Whom to listen: The doctors or the politicians?

The Third World War has arrived.  Not in the shape of an “Axis” but of a sphere, the whole earth. It is not to be fought by politicians and armies in the battlefield but by doctors and politicians in hospitals.    Like bad politics can kill many brave soldiers and poorly equipped and guided soldiers may not be able to do justice to noble national causes, the interplay between doctors and politicians can result in victory or defeat. This war is the corona virus pandemic.

To fight this war, the first thing to be known is what would happen if nothing is done and what can be done by doctors. Here come the epidemiologists. The spread of the virus can be estimated. It depends on the initial number of infected persons who started spreading the virus; the probability of transmitting the virus when an infected person interacts with healthy ones; and how many people the inflected people would interact with.

The first two are known and little can be done about them. It is the third one that is the prime policy variable. It should restrict, even stop, infected people to meet others in what is now called “social distancing”. This requires reducing mobility through lockdowns, curfews and limited transportation. A secondary policy variable is how much to spend expanding health services that understandably can cope with ordinary situations but not pandemics.

A side effect of this uncontestable medical advice is that economy can come to a halt. People will not be able to go out to buy goods and services, workers will not go to work, profits and incomes will dwindle, production will stopped and shortages will start appearing. Though the health imperatives are clear, this cannot go for ever.

So the policy questions become (a) from a health perspective, how severe should social distancing be and for how long should it be in place? (b) How much to expand health facilities and at what cost? And (c) how to minimise the loss in production, employment and incomes and thus keep the economy in hibernation so it can rebound when the pandemic retreats? Again, the first two call for almost engineering solutions and, though subject to uncertainty, the government and the private sector should respond decisively no matter what the costs might be. In any case, these medical costs will be a fraction on what it will be spent to support the economy that is the subject of the third question.

The policy focus should first and foremost be on the health side. However, the impact on the economy should also be addressed. Indeed, the big debate today is about the third question: How much governments should spend on the economy and how they will divide the funds between, on the one hand, affected industries and within them companies and, on the other hand, workers and other citizens. This is neither a health issue nor an economic issue. It is a political one.

Today, politicians are more polarised and populist than during the “economic pandemic” of 2008. Moreover, in the then Global Financial Crisis it was the economy that was sick something that called for economic solutions. Today it is the people that are sick. This provides fertile grounds for partisan debates on the false dilemma what comes first i.e. the economy or the people. It is both but, given that the economies were healthy enough to carry on as usual, had the pandemic not happened, the government’s support to the people should not be compromised by doing today what was done in 2008.

In 2008, governments wrote cheques largely without conditions attached to them. This boosted more the financial position of those that received them than investment and growth. The bailout funds were generally distributed in a way that benefitted mainly the big brothers, from banks to airlines and the stock markets that ironically scoff at governments. They were supposed to use the funds they received for investment and decent employment creation.  t the other end, wages stagnated in comparison to corporate profits and frivolous increases in executive pay. Many citizens lost their homes.

Then case of airlines in USA is indicative. They received generous support and by 2011 revenues exceeded those in 2008. By 2018, they had increased by more than half. This paved the way for their longest economic rebound on record till this year. Their share prices soared. Any good family would have set aside some savings for a rainy day. However, despite this period of fat cows, airlines used a large part of their profits to buyback of their own shares thus avoiding paying taxes. More than half of corporate profits in the US go toward share buybacks lifting company stock prices and reducing the incentive of executives whose compensation derives to a large extent from stock awards and options.

The airlines, also across the world, now argue that if “severe travel restrictions last for up to three months” the expected revenue loss would be catastrophic to them. President Tramp has already declared "We're going to back the airlines 100 per cent” adding their financial problems is "not their fault. It is nobody's fault." Neither is it ordinary citizens’ fault many of whom would have to make ends meet without support for longer than three months.  Many other citizens will face hardship from becoming unemployed or underemployed or be assigned to zero contracts, losing their livelihoods if self-employed, being unable to pay their rent, home mortgages and other loans. None of them will be backed 100 per cent by the $2 trillion package just agreed by the US Congress after delays due to exactly this issue: how to divide the funds between the big brother and the small citizen.

The pandemic and its economic fallout must be addressed at the same time.

The pandemic will require drastic lockdowns and curfews and draconian enforcement for as long as forecasts made by epidemiologists suggest. The initially success case of Hong Kong is now threatened by what turned out to be an early relaxation of these measures. This is a lesson for Jordan that so far is praised for its proactivity and the enforcement of the strong measures it has taken so far.

The economic rescue packages should pay as much attention to ordinary citizens as to keeping afloat companies, especially small and medium ones. The revival should focus on the real economy instead of the value of their shares. This requires a decisive fiscal response that at present Jordan can meet if international support is forthcoming.

The world is facing a war. During wars, governments “nationalise” production. During this pandemic, governments have an opportunity to “humanise” the economy. This cannot be but a global objective in a globalised world: the virus has not borders.

Zafiris Tzannatos has served in senior positions in international organisations and as resident adviser to Arab governments and has held several research and academic appointments including as professor and chair of the Economics Department at the American University of Beirut. He contributed this article to The Jordan Times