The almost total shutdown of the U.S. and global economies as the result of the COVID-19 pandemic is unprecedented in modern times. The consequences for the global economy will be enormous and long-lasting whether the virus apex is reached in 60 days or six months. Here are some thoughts on what the post-COVID-19 state of the economy will look like.
When parts of the country and eventually all of the United States come out of economic quarantine and attempt to return to "normal," the level of economic devastation, bankruptcy and household impoverishment will be beyond what people now imagine. To maintain some level of survival, the Federal government through the Treasury Department and the Federal Reserve will have pumped in a minimum of $5-10 trillion, creating the biggest government debt crisis on record.
It has already been suggested that the Federal government will in some way take equity stakes in big companies like airlines, auto manufacturers, defense companies. In effect, in some fashion, the United States will look a lot more like China, where 80 percent of the economy is state-owned entities (SOEs). It will take a decade or more for the recovery to reach the point where the Federal government can begin to sell off these equity holdings.
Can the US manage such a situation? It will require drawing upon the private sector and entrepreneurial talents of the population to create a viable but totally new structure.
Small and medium size enterprises will suffer greatly, as many will find it impossible to reopen doors after the prolonged shutdown. This will impact the financial sector in many previously unprecedented ways, as mortgages go unpaid for months, as foreclosures are stopped but owners have no means to pay back rent and mortgage payments. Local and state governments that rely on tax revenue from these income streams will feel the effects deeply as well.
Talk of a $2 trillion infrastructure investment make sense as a source of jobs and needed economic revival. The bill of materials for such endeavors will be part of the big challenge. Where will the steel, the cement, the heavy equipment come from?
I apologize that these are somewhat random thoughts, but I hope to start a thinking process about a completely new phenomenon that no one has ever been through before in our lifetimes.
Will the United States resemble Germany at the immediate end of World War II? Less physical wreckage and rubble, but no real economy standing. What will be the psychological fallout? Will part of the new normal be adequate inventory of medical supplies to deal with a future replay of the coronavirus? Health care is now a primary national security concern and that was not the case just a few months ago.