The Covid Crisis Will Eventually End. The Recovery May Take a Lot Longer.

By Leslie P. Norton

Carmen Reinhart, chief economist of the World Bank, says there are limits to what central banks can do help the economy./ Photograph by Zack Wittman

Could a financial crisis follow the Covid-19 pandemic? It’s a frightening scenario, but one that’s entirely plausible, says Carmen Reinhart, chief economist of the World Bank. 

This week, the World Bank forecasted that world gross domestic product would grow by 4% this year, leaving economic activity below its level before the pandemic. 

And mounting debt and risky behavior related to the pandemic stimulus could threaten a fragile global recovery. 

Reinhart is a student of boom-bust cycles, sovereign debt defaults, and other financial debacles, as well as co-author, with Ken Rogoff, of the bestselling book, This Time Is Different: Eight Centuries of Financial Folly. 

In an interview with Barron’s, Reinhart described how all of the easy money in the world can’t lead us to prosperity, notwithstanding the stock market’s belief to the contrary. Edited excerpts follow.

Barron’s: You’ve said in the past that debt from the global financial crisis would slow us down. But now, government debt is exploding.

Carmen Reinhart: This is a truly global [crisis]. You have to go back to the 1930s to see [a crisis in which] no one is unscathed, whether you’re low income, middle income, high income, irrespective of region. The accumulation of debt is also at a global scale. It’s advanced, middle income, low income.

Covid-19 has been akin to a war. You first fight the war. You win the war. And then you worry, how are you going to pay for the war? Because nothing less than human lives have been at stake here. Do I take a benign view of the debt accumulation? Absolutely not. 

It’s important to recognize that even before Covid-19, almost half of low-income countries were facing debt difficulties, or were in an outright debt crisis. So, the time horizon and severity of the consequences are very uneven. 

We’re already seeing it unfold in low-income countries, in rapidly rising incidents of sovereign debt problems. We’ve had emerging market crises: Ecuador, Argentina, Lebanon.

The advanced economies with the greatest resources have the greatest ability to withstand the debt buildup. But debt problems that this crisis is creating go over and beyond the sovereign. 

They’re at the household level, at the business level. This crisis didn’t begin as a financial crisis, but is morphing into one.

Could we, perhaps, print our way to prosperity?

Central banks—the Fed, the European Central Bank—have all been incredibly supportive to avoid an even worse outcome than what we’ve seen during the pandemic. But there’s a difference between being illiquid and being insolvent. 

Printing and liquidity provision can’t really tackle a fundamental solvency issue, namely, you just have no resources to repay.

Certainly, the low-for-long interest-rate environment makes debt servicing—public and private—much more manageable, much more affordable. But for those who have lost their jobs, the firms that have had to shut down, or countries that are being hit by a tsunami of a collapse in revenues—you don’t deal with insolvency with the provision of liquidity. There are orders of magnitude here that are beyond the reach of what a central bank can do.

What kind of recovery do you expect?

How many countries have gotten back to their pre-crisis level of per capita income?

We’re not there yet. Let’s take a standard, well-known global forecast, like the World Economic Outlook from the International Monetary Fund, or the Global Economic Prospects from the World Bank. 

Both projections, even with a V-shape rebound, still don’t get you to your pre-crisis per capita income level. That takes longer. If you look at past serious crises, that full recovery, getting back to, at a minimum, where you were before the crisis hit, is a multiyear process.

Don’t confuse rebound with recovery. We’re going to see this snapback, because we had output and employment collapses the likes of which are four standard deviations and more away from any normal downturn. The temptation is to say, aha, we’ve recovered. 

Not the same thing. And once you get into other dimensions, into things like poverty levels, it’s a very, very unequal crisis, hitting the most vulnerable most. That takes time to overcome.

How long is multiyear?

In 2008-09, it took the U.S. about five years to get back to the pre-crisis level of per capita income. 

In Europe, it has taken longer: Italy and Greece are still waiting to recover the level of per capita income of 2007. 

In developing countries, whether you’re talking about Zambia, Angola, Ecuador, or Lebanon, these are very serious crises. 

Look back to the 1980s: It’s not called the Lost Decade for nothing. 

In 1990, about 60% of the emerging markets and developing countries had per capita income levels below what they were in 1980.

The percentage of emerging market nations whose per capita income levels in 1990 were below what they had been in 1980.

There’s a huge level of uncertainty about whether either monetary or fiscal policy can sustain even a fraction of the stimulus we saw earlier this year. In the U.S., some of the risks to recovery are declaring victory prematurely and withdrawing stimulus prematurely. 

To get recovery on a sustained footing, we still need to see more fiscal stimulus. Good news on the vaccine notwithstanding, we are still seeing record infection rates.

Let me highlight another headwind to growth. By almost any realistic assessment, the issue we are looking at is more nonperforming loans. 

You don’t get this kind of economic contraction and not affect household and business balance sheets. What do financial institutions do when they’re facing compromised balance sheets? 

They curtail lending. This was a classic case in Europe after the 2008-09 crisis. In varying degrees, you’re going to see tighter lending standards, less new lending in an environment with so much uncertainty.

At what point do current central-bank policies create serious consequences?

If, in the global financial centers, you have had either negative or zero rates, for the past 200 years, it only fostered the search for yield. 

It takes you to riskier investments. It takes you down the path of skewing toward riskier projects. 

One variant of increased risk taking is skewing activity away from better regulated institutions—the banks—to more maverick, less well-regulated shadow banking.

Do you foresee another global financial crisis?

In a classic financial crisis, you have a period of a boom, fueled by credit creation, leverage