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 offinancial 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