“Coronavirus Economics”: How to think outside the box in providing a Policy Recommendation

“Coronavirus Economics”: How to think outside the box in providing a Policy Recommendation

Since December 2019 the World has been gradually challenged to address two major challenges as a result of the global CoViD19 Pandemic: firstly, the global race of the scientific community for the cure, i.e. a Coronavirus vaccine, and secondly, the global financial slowdown.

Dr. Kleanthis Kyriakidis – Assistant Professor/ Program Chair for the BA in Security and Strategic Studies at the American University in the Emirates
Mr. Michael Naoum, MA in National Security Affairs, MBAc

Since December 2019 the World has been gradually challenged to address two major challenges as a result of the global CoViD19 Pandemic: firstly, the global race of the scientific community for the cure, i.e. a Coronavirus vaccine, and secondly, the global financial slowdown. Predictions about the latter according to numerous analyses throughout the world look very pessimistic, the solution however may be surprisingly easier should we think outside the box.

Countries around the world in order to address the health emergency are enforcing sooner or later social distancing and shelter in home practices. This in turn leads, again sooner or later, to an economic environment of forced lack of demand in all aspects of economic activity other than those covering essential needs of the population, namely food, medicine and fuel. The recent collapse of oil prices is a good example of this as one of the main causes was the lack of demand. This complete shutdown along with the myriads of victims would lead to an economic meltdown in the wake of this pandemic.

The traditional economic theories cannot explain or offer a solution in a non-working economy environment and on top of that the economies cannot self-regulate themselves. State intervention will eventually be triggered, the issue is how to do it. Excluding the tragic loss of lives throughout the world, nothing else actually physically occurred other than people staying at home, we will argue that in order to avoid economic meltdown states need to think outside the box during the emergency and most importantly in its wake:

First, it is imperative for states to impose an economic pause (hit the pause button and the music stops) in all non-pandemic related economic activity on the day of the 1st CoViD19 reported case. The exponential spread of the virus and the inability of state health systems to deal with a deluge of patients make this necessary. Those countries that placed economy above the safety of the population will lose multifold in economic terms for one added reason beyond the obvious ones; the public will lose faith in the governments’ ability to judge wisely what is best for its well-being.

Second, states using an appropriate amount of Trillion Dollar Coins, pump “helicopter money” to the economy following the steps below:

  • Directly to their populations in the amount necessary to address their essential needs (food, medicine and fuel) for as long as the pandemic is active. This financial aid will be limited to those that are affected by the no demand phenomenon.
  • Directly in support of their National Health Systems in order to cope with the pandemic.
  • Directly in support of their scientific research to develop the cure and the vaccine.

Third, states resume economic activity (depress the pause button and the music starts) from the exact point that was paused, once the pandemic is over in each state. Creative accounting (hit the rewind button) will be required so that the numbers globally match. The economic systems are a creation of mankind and should be controlled by mankind. Let’s think outside the box, focus on addressing the pandemic and do not allow the present health problem to translate into a future economic predicament.

It is worth noting that solidarity during and after the pandemic among countries and within societies can be instrumental in overcoming the economic consequences of this unprecedent phenomenon. All coalitions, such as the European Union must take decisive steps to mitigate the dire financial consequences of this Armageddon. Otherwise, their very existence comes into question as Euroscepticism is gaining popularity. Small nations like Greece cannot take the necessary measures to generate “helicopter money” but the European Union can do so. The Eurogroup has already decided that all the Greek government’s expenditures on its health and migration policies won’t count against GDP in 2020, as well as any emergency spending on the unemployed and impoverished but more bold action is needed.

A disturbing phenomenon that is being observed during the pandemic is price manipulation of essential items and an effort of certain individuals or groups to benefit from this at the expense of the general public. Such phenomena should not only be dealt with legal action against the perpetrators but also with media exposure.

