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Epidemics and Economic Policy

Summary:
A far-reaching global crisis demands a comprehensive global response. A multilateral organization such as the World Bank or the International Monetary Fund should urgently establish a task force comprising, say, 20 economists with diverse specialties, as well as experts in health and geopolitics. NEW YORK – The number of daily new cases of the COVID-19 coronavirus is finally declining in China. But the number is increasing in the rest of the world, from South Korea to Iran to Italy. However the epidemic unfolds – even if it is soon brought under control globally – it is likely to do much more economic damage than policymakers seem to realize. Plagued by Trumpism Sean Gallup/Getty

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A far-reaching global crisis demands a comprehensive global response. A multilateral organization such as the World Bank or the International Monetary Fund should urgently establish a task force comprising, say, 20 economists with diverse specialties, as well as experts in health and geopolitics.

NEW YORK – The number of daily new cases of the COVID-19 coronavirus is finally declining in China. But the number is increasing in the rest of the world, from South Korea to Iran to Italy. However the epidemic unfolds – even if it is soon brought under control globally – it is likely to do much more economic damage than policymakers seem to realize.

In the wake of the 2008 global financial crisis, central banks led the response. As the COVID-19 outbreak disrupts value chains and raises fears among investors, some seem to think that they can do so again. Already, the US Federal Reserve has cut interest rates by half a percentage point – its largest single cut in over a decade. But the Fed’s move, without other supporting policies, seemed only to confuse markets further; just minutes after the cut, their downward slide continued.

Such stock-market gyrations say little about the actual state of the economy – that is, the world of goods and services. Rather, they reflect beliefs: not just what you and I believe, but what you and I believe about what you and I believe. In this sense, stock-market losses often become anxiety-fueled self-fulfilling prophecies.

A far-reaching global crisis demands a comprehensive global response. I do not know exactly what such a response should look like – at this point, no one does. But we can find out. To that end, a multilateral organization such as the World Bank or the International Monetary Fund should urgently establish a task force comprising, say, 20 economists with diverse specialties, as well as experts in health and geopolitics.

This “C20” would be charged with analyzing the crisis and designing a coordinated global policy response on a tight deadline. It would need to submit its first report – with a list of initial actions to be taken by governments and, possibly, responsible private corporations – within a month. Each subsequent month, it would provide an updated agenda. Over time, effective policies would take root, and the group could be disbanded, possibly as soon as a year after its formation.

Nothing the C20 did would prevent the initial direct damage to some sectors, such as tourism. And that damage is likely to be substantial. For example, the International Air Transport Association estimates that the global airline sector could lose $113 billion in sales if the virus continues to spread.

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