The Crisis of 2020-2021 and Beyond

By Ira W. Lieberman, Paul DiLeo and Matt Colyar

This book discusses twin crises --the Covid-19 pandemic and the associated global economic crisis. The book is presented in three sections. Section One discusses the Covid-19 crisis and its global impact. This section has five chapters: (i) a short history of pandemics; (ii) the global Covid-19 pandemic; (iii) the Covid-19 crisis in the US; (iv) the importance of vaccines in resolving the crisis; and, (v) two existential questions: How does the crisis end? Are we ready for the next pandemic? Section Two discusses the global economic impact of the crisis with a chapter on the crisis in the US, a chapter on the global economic impact of the crisis and chapter three on the role of microfinance in assisting the world's poor during the crisis. Section Three addresses spillover issues. All crises have tails this one has a long tail of issues such as long Covid, mental health problems, excess deaths, increasing poverty and growing economic inequality. Finally, the book seeks to answer two existential questions: how does this crisis end? Are we ready for the next crisis?

• Language: English
• Publisher: BookBaby
• Release date: Apr 10, 2022
• ISBN: 9781667834771

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© 2022 All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.

ISBN 978-1-66783-476-4 eBook 978-1-66783-477-1

We dedicate this book to those people throughout the world who have died due to Covid-19, those who continue to suffer due to Covid-19 including long-Covid, other side effects from the disease such as mental illness and suicide attributed to isolation during the pandemic, intimate partner and child abuse, and excess deaths due to illnesses not attended to during the pandemic.

Also, to front line workers such as doctors, nurses and other medical and hospital staff who have worked so hard and sacrificed so much attend to those taken ill due to Covid-19.

Finally, to those scientists who dedicated themselves to developing vaccines and other medical treatments to prevent severe illness and death due to Covid-19.

Contents

INTRODUCTION

SECTION I THE COVID-19 CRISIS

CHAPTER ONE

Brief History Of Plagues And Pandemics

CHAPTER TWO

The Covid-19 Pandemic – A Global Crisis

CHAPTER THREE

Returning In More Detail To The US Experience, The Fourth And Fifth Wave And The Arrival Of Omicron

CHAPTER FOUR

The Critical Role Played By A Vaccine In Resolving The Crisis

CHAPTER FIVE

How Does This End? Are We Ready For The Next Pandemic?

SECTION II THE ECONOMIC IMPACT OF THE CRISIS

CHAPTER SIX

The Economic Crisis In The US

CHAPTER SEVEN

The Global Economic Impact Of The Crisis

CHAPTER EIGHT

Responding To The Crisis: Was Microfinance Missing In Action?

SECTION III

CHAPTER NINE

Spillover Issues To Be Faced In The Aftermath Of The Crisis

CONCLUSIONS

INTRODUCTION

Economic and financial crises have occurred frequently throughout economic history. Global crises such as the Great Depression, the Great Recession and the crisis we are now facing less so¹. Crises usually start with a bust such as a stock market crash or real estate bust or both and invariably lead to a financial and economic crisis. At times, they lead to a sovereign debt crisis requiring a bailout by a lender of last resort such as during the last crisis, the Great Recession, as the Troika in the case of the Euro Zone or the IMF supported by the World Bank, regional development banks and the G7 in the case of emerging market and developing countries (Mexico (1994), East Asia (1997), Turkey (2001) and Argentina (2001)).

Crises are complex frequently termed a financial crisis, currency crisis or sovereign debt crisis; they are often all these things as a financial crisis leads to an economic crisis to a major currency devaluation and at times to a sovereign debt crisis. Governments find themselves needing to address all these dimensions at the same time. This means they need robust institutional capacity often creating ad hoc institutions focused specifically on the crisis such as asset management agencies, or corporate restructuring commissions. They need to adopt policies and laws rapidly to address the crisis. They invariably need to retain outside advisers from the private sector to augment government human resources and also to provide expertise in the case of bank and corporate restructuring, in creating and managing asset management agencies and the re-drafting of bankruptcy laws.

Crisis response also requires speed, agility, substantial financial resources, a lender of last resort primarily the national central bank to provide liquidity to the banking system and frequently an international lender of last resort.

Crisis resolution is difficult because governments operating in what is equivalent to the fog of war must make difficult decisions quickly and often with very little real time information to rely on.

The current global crisis is different, it is sui generis, more complex and even deeper than the recent crisis, the Great Recession. The economic crisis is driven by a health crisis—a pandemic triggered by a virus—a coronavirus SARS-CoV-2, Covid-19, the Coronavirus. This pandemic is the most extensive global pandemic for a hundred years since the Spanish Flu Epidemic of 1918-1920 discussed in Chapter One herein a Brief History of Epidemics / Pandemics. The economic crisis cannot be addressed separately or distinctly from the health crisis. First and foremost, countries need to address the health crisis, try to flatten the curve of people affected by the virus, test and treat their population impacted by the virus and only when cases have severely diminished, will economies and society be able to resume normalcy. This is often referred to as an endemic state.