Admittedly the Greek government has managed insofar to effect a change of mentality regarding personal responsibility and civic duty that has been commented upon worldwide. Therefore, it is essential for the government to convince Greek citizens to continue this exemplary behavior in the wake of this pandemic so as to support the national economy in a number of ways inter alia: “Stay in Greece” should become the new motto as the tourist industry is one of the cornerstones of the Greek economy. In the event that only a handful of foreign tourists come the Greek government should give financial incentives to Greeks to spend their vacations within the country. Maybe it is high time for a significant drop of VAT for all tourism-related businesses (e.g. restaurants and hotels)?  Even better, total abandonment of VAT for a year? Furthermore, it should not, under no circumstances, allow food prices to soar in the aftermath of the pandemic by price regulation and policing its implementation.

This crisis may become a golden opportunity for Greeks to change mentality as regards tax evasion and labor law. Greeks were convinced to follow the “shelter in place” orders because they trusted the integrity of Dr. Tsiordras and became aware of the catastrophic consequences of lack of prompt action in other countries. It would be advisable for the government to set up a committee of experts in an effort to salvage the economy and take much needed action preemptively on their advice. It is an undeniable fact that Greece has human capital of the highest caliber, both in Greece and abroad, that could offer the government innovative and sound advice on all fields. For instance, two significant pylons of the Greek economy are agriculture and industry, and it is common knowledge that both have suffered greatly by state intervention and ineptitude for decades. Therefore, it would be most effective to boost food security and exports of agricultural and industrial products if the government expedited necessary legislation and administrative changes.

Keeping businesses afloat, particularly small and medium-sized enterprises, with special support packages in hardest hit sectors such as tourism makes sense for several reasons. The survival of many businesses in this landscape depends, to a significant extent, on what measures the government will take to ease their financial burden and give them a grace period. For instance, assertive action is needed so as the banking sector to be “convinced” of the need for cooperation on their part. Business on the other hand should reciprocate with retaining their workforce and observing labor laws. The government could also give financial and non-financial incentives to businesses to continue operating especially in light of the rapid labor market contraction as since the beginning of March, approximately 35,000 layoffs have been registered with the Ministry of Labor. Moreover, measures to rein in the shadow/black economy that has a detrimental effect on legally operating businesses could be an extra bonus to law abiding businesses which could start perceiving the state as an ally and not a foe.

It is of paramount importance for the people to be convinced that the government is by their side, lending a helping hand and not against them. Admittedly transparency and meritocracy are needed so as the government to function effectively and people to be convinced that the whole society is doing its part. In October 1940 Greeks wholeheartedly enlisted and went to fight because they knew that were all on the same boat. Odysseus Elytis, the Nobel prize laureate, was a scion of the olive oil industrial Alepoudellis family but he fought on the Albanian front along with fellow Greeks from all social classes defending his country. Nowadays poor and rich alike should do their part for the national economy to survive this trial or else face the consequences.

Gloomy predictions of a worldwide economic recession, worse than that in the wake of the stock market crush in 1929, with Greece facing an economic contraction by as much as 20%, should mobilize the government which can ride on the wave of the positive feelings towards Greece, both internationally and domestically, for first time in ages. Economy is a matter of psychology and decision makers should on the one hand instill in the Greek citizens a sense of community, a conviction that it is their patriotic duty to do their part, a sense of trust towards the state while on the other hand they should negotiate hard with the European Union and the markets on lending a helping hand.

Concluding, it is worth pointing out that “helicopter money” is a sine qua non for mitigating the effects of the looming global economic crisis as a result of the CoViD19 pandemic. Nevertheless, bold preemptive action is needed promptly as well. To jumpstart the Greek economy the government would need to pick the brains of experts and be assertive in the implementation of the necessary measures. Most importantly, it needs to win the hearts and minds of the Greek public with its sincerity and transparency. The relations between citizens and the state have turned over a new leaf because of the government’s prudential handling of the pandemic consolidating a heightened sense of solidarity. Regarding the looming economic catastrophe all stakeholders should take into consideration the fact that in order to avoid social unrest and division they should endorse solidarity and a novel interpretation of patriotic duty; namely supporting the national economy as a matter of personal responsibility.