Bloomberg Businessweek - USA (2020-03-16)

6

▼ Volunteers

waiting to pick

up people who’ve

fallen ill in Wuhan’s

Jiang’an District

● Whatabout the

wealtheffect?

Thestockmarket’sswoonis notjustasymptom

oftheharmthevirusis inflictingontheU.S.econ-

omy,butalsooneofitscauses.EvenU.S.house-

holdsthat don’tdirectlyown equitiesaren’t

immunetotheso-calledwealtheffectoffalling

stockprices.Retailsalestendtodeceleratesharply

inthewakeofmarketshocksbecause,rightlyor

wrongly,manyAmericansviewstockindexes

suchastheS&P 500 asthemostimportantindi-

catorofthehealthoftheeconomy.Businessconfi-

denceexperiencesa similarimpact,whichusually

translatesintoa declineininvestment.Andsoit’s

self-fulfillingprophecy:If bothU.S.consumersand

companiesdialdowntheirspendingbecausethey

thinktheoutlookhasworsened,thenit almost

certainlywill.

AvirusascontagiousasSARS-CoV-2ishard

totampdownaslongaspeoplecontinuetocon-

gregateandcoughononeanother.If thevirus

doesspreadwidelyintheU.S.,a recessionis

likely to follow, saysMoody’sAnalyticsInc.

ChiefEconomistMarkZandi.“Wecouldbemov-

ingfroma self-reinforcingpositivecycletoa self-

reinforcing negative cycle,” he said on March 3.

State Street Associates, the research arm of

financial giant State Street Corp., puts the chance

of a U.S. recession in the next six months at 75%

based on early March stock prices. Actually, a

Covid-19-induced recession may already have

begun. Economic historians measure reces-

sions from the peak of economic activity to the

trough, and it’s possible the U.S. economy peaked

in February, when unemployment tied a 50-year

low of 3.5%.

If extinguishing the virus is impossible, the

nextbestthingislearningtolivewithit.Save

extremeprecautionsforthemostvulnerable,

suchasnursing-homeresidents,whiledialing

backeconomy-deadening measures in other

spheres. For example, factories, offices, and

schoolsshouldgenerallystayopen,albeitwith

betterprocedures tolimit contagion(hand-

washing, social distancing, working from home

where possible, paid sick leave). Governments

can offset the economic damage with stimulative

fiscal and monetary policies.

Walling off stricken cities, regions, or nations

doesn’t make sense if the disease is already spread-

ing outside the containment area. “In a globalized

world, there’s a question about whether the horse

may already have bolted,” says Neil Shearing,

Capital Economics’ chief economist. That sounds

defeatist. But given how damaging an overreac-

tive immune system can be, it’s simply realistic.

—Peter Coy

◼ COVID-19 / ECONOMY Bloomberg Businessweek March 16, 2020