ECQ extension and exponential economic decline

FROM FAR AND NEAR - Ruben Almendras (The Freeman) - April 28, 2020 - 12:00am

COVID-19 is going on its fourth month and as of April 25, there are some 200,000 deaths and over 2,900,000 infected worldwide. In the Philippines, reported deaths are 494 and 7,294 infected. The infections are likely underreported due to the lack of testing, so the death rates are the more important statistic. On the other hand, the variety of lockdowns and quarantines implemented by governments have been in place for 30 to 60 days. Depending on how fast their governments reacted, these lockdowns have wreaked havoc on the economies of individual countries and the whole world. A worldwide depression is predicted which means the world GDP will decrease instead of grow in 2020. Unemployment will skyrocket and livelihoods will disappear. The US alone lost already 26 million jobs, and with the problems of the travel, tourism, airline, cruise ships, hotels and restaurants, so world unemployment will be in the hundreds of millions.

The quarantines/lockdowns or ECQ was/is the best option to flatten the contamination curve because of the unpreparedness of most countries to do mass testing, tracing, and isolation. Germany, Iceland, Taiwan, and New Zealand, who incidentally have women as leaders, acted earlier in testing and isolating were able to abbreviate the lockdowns and minimize the contaminations and the dire economic effects. This was important because the longer the lockdowns, the greater the economic decline/problems. The decrease in economic activity is inversely related to the extent and the length of the lockdown. In fact, the economy decreases “exponentially” after 40 days of lockdown. While the pandemic curve is flattening due to the stricter lockdown/ECQ, the business activity is also flattened and even goes under or craters, and the longer the lockdown is in place, the deeper the economic downturn.

Over and above the visible and anecdotal stories of people lining up for basic necessities and handouts from the governments, the desperate situation of most daily wage earners, and some food riots in parts of Africa, the wealth/resource distribution in all societies validates the unsustainability of an extended lockdown/quarantine. Around 10% of the population can survive a year without earnings, 20% may survive 60 days without earnings, 30% may survive 40 days without earnings, but 40% cannot survive without their daily cash earnings. Workers paid on a daily basis, the hawkers, the small business owners depend on their daily income to put food on the table. All the governments and private sectors are providing aids and subsidies, but it cannot be sustained even by the richest countries in the world. The lockdown is wiping out the demand side of the economic equation, thereby extinguishing the market and the temporary dole outs aren’t enough to replace and maintain the market. Eventually, in the absence of a market, the supply side will also contract as producers of goods and services will only produce what can be sold. Then, the economy goes on a vicious downward spiral into a depression. This scenario may vary from country to country depending on their level of economic development, with the least developed getting a bigger hit. The Philippines is somewhere in the middle.

Life is a trade-off, and some have even coined the choice as between “Health vs. Wealth”. However, this is not a one-to-one equivalence but more of “the greater good for the greater number”. Assuming that 50 million will have been infected, a 2% death rate will mean 1 million people will die. On the other side, if just 1/10 of 1% of the world’s 7.4 billion population will die of hunger or other diseases in the same time duration due to the pandemic lockdowns, that would mean 7.4 million people dead. This is why lockdowns cannot be extended for longer periods.

  • Latest
Are you sure you want to log out?

Philstar.com is one of the most vibrant, opinionated, discerning communities of readers on cyberspace. With your meaningful insights, help shape the stories that can shape the country. Sign up now!

or sign in with