The response to the COVID-19 pandemic will bring about serious change. Factory and service jobs, for instance, will be assumed by robots. There will be more inequality between and within countries, as governments will play a larger role in the lives of citizens.
“Big government staged a comeback as the social contract between society and the state got rewritten on the fly,” wrote authors at Bloomberg. “It became commonplace for authorities to track where people went and who they met—and to pay their wages when employers couldn’t manage it. In countries where free-market ideas had reigned for decades, safety nets had to be patched up.”
How else to pay these bills then to run budget deficits that added up to $11 trillion in 2020, according to McKinsey & Co. Taxpayers, naturally, would have to end up footing the bill.
According to the article, a “big rethink in economics” will rewrite the rules of public debt. “The new consensus says governments have more room to spend in a low-inflation world, and should use fiscal policy more proactively to drive their economies.” In other words, Modern Monetary Theory is part of the so-called “new normal.” What does that mean?
“Central banks were plunged back into printing money,” the authors wrote. “Interest rates hit new record lows. Central bankers stepped up their quantitative easing, widening it to buy corporate as well as government debt.”
The monetary interventions of 2020 created some of the easiest financial conditions in history “and unleashed a frenzy of speculative investment, which has left plenty of analysts worried about moral hazards ahead.” Poor countries will be forced to tighten their belts sooner or risk currency crises and capital flight.
Since central-bank policies have already been embarked upon, they will be difficult to reverse. Interest rates could stay low for as long as a quarter-century after the pandemic first struck, with rates some 1.5 percentage points lower than they otherwise would have been.
In 2020, corporate debt levels skyrocketed. The Bank for International Settlements calculates that nonfinancial companies borrowed a net $3.36 trillion in the first half of 2020. As revenues continue to plunge
Revenues continue to plunge in many industries, as lockdowns or consumer. With revenues plunging in many industries because of lockdowns or consumer caution, and losses eating into business balance sheets, the conditions are in place for a “major corporate solvency crisis,” according to one new report.
The World Bank foresees “a new generation of poverty and debt turmoil, and the IMF says developing nations risk getting set back by a decade.”
The label “K-Shaped recovery” has come to refer to the widened income or wealth gaps. One solution to that might be getting rid of the humans altogether and replacing them with robots, apparently.
“Covid-19 triggered new concerns about physical contact in industries where social distancing is tough—like retail, hospitality or warehousing,” writes the author. “One fix is to replace the humans with robots.”
Automation adoption increases during recession. Companies have explored machines that can check guests into hotels, cut salads at restaurants and collect fees at toll booths.
Two-thirds of U.S. GDP in May was generated by people working from home. Many companies have signaled this, too, may be part of the new normal. Commercial real estate to food and transportation will likely suffer as a result. McKinsey believes a quarter of business trips could move online.
When travel resumes, travelers will likely need to carry mandatory health certificates and pass through new security. In the meantime, Governments from California to the U.K. moved to ban the sale of new gasoline and diesel cars by 2035.