The Pandemic ‘Covid-19’ is among the Worst Crises that has hit the mankind all around the Globe, like never before. While the Covid-19 ‘Monster’ continues to play havoc in the lives world over, the Economy is struggling at critical stage. Amid this Pandemic there is an emerging ‘Hue & Cry’ regarding Sinking Economy and vanishing Human life.
The Whole World seems to be clueless on the future economic consequences of Covid-19. With number of different view points surfacing daily, regarding the decaying state of Economy. In this Covidnary Situation, its highly imperative to get our Economics basics Correct.
Simply put, the Essence of Economics, can be collectively understood with just three easy one liners;
‘There is No Economy without Human lives’
‘Economy cannot be segregated from Human lives’
‘Economy and Human lives are interdependent on each other’
We often complicate economics by using complicated theories and jargon, it has been our Economist ‘Dress code’ World over. In fact Economics as social science is most simplistic one. Its Interconnected and Interwoven with lives of Masses. What one needs to understand is that, Economics in simple words means “how judiciously the mankind uses all the available set of tangible and intangible resources around him, in the best possible manner.” Mind you, its not Rocket Science!
And any ‘Economic Activity’ is nothing but an interplay of Human actions, skills and ability to work with tangible & intangible resources.
Without a doubt, Economic situation of the Global World has shrunk to its lowest, since majority of economic activities are frozen for past few months now. Naturally in this scenario, a nexus of many questions gets built up within our minds. For instance, most common questions like, will there be another Great Depression or Great Depression 2.0? What measures are needed, to bounce back to normal?
Answer to the First set of question is difficult to answer, nobody can predict how severe the economic downturn will be and when will it last. It may have varied impact on different Nations just like Great Depression 1.0 (1929-39). But one thing is for sure, that this Economic ‘Fall’ will be extremely destructive and may bring disastrous ‘Bone-Breaking’ impact on our lives in coming years. If not as severe as the Great Depression, it may turn out to be its closer ‘Cousin’ whom we never liked. Severe Economic crunch, if not Great Depression 2.0 is definitely calling us.
If one goes by the history, one of the most dreadful of all ‘Economic Disaster’ that took place is called Great Depression. It lasted almost a decade, starting from end of 1929 to 1939, it shook the Globe but more severely, USA and Europe. Leaving aside the data and technicality, Great Depression 1.0 (1929-39) resulted into huge rise in involuntary unemployment, Steep decline in GDP growth and prices declined fiercely. What one should understand clearly is, “Deficient Demand” is all time favourite trait of any recession or depression.
Answer to the second set of question, What Measures are needed to lift the Economy back from ‘Covidnary’ State ? Is more simpler than what it seems. That is, we need to focus only on Basics and learn from our past of Great Depression.
The hardship of Great Depression was eased by a revolution called Keynesian Revolution. J M Keynes challenged the orthodox classical school of thought that failed to keep the economy at full employment level and could not explain the reason behind huge involuntary unemployment. The Supply-Ridden economics, “Supply creates its own Demand” failed dramatically during that Great Depression 1.0 Era.
Keynes, broke the Glass Ceiling, emerged as a ‘Magician’ with a ‘Magic Wand’ of ‘Government Intervention’ in his hands. Keynesian Approach can be summed as; first, No Economy can recover on its own, or No Economy is self repairing, especially after meeting a major Mishap. Second, Bold steps are required to lift the ground collapsed Economy and Bold steps can only be taken by the ‘State’. And finally, Government Intervention is the key, while generating Aggregate Demand is the only Doorway to End the ongoing Economic gloom.
The Simple Keynesian model of Aggregate Demand has four component, Consumption demand, Private Investment Demand, Public or Government Expenditure and Net Exports. An increase in any of the four components will act as a stimulant of GDP growth by multiple times.
During these catastrophic Corona Times, one should forget about boasting the Consumption Demand in a financially Stripped Economy. The Private Investment Demand also cannot be relied on as we cannot expect optimism from private investors. Due to Covid-19 there is an emerging wave of behavioural Phobia which has created lack of confidence and enthusiasm in the Investor Community and this pattern will continue to prevail for upcoming 1 year or more depending on the economic recovery. Even boasting Exports seems difficult now, mainly due to the new ‘Inward looking’ Trend that ‘Post-Corona Global World’ is developing slowly and this will also continue for some time. Only feasible option is raising the Government Expenditure.
The ‘State’ has to lead, all other economic actors will follow. What the World need is a ‘State Crafted Transformation’ similar to that of Keynes, in order to drag the economy out of this ‘Mortal Corona State’
Priyanka Singh is Economics, Assistant Professor, Delhi University
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