No models of measures against a pandemic
People and societies are struck by major disasters every now and then. Natural disaster and war are the typical examples. Especially in Japan, in recent years, natural disasters such as earthquakes and typhoons have occurred almost every year. A pandemic, which is a major spread of infection, is also one such major disaster. However, the occurrence of a pandemic is quite rare. Therefore, as a result of the COVID-19 pandemic, which started in 2020, we realized that we have never thought deeply about the damages a pandemic may cause to society and the economy.
In general, the stagnation of production activities is seen as one of the impacts that a major disaster can have on the economy. This is because earthquakes, typhoons, and wars typically destroy capital such as production facilities. Meanwhile, as a society in general, the pandemic led to the stagnation of the economy. However, the main cause was not the destruction of capital by the disaster, but the regulations and limitations of the economic activities by people themselves in the form of lockdowns, etc.
Of course, these limitations were meant to prevent the spread of infection. Although there are different opinions about it, we, who are still caught up in the pandemic, basically agree with it and understand it. However, it became clear that, because of the characteristics of the pandemic, we cannot sufficiently respond to the situation with the rescue and support models that are used during a natural disaster. For example, the sector in which economic activities were regulated will naturally flounder. In fact, sectors which are basically engaged in interpersonal services, including tourist and restaurant businesses, suffered devastating damage. On the other hand, spending on hygienic products such as facemasks and detergents and daily necessities such as toilet rolls increased, and those production lines had to be fully operational. Moreover, because of a compelling force, remote working was introduced for businesses, university lectures, etc., and was spread instantly. That is to say, sectors such as IT, etc., have also been booming. This means, for example, in the case of a natural disaster, basically, we only had to think about supporting all local industries and all residents, but such a support method is not effective in the case of a pandemic because there are discrepancies between the sectors.
However, we did not have any economic policy package that could respond to the pandemic. As a result, we had to find our way through everything: One hundred thousand yen was provided to all the citizens, and subsidies were provided to anyone who had to close their business. Further, we wondered: Are we going to impose a lockdown? If so, how severe? Or, should it be a request for voluntary restraint? Which sectors should we make the request to? How long should it be? Such a situation did not only apply to Japan but also countries in Europe and the U.S. In fact, some countries implemented very strict lockdowns, while other countries implemented, in a way, more relaxed lockdowns or requested voluntary restraint, like Japan. Which of them was the most effective policy? We cannot say that for sure unless we verify them from now on.
Different situation from past pandemics
This is not the first time that society has been attacked by a pandemic. The plague was prevalent in medieval Europe, and cholera was prevalent in London around the mid-19th century. In Japan as well, cholera was rampant at the end of the Edo period, and the Spanish flu spread in the Taisho period. At that time in Europe, villages and towns were locked down and a curfew was imposed, but it was difficult for them to think about it from the macroeconomic policy perspective. For example, if we impose a strong lockdown, it is effective to control the spread of infection but damage to the economy increases. If the lockdown is for a shorter period or more relaxed, the impact on the economy decreases but the prolonged infection could stagnate the economy for long periods of time. That is something that the economic world would not hope for either. In other words, the infection and the economy have something like a trade-off relation when thinking of lockdown. This is something that society at that time could not consider based on scientific analysis.
Moreover, the situation is even more complicated in our time. A private economic agent is large and can be divided into capitalists and laborers. However, under this coronavirus crisis, laborers can be divided into laborers in the thriving sector and laborers in the slump sector, which leads to three units. During past disasters, capitalists tended to be hurt by plunging stock prices, etc. However, during a year of this coronavirus crisis, when we look at these three units, stock prices rose by around 12% in Japan and as much as around 25% in the U.S. Perhaps, owing to the significant uncertainties, people became conscious about their savings, and their interest in stocks increased as a tool for that. This is also a phenomenon which could not be considered in the traditional theoretic models and was this time explained in a new theory.
However, from a macroscopic point of view, capitalists can protect their interests if the coronavirus crisis will end earlier by imposing a strict lockdown. Laborers in the thriving sector are also in favor of a strict lockdown because of the rising demand due to the lockdown. Moreover, a prolonged lockdown can also be favorable for them. Meanwhile, for the laborers in the slump sector, the stricter and the longer the lockdown becomes, the more jobs are lost and their damage increases. For them, a weaker lockdown is more favorable, although they are a little worried about the infection.
Thus, during the coronavirus crisis, something that we could not predict with traditional theories occurred. Also, the situation of a trade-off between the infection and the economy and the different interests among largely categorized three units of the economic agent was created. It was difficult to think of such a situation at the time of the Spanish flu pandemic of 100 years ago or the rampage of cholera and the plague. In that sense, owing to this coronavirus crisis, for the first time, we had an opportunity to gain insights to take advantage of in the future.
To make the coronavirus crisis into a positive motivator
As I previously mentioned, we still need some time to evaluate the economic policies during this coronavirus crisis. For example, in the U.K., which implemented a strict lockdown, the GDP decreased by around 10%, while in Japan, which implemented a so-called relaxed lockdown, it decreased by only 5%. However, we still need to follow-up on how each country will recover from now on. On the other hand, what kind of effect did the measure of Japan, providing 100 thousand yen for every citizen, have? In fact, after the provision, bank deposit amounts increased significantly. Of course, I think many people used the 100 thousand yen for their daily bills. But at that time, when it was difficult to spend money, how meaningful was it to supply the money to every citizen? It is necessary to verify this.
In addition, how can we finance the expanded government deficit due to such large-scale public spending? After all, it might only have put more of a burden on future generations. A pandemic is not the type of disaster that will happen so often. However, it is something that will come back again for sure. To be prepared for that, we should verify the phenomena and economic policies during this coronavirus crisis and pass on the insights. I think this is a mission that we definitely need to work on.
Meanwhile, the coronavirus crisis triggered advances in social change. For example, remote working had already been promoted as a working style to increase productivity, but it did not spread so easily. But it became prevalent, and ways of utilizing it also improved significantly. To make use of the technology for such working style will be more important in Japan, which continues to lose its work force. In that sense, the coronavirus situation was a good motivator.
Also from the economic growth perspective, such situation triggered new businesses to come to the forefront, while sectors which were struggling to grow in the future were weeded out. In fact, we hear that many companies have difficulties in repaying the benefit money. It is very difficult to judge how long the support should be continued for. I think it is also necessary to make assessments based on the principles of trends and cycles of economic growth.
I also believe that every citizen must have had various experiences under the special circumstances of the pandemic. One of them might be encountering coverage of the pandemic from diversified viewpoints. Take the lockdowns, for example. If we do not simply insist on yes or no and make a judgement only from one’s position, but rather each of us thinks together with other people’s opinions from various positions and various perspectives, I think it would lead to the formation of a rich and mature society.
* The information contained herein is current as of November 2022.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
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