Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

An Alternative to the Lockdown Strategy in the Fight Against Coronavirus

Economics / Coronavirus Depression Apr 19, 2020 - 06:30 PM GMT

By: Frank_Hollenbeck

Economics

The current coronavirus strategy of most governments is a recipe for a worldwide economic disaster. In many countries, the strategy of confinement and forcing shops to close is a sure-fire path to large-scale business failures. The cascade of economic and financial repercussions to come is likely to lead to another Great Depression.


The Costs of Prolongation 

Italy, for example, already had a 135 percent debt-to-GDP ratio before the crisis. It is hard to imagine how it will be able to borrow more without a commitment from other European countries to jointly be responsible for more Italian debt—something the northern European countries are still strongly opposed to. The ECB is already printing money like crazy, and another Greece-like situation will make it ramp up the printing presses even more. We have been down this path many times before, where the cure is clearly much worse than the disease. The German hyperinflation of 1921-1923 created a resentful, impoverished middle class which ultimately led to Hitler’s rise to power.

The coronavirus (SARS-CoV-2) that originated in China is highly contagious. More than 80 percent of the patients show only mild flu-like symptoms but for the remaining 20 percent, mostly the elderly or people with preexisting conditions, the virus can be life-threatening. To save lives short term, the entire population in Europe is currently being held under house arrest and many businesses have been put into a pre-liquidation state by no longer being able to realize a profit due to inactivity.

The current lockdown strategy is a bleak choice of (allegedly) fewer short term deaths against a much larger long-term death toll.

The current strategy is not to stop the virus in its tracks but to spread out the contagion so that the peak is a level that will be more manageable for the health care system. Governments took the biased advice of health care professionals without a real weighing of all the pros and cons. This prolongation in time, however, will come at a steep economic and human cost.

Unemployment Correlates with Death

In the longer term, more lives will be lost if we continue this strategy. How many victims of financial ruin will end their own lives? In the modern era, for every one percent increase in the unemployment rate, there has typically been an increase of about one percent in the number of suicides. A study conducted by Brenner in 19791, found that for every 10 percent increase in the unemployment rate, mortality increased by 1.2 percent, cardiovascular disease by 1.7 percent, cirrhosis of the liver by 1.3 percent, suicides by 1.7%, arrests by 4 percent, and reported assaults by 0.8 percent (see here). How many lost lives out of 300 million in the USA does a 10 percent, 15 percent, 20 percent unemployment rate represent? 

The use of the free market gives another strategy to control the spread of the coronavirus. For example, we now have strong evidence from trials in France and China that in 75 percent of the cases a combination of two extremely well-known antimalarial drugs (hydroxychloroquine in combination with the antibiotic azithromycin) can bring the viral load down to nearly zero after just six days (complications usually arrive after the 6th day). These drugs could make the latent effects of the Wuhan virus as mild for 20 percent as the other 80 percent, and they were recently cleared for use.

There are many other possible drug combinations that might offer similar results, but FDA and EMA regulations requiring long term testing make it much more difficult for these drugs to be available in time to treat the virus. Yet the world economy is at stake and we cannot sit and argue on the quality of the water while our house is burning down.

It is naïve to think that businesses and people won’t adapt to the perceived threat.

An obviously better solution than sinking the world economy into a great depression is a greater use of “laissez-faire.” The current lockdown strategy is a bleak choice of (allegedly) fewer short term deaths against a much larger long-term death toll. We must return to a business-as-normal situation as soon as possible. We need to free drugs from overbearing drug regulations and make them widely available (with appropriate dosages and warnings) everywhere at a market price without the need for a prescription. We need markets to be free so they can provide a wide choice of medications.

Market-Oriented Strategy

The argument is not for a non-strategy; it is for allowing the markets to define the strategy. For example, the elderly might consider taking chloroquine preventively; it has a long history of being taken to prevent malaria in Africa. It is naïve to think that people can’t inform themselves and take appropriate actions for their own health benefits.

It is also naïve to think that businesses and people won’t adapt to the perceived threat. Restaurants can seat patrons several meters apart. Waiters and cooks can wear masks and gloves. There is an infinite number of innovative ways people will adjust. Just because we cannot imagine a voluntary market solution does not mean one does not exist. South Korea is an example to emulate. Instead of an authoritarian locking down of its people, it took a much more libertarian approach to the problem and is already showing promising results.

This market-oriented strategy is obviously not without risks, but we must move away from the current defensive 16th-century bunker mentality and consider less disastrous economic alternatives.

1. Brenner, M. Harvey (1979). "Influence of the Social Environment on Psychology: The Historical Perspective". In Barrett, James E. (ed.). Stress and Mental Disorder. New York: Raven Press. ISBN 978-0-89004-384-4.

Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank. See Frank Hollenbeck's article archives.

You can subscribe to future articles by Frank Hollenbeck via this RSS feed..

© 2020 Copyright Frank Hollenbeck - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in