The economic consequences of the lockdown

Adam Tooze is one of the world’s outstanding economic historians.  He is the author of The Deluge: The Great War, America and the Remaking of Global Order, 1916-1931; The Wages of Destruction: the Making and Breaking of the Nazi Economyand Crashed: How a Decade of Financial Crises Changed the World.

In the interview above, he talks about the impact of the coronavirus on the global economy.  The actual interview begins about four minutes in.

He points out that ending the lockdowns won’t automatically restart the economy.  Ford and General Motors closed their plants without any lockdown order.

Labor unions that represented their workers protested working under unsafe conditions.  Suppliers were unable to provide necessary components on schedule.  And the automobile sales collapsed.  So what was the point of staying open?

Tooze also says that the talk of being in a war economy is wrong.  In a war economy, the objective is to mobilize everyone to produce war materials.  In a pandemic economy, the objective is to limit production to what is absolutely necessary. People should be paid to stay home to help limit the spread of the virus.

He doesn’t predict a second Great Depression, but neither does he rule it out.

He had other interesting observations about the pandemic and lockdown in an interview with economist Tyler Cowen.

COWEN: Let’s go back to the Spanish Flu of 1918–1919. Do you think that Western economies were better equipped to deal with the pandemic, in percentage terms, at that time than they are today?

TOOZE: Well, it’s an interesting question, and it’s an interesting way of putting the question. What’s been striking about the 2020 pandemic is that we have chosen an extraordinarily high-cost route. We have chosen a comprehensive lockdown as the default strategy for dealing with this.  As far as I’m aware, no one attempted anything remotely like that in response to Spanish Flu.

At the local level, there were efforts, city by city, but there were no comprehensive national lockdowns.  In fact, if you study the economic history record, the archive of that period, the policy decision-making in, say, the Weimar Republic, which I’ve spent some time on — all the minutes of the Versailles Peace Conference — the flu barely figures.  It figures in a sense that occasionally a prominent person will get sick, famously President Wilson.

The idea of a kind of comprehensive lockdown as part of a public health response, as far as I’m aware — and of course, this has taken us all aback and has caused us to reflect on what we might have missed in the historical record — I don’t remember it arising anywhere as an option.  And we know that the consequences were, of course, dramatic in terms of the loss of life, particularly in what was then the imperial world; the colonies, so-called, in Africa and India.

I still accept the necessity of a lockdown.  It’s not as if the economy would have functioned as usual in the absence of a government-ordered lockdown.

But I can understand why some people are protesting the lockdown.   It is creating real economic hardship.  It can’t go on indefinitely in its present form.

As I see it, the problem was not so much the lockdown itself as failure to anticipate and prepare for the consequences of the lockdown.

LINKS

BLOG – Adam Tooze.  Includes his Twitter feed.

Adam Tooze on our Financial Past and Future (Episode 95 of Conversations With Tyler)

The Quarantine Is Failing Because Our Institutions Weren’t Built for It by Benjamin Studebaker.

[Note: I added the paragraph about the Great Depression a few hours after I  made this post.]

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