day
government-paid sick leave equal to the minimum wage for coronavirus symptoms.
In such
cases you need to go big to break through the noise. Nothing in the
government’s announcement had you thinking “cripes, they aren’t holding back”.
Mostly the reaction was instead was that more is needed.
The level
of resources being put towards urgent and rapid testing should be jaw-dropping.
Instead, we
had Morrison being grossly casual telling Alan Jones he is going to the footy
and that “it’s important for our economy and just our general wellbeing ...
that people sort of get on about their lives”.
At the same
time the head of the AMA in Western Australia tweeted: “You want to go to the
footy? I want my colleagues to stay alive. Cancel crowds at events. Close the
schools soon.”
Later chief
medical officer, Brendan Murphy, advised that Coag recommended gatherings of
more than 500 people be cancelled (though not actually banned). Oddly that
advice only comes into effect from Monday. I guess the virus gets the weekend
off ...
Morrison’s
TV address contained little health advice except “please visit health.gov.au or
talk to your local GP” (because yes, GPs have so much time on their hands). He
did not even address panic buying.
The $750
cash payment for government benefit cardholders also seems rather weak.
In 2008 the
Rudd government’s first cash stimulus was $1,000 to $1,400 for pensioners and
low-income households. It was followed up with $900 to households earning up to
$80,000.
In 2008,
$1,000 was worth 77% of average male weekly full-time earnings; $750 is just
40% of the current average of $1,840.
Crucially,
the GFC payments did not have to account for people overspending while stocking
up on supplies.
You would
be smart to bet that the May budget will contain more than has been announced
this week. I suspect we will need something even before then.
• Greg
Jericho writes on economics for Guardian Australia
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