Question

Given all the recent news about the pandemic, I thought we could have a good discussion just on that this week! What is the economic impact of the shut downs and travel bans? What about the proposed tax breaks? What are your thoughts? There aren't right or wrong answers, but this is a good way to apply theory to the real world, so use some of those economic terms you have been learning! Feel free to post relevant news links. There are so many, I didn't pick one!

Answer 1

A sudden downswing in the global health , did not sound the alarm, the unprecedented effects of a purely health issue and its cascading effects onto the other sectors of the global economy, did not hit us hard until we realized that as a ‘one single global community’, we were already in the middle of it, with the pandemic staring at us like a huge monster and we are the hapless humans struggling to find ways to protect ourselves and tackle it. For a few months the uncertainty of lock downs and low trade was so unheard of that many did not understand fully the impact of the initial health attack.

Theoretically, we do often study that health is related to productivity , which why the developed nations have always maintained a higher standard of living, be it the USA, UK, Singapore and so on. These countries have realized that apart from a high level of per capita it is important to create a community awareness about the intensity of the ‘need for the development of basic necessities’—be it shelter, food, health, nutrition, literacy rate and so on. These indicators have been put on a higher platform by economists who support the modern argument that development is needed –an all round development not just a mere rise in per capita , which has been the traditionally considered opinion.

A small micro virus has been creating macro effects –upon various aspects of the world—social, economic, financial and administration. It has questioned the medical field and the success of its advancement, has put the doctors and health workers on a never before ‘pressure platform’, and has affected the economic well being of the world in an totally unprecedented manner, with all the features of it being a catastrophe to the economic health—what exactly do we mean by economic health – social distancing which has halted the buzz and humdrum of the modern socializing life—of free movement of people and resources, of partying and travelling, of food and media, of going to work , schools and colleges…. has in effect made a direct impact on the social life but made an indirect ‘calamity ‘ attack on the economic aspect of all these activities.

The forcible shut down has caused many a firm to face unexpected losses, unforeseen pile up of inventory and a situation of stark uncertainty , these unforeseen risks that the entrepreneur has to bear certainly determines the financial and resource resilience of the enterprise. The public authorities are in a dual pressure situation of managing the ‘virus ‘ as well as protecting the country’s economic sector. The shut downs have imposed a never before situation on commerce and trade . Some businesses, like e-retailing, medical and pharmaceuticals industries, e-learning platforms have indeed gained from the shut down but there are many more businesses and activities that have been affected very badly in the global economic scenario. Many small time businesses, offices where work from home is not possible are facing closure for lack of funds to pay even the fixed costs like rents, salaries to staff, maintenance of equipment and so on. The bigger enterprises that can risk such a scenario have effectively cu down on the costs -more so in the form of lower demand for inputs like raw materials, labor and so on. This has created a reverse multiplier effect with a fall in incomes for suppliers of raw material and higher unemployment levels, especially in the casual work force sector. The impact can be borne better by developed counties than the underdeveloped countries. These countries have a better economic system that is stronger to bear these down turns—cyclical unemployment is an essential characteristic of developed nations , it is also accompanied by frictional unemployment , which vanish with an upswing of the economic activity.

However, the impact reverberations are more acute and visible in the poor and underdeveloped countries where the basic necessities like health, housing , sanitation, food and so on are hardly adequate and are highly scarce. The medical expenses of the affected person, the lack of awareness regarding the need to maintain proper health standards, the working of an in efficient public administration , inadequate infrastructure and poor health conditions due to poor nutrition are all the causes that directly contribute to the spread of the catastrophe.

These countries are facing very high levels of unemployment – high levels of population and low literacy levels have led to a rise in the unskilled labour force , with mismatched demand and supply such that the market supply of labour exceeding the market demand , it has led to situations of open unemployment and structural unemployment. This has worsened the situation , making an economic recovery a very slow process. The GDP ( Gross Domestic Product )of such nations is registering a visible fall, with cascading effects onto other sectors of the economy. These nations are facing a slump in economic activity that may take a much longer time to lead them back onto the path of economic recovery. The loss to businesses , especially, the small time , labour intensive firms, has led to mass unemployment in such countries, thus aggravating the existing chaotic situation. A rise I n poverty levels, a fall in real incomes , rise in structural and chronic unemployment and a fall in business investments are all leading to a steeper recessionary trend. The governments are increasing their expenditures on public spending and lowering tax rates and banks are lowering interest to accelerate economic activity which needs to recover much quickly especially for such countries. Lower tax rates will lead to higher disposable incomes. This will have a rising on the aggregate demand and a general increase in the economic activities as a rise in aggregate demand will lead to a rise in the derived demand for factors of production like land, labour , capital and entrepreneur and this will in turn improve the income, output and employment levels for the economy as a whole.

The hoteling and travel sector has been one important sector that is facing the brunt of the universal epidemic . Travel bans imposed by the governments across the globe in a bid to contain the spread of the virus has led to huge losses to travel related industries—like the various forms of transport—especially the air travel, airports, unemployment has hard hit the staff employed in the related firms like travel agencies , temporary staff, casual workers and so on .The travel bans has also caused a fall in the income from tourism for the tourism sector on a micro basis and for the country on a macro basis. This has also contributed to a fall in the foreign exchange earnings, which are an important source of income to many nations. The travel bans have not only affected the leisure travels but also caused huge impacts on the business scenarios world wide. Many business related trips and programs had to be cancelled which brought in huge losses to many firms.

The rampant spread of the disease has brought to the light the ‘negative and positive aspects ‘ of globalization. The rapid spread of the disease has led to faster downfall of economic activities across the world , due to the concept of ‘global interdependence’. However, it is because of globalization that the research and development of a suitable vaccine for the disease is undertaken collaboratively across nations.