Most of all the resolution of this pandemic has depended on the development of vaccines to inoculate and protect the population. In record time, two vaccines were developed and approved on an emergency basis in the US, the UK and the EU, as well as in a number of emerging markets and developing countries. These vaccines developed by BioNTech (a German biotech company) and Pfizer and by Moderna (a US biotech company) are based on mRNA technology, which had been experimented with for some fifteen years but never previously utilized in an approved vaccine. Within one year of the coronavirus’ discovery, these vaccines, judged by scientific and medical panels to be safe and up to 95 percent effective against severe illness and death, were approved by regulatory authorities on an emergency basis and were being injected into the arms of both front-line workers and older adults deemed to be most at risk to the virus. In addition to these two vaccines, other vaccines under development were announced more-or-less concurrently or soon after these two vaccines and approved on an emergency basis by regulatory authorities; these are a vaccine developed by Oxford AstraZeneca, three vaccines developed in China, a vaccine developed in Russia, a vaccine developed in India, a vaccine developed by Johnson and Johnson in the US and others still in development. Chapter Three discusses the Critical Role Played by Vaccines in Resolving the Crisis.

Even with the development, approval, and initial roll out of these vaccines, there remains great uncertainty with respect to this global health crisis—how long will it take to vaccinate people on a global basis to create so called herd immunity and to reduce the number of cases to acceptable levels, however defined, so economic activity can resume safely? While it is anticipated that the population of most of the advanced economies will largely be vaccinated by end of 2021, the production, distribution, and vaccination of the large remaining populations in emerging markets and developing countries, particularly the poorest developing countries such as those in Africa, will take through 2022 and probably beyond to be completed.

The drive to protect the population of the world on a timely basis is juxtaposed against various variants or mutations of the coronavirus that have to-date manifest themselves in Great Britain, Brazil, South Africa, and India and have begun to spread throughout the world. These variants, particularly the Delta Variant, which first emerged in India and is infecting most of the world, has been judged to be significantly more transmissible and possibly more virulent than the original coronavirus, which emerged initially in China. With the completion of this manuscript as of end November 2021, almost two years since the start of the pandemic, the Southern Africa, the US, Europe, and most of the world are experiencing a new wave or surge in infections due to the Omicron variant, which emerged from Southern Africa. When combined with seasonal change just before the winter and the winter holiday season, this wave has produced a large number of infections due to its high level of transmissibility. Due to this variant, new levels of hospitalizations put significant pressure on hospital systems and deaths. Yet in both Europe and the US there remains significant vaccine resistance, leaving significant numbers of people unvaccinated and targets for the virus. There is also strong resistance to vaccine mandates, for example in Austria and the US, and proposed new lockdowns in several countries in Europe.

Earlier in 2021, Brazil and India experienced massive surges tied to their own variants that have infected, hospitalized, and killed a large number of people and have overwhelmed their respective health care systems. Officially reported deaths are viewed as significantly underreported. South American cases surged due to the Brazilian variant. Cases surged in parts of Asia—Nepal, Indonesia, Bangladesh, and Vietnam as examples largely due to the Delta (Indian variant). This variant is present throughout the world and represented over 90 percent of infections worldwide until the Omicron variant began to crowd it out as of end November 2021.

To date, the vaccines, with exception of the Chinese vaccine made by Sinovac, have been evaluated as largely effective by scientists against these variants particularly with respect to serious illness leading to hospitalization and/or death. However, effectiveness has waned over time and specifically against the Delta variant and more recently against the Omicron variant such that the advanced economies, starting with Israel, are administering booster shots to increase efficacy and limit breakthroughs. Israel was administering booster shots to all adults over 50 years of age and by year end 2021 began to administer a fourth shot to immunologically compromised and older segments of its population. The US Food and Drug Administration (FDA) and Center for Disease Control (CDC) initially approved and recommended, via an emergency authorization, the use of boosters for all adults over 65 years of age or those 18 or over who are immuno-compromised.² Soon thereafter, the FDA and CDC approved boosters for all adults over 18 years of age and by year end 2021 for all teens. Europe, starting in the UK, but now most European countries have also begun administering boosters. The approval in Israel was for the BioNTech Pfizer booster, and initially in the US Boosters have also been approved for Moderna’s and Johnson and Johnson’s vaccines.

