By Rashi Seth
April 19, 2020
EVERYWHERE, the Globe – The pandemic began in Asia, rapidly ripped through European capital cities, and wiped out a third of the human population. When the spread was contained, the revolts commenced, institutions collapsed, and society was in need of an economic reconfiguration.
This is essentially the abridged history of the Bubonic plague that spread from Mongolia to Europe in the 1340s. Contrary to today’s situation, the economy at this time was overwhelmingly based upon local agriculture and crafts, contributing to a relatively quick economic revival.
The COVID-19 pandemic has already forced massive changes with no end in sight. Today’s capitalist economy faces its own nightmare; the virus may kill 1 to four percent of those infected. First, we have seen the partial shutdown of life in major economies like China, India, most of Europe, and numerous states across the US, leading to a temporary suspension of the supply chain. Second, the stature of political elites has suffered serious damage. Politically motivated denials of the seriousness of the crisis and the absence of an effective healthcare system has cost 165,000 people their lives. Third, the deteriorating consumer spending in our economic system is certain to provoke a deep recession — one worse than the 2008 financial crisis. Currently, prices for market shares are plummeting, hurting middle-class families and pensioners who have funds to invest. Lastly, the financial solvency of hotel chains and airlines is in question due to the temporary shut down of the tourism industry.
States have launched their economic responses to deal with the crisis, but the implications could have an even more devastating effect on the economy. The American government plans on injecting 2 trillion dollars in the economy as a rescue measure, in the form of direct payments and loans to business. Central Banks have switched to a new form of quantitative easing, notably different than the approach taken in2008 in which banks minted more money to address the need for solvency. The problem that has arisen after the 2008 crisis is that instead of paying back the debt, the global economy amassed up to $72 trillion of it as of 2018. This crisis is different from that of 2008 since we had a weak foundational economy to begin with — the post-2008 economy “grew” only due to government bailouts and central banks printing money. For this crisis, the already weak economic foundation is collapsing as economic life in a capitalist system is based upon the principle of people going to work and spending their wages. This pandemic is compelling people to stay at home and away from all the places where people spend their hard-earned salaries, leading to demand shocks that cancel out the efficiency of injecting money into the economy.
Leftist economists believe the crisis will lead to the implementation of three major policies: governments paying citizens a universal income as long as paid jobs remain scarce, state bailouts, and public ownership of major corporations, which cannot be run for profit. While Ian Smith believes universal payments “might discourage people from going to work,” libertarians believe in the need to design institutions instead of scraping away at free markets. They perceive states’ control of central banks as an admission of moral defeat by capitalism since it should not be the central banks’ responsibility to push for economic growth by printing money.
If leftists are right, the new capitalism that emerges following this pandemic will pay billions of dollars as income payments for citizens, hotel chains and airlines will be nationalized and much of the for-profit model will be broken. Additionally, under these circumstances it is difficult to determine how low the GDP may fall, depending on how much debt comprises each country’s domestic product. These potential defaults on large-scale debt present a real possibility of the destruction of the western multilateral order. In a scenario in which there is a disintegration of government in fragile states like Venezuela and Ukraine, the temptation to reorient global hegemony by states like China, Russia, and the US would be strong.
Similar to the 2008 crisis, this crisis may also result in calls for austerity — leading to wage cuts, health cuts, and tax increases in order to reduce government spending and decrease public debt. To effectively assess how our economy should progress following this crisis, we need a framework formulated not just by political elites, but by those who are most affected by it. As the middle class and wage workers suffer the most under these pandemic conditions, it is of paramount importance that these voices are heard and understood in any economic reformulations in the process of recovery
In the 2020s post-pandemic era, traditional capitalism seems unlikely to survive. The only way forward is to adopt the features of post-capitalism. If the great plague triggered the end of feudalism, we can hope that this pandemic leads to the end of capitalism as we know it.