There has been strong push back on the idea that the west will provide boosters to its population before the developing countries receive a sufficient supply of vaccines to provide at least one injection to their population. The World Health Organization (WHO) has strenuously objected to boosters. Vaccinations on average for poor developing countries is less than

5 percent of the population leaving the populations of these countries totally vulnerable to the coronavirus (see Chapter Four for a discussion of and data on vaccinations by regions and countries).

To date (as of end 2021) emergency approval of vaccines in the US has occurred for adults 16 years of age and above, for children 12-15 years of age, and more recently for children 5-11 years of age. This is a critical next step as children are back at school in person and though mostly masked, illness due to the Delta Variance has risen sharply among young people since the summer and there is significant concern due to the Omicron variance.

Perhaps the most significant problem in preventing resolution of the pandemic in the US is vaccine resistance. To some extent this is a global issue, but one that has become acutely political in the US. There have been clusters of resistance to vaccinations in the Southern and some western states in the US such that states such as Alabama, Louisiana, Mississippi, Idaho, and Montana have experienced spikes in hospitalizations and deaths. Alabama has had more deaths than births in 2021. Misinformation and disinformation, so characteristic of the present politicized social climate in the US, has played a significant role in deepening vaccine resistance and promoting cures such as de-worming medicine for animals, which not only do not work but may be harmful to individuals using them.

Scientists warn, that to the extent there are a large number of cases of the coronavirus still circulating throughout the world, the virus will continue to mutate and the potential exists for yet deadlier viruses or those that are able to escape the effectiveness of the vaccines. The Omicron variant discovered in early November 2021 in southern Africa represents just such a threat. It began surging in South Africa, and was soon thereafter found present throughout the world. Its 50 or so mutations, 30 of which are on the protein spike, gave scientists throughout the world great concern as to its transmissibility and its ability to evade the currently available vaccines. Reliance on vaccines to resolve the health crisis is putting a lot of eggs in one basket. Production, distribution and injecting a sufficient number of people throughout the world will take time and large-scale human capital and institutional capability, substantial financial resources and the will of the populations of these countries to step-up and take the vaccine, that is overcoming vaccine hesitancy. Complicating factors are—whether or not the vaccine requires two or three shots and possibly even four; under what conditions it needs to be distributed and stored; maintaining quality control during production; securing adequate raw materials and supplies to produce the vast quantities needed; avoiding unanticipated or unplanned production disruptions; how effective the vaccine really is particularly with respect to the length of immunity, which only time will tell; and whether booster shots or annual shots as with the flu will need to be given to the world’s population.

A successful vaccine is unlikely to overcome the lack of discipline in other measures—wearing masks, social distancing, avoiding crowds and social gatherings, testing and contact tracing for affected individuals. The vaccine has also been politicized with both China and Russia promoting their vaccines to developing countries without finishing or disclosing the results of Phase Three trails. The Trump Administration initially pushed the idea that they would have a successful vaccine out and approved prior to the US Presidential election on November 3, 2020. Clearly, this did not happen, but it did make many people in the US nervous about being first in line to try a vaccine approved by the Administration. More concerning has been the difficulty that poorer countries have in obtaining vaccines largely locked-up by the advanced economies for their own economies. A consortium, COVAX, supported by the World Health Organization (WHO) and GAVI, the Global Vaccine Alliance, a number of donor countries as well as private donors such as the Bill & Melinda Gates Foundation, has raised several billion dollars to purchase and distribute vaccines to the poorer countries but actually getting sufficient vaccines has proven difficult. In March of 2021, COVAX began to distribute initial quantities to countries such as Ghana, Nigeria, Gabon, and others.

China, the original source of the Covid-19, has been highly successful in containing the virus by intensive testing, contact tracing, and quarantining of affected individuals, as has several other Asian countries like Hong Kong, Taiwan, Thailand, and South Korea. Their governments have been willing to take aggressive action to tamp down the virus such as frequent testing, contact tracing and compulsory quarantining. Their populations are culturally highly disciplined and willing to wear masks and socially distance, as is their habit when catching the cold or the flu. A smattering of other countries notably Canada, the Nordic countries, with the exception of Sweden, Australia, and New Zealand have also largely contained the virus. There is some optimism that these countries will continue to contain the virus and that their economies will have restored economic growth in the last quarter of 2020, or first quarter of 2021 or at least have stopped the bleeding. Full economic recovery, assuming the world economy remains global, will depend on restoring growth in the US and Europe and in important emerging market economies. With vaccinations proceeding at a rapid pace in the UK, the US and after some delay Western Europe, the advanced economies, including China, began to grow strongly in the second half of 2021 and will continue albeit at a slower pace in 2022. But expectations for renewed growth does not exist for a number of emerging markets and developing countries due to the lack of availability and progress in vaccinating their populations (see Chapter Six: The Impact of the Crisis on the US Economy and Chapter Seven: The Global Economic Impact of the Crisis). Emerging market and developing countries vary greatly, but the virus has greatly impacted important emerging markets and developing economies such as in Latin America, above all Brazil, but also Mexico, Peru, and Argentina, and also India, Russia, Iran, Turkey, South Africa and Nigeria as examples. Emerging markets and developing economies with fragile public health systems will largely be dependent on constraining the virus through the same discipline that applies to the US and Europe, but their economic recovery will in large part depend on global economic recovery, a lender of last resort such as the International Monetary Fund (IMF), supported by the World Bank and the various regional development banks as in recent economic and financial crises such as the sovereign debt crises of the 1980s or the emerging market crises of the mid-90s to mid-2000s.³

This does not mean that governments do not need to address the economic crisis in parallel with the health crisis, but it does mean that economic recovery and success in economic crisis resolution will be driven by the trajectory of the health crisis, yet unknown. This implies greater uncertainty making it difficult for government and business leaders to make sound decisions with respect to crisis resolution and recovery. The US also faces substantial regional disparities and adherence to crisis norms between major urban versus rural areas and the south and southwest versus the east with the country bitterly split along political lines the so called red (Republican) and blue (Democratic) states.

The economic recovery may follow a yet to be determined cycle. But this is likely to be a long crisis, extending throughout 2022 and possibly into 2023 for the developing countries and not a V-shaped crisis as initially projected by several economists. The economic impact such as poverty creation in the developing world, high unemployment, the exacerbation of income inequality in the US, debt overhang in much of the world, failure of thousands if not millions of Micro, Small and Medium Enterprises globally and the need to restructure large firms in sectors such as the airline industry, retailing, travel and leisure and commercial real estate is likely to last well past the initial return to growth. Crises have long tails, and this crisis is likely to have a very long tail. These spillover issues are discussed in Chapter Seven Spillover: Issues to be Faced in the Aftermath of the Crisis. This also means that governments in addressing the economic aspects of the crisis will need to be acutely agile and flexible. Initial resolution approaches will invariably need to be amended and augmented.

This crisis is also different in its sequencing. Normally, crises start with a bust such as a stock market or real estate bust, as was the case in the Great Depression or the more recent Great Recession, requiring that the financial/banking system is addressed after a period of hyper financing has left the banks and non-bank financial institutions over leveraged and in trouble due to rising non-performing loans (NPLs). Invariably, governments, central banks, and lenders of last resort such as the IMF pour large sums of money into bailing out the banks to protect depositors and to restore lending to the real sector. In this case, the real economy especially small and medium firms such as restaurants, bars, service establishments and retailers, as did select sectors such as the airline industry, went into distress first and banks and other financial institutions may invariably face serious problems, but down the road. The sequencing of this crisis is different and unique from past crises. Instead of pouring financial resources into the banks and other financial sector institutions, government have incurred large fiscal deficits to retain employment (the primary approach of the European Union), to support small and medium sized companies and to provide social support to the unemployed. In developing and emerging market countries, the microfinance sector, serving some 200 million very poor people, is playing a vital role in supporting micro and small enterprises, family firms whose surplus feeds the family, provides health care, clothing and fees for schooling.⁴ The role of microfinance in supporting the very poor during the crisis is discussed extensively in Chapter Eight: Microfinance—Responding to the Crisis: Has Microfinance Played a Role?

This book first (Section I) examines the Covid-19 pandemic beginning with a chapter, Chapter One, on historical pandemics, with a discussion of the Spanish Flu of 1918, the last pandemic to result in both a global health pandemic and a global economic crisis. Chapter Two discusses the Covid-19 crisis and how it has evolved and spread globally over the last 18 months in a series of waves fueled by several mutations or variants. Chapter Three details the US experience including several issues related to the crisis such as: (i) excess deaths, (ii) other health and related problems resulting from the crisis such as long Covid, mental illness—anxiety, depression and suicidal tendencies, domestic violence, and substance abuse; and (iii) the direct economic costs of the crisis in terms of projected deaths and income foregone, as well as the costs of extended care to former Covid patients who need on-going assistance as a result of the virus. Chapter Four evaluates the importance of vaccines as the primary way to resolve both the health and economic crisis. The chapter discusses: (i) the various vaccines that have been tested and approved and that are being used to provide immunity to the world’s population, their efficacy and protection against the spread of Covid-19 and its variants; (ii) the difficulties of producing, distributing, and vaccinating some eight billion people throughout the globe; (iii) the divide between the advanced economies and the emerging and developing countries in terms of vaccine availability, distribution and level of vaccination to produce the protection required to allow the world achieve a state of social and economic normalcy, however defined. In Chapter Five, we ask and try to answer two existential questions: (i) How does this pandemic end?

(ii) Are we ready for the next pandemic?

In Section II, the book looks at the projected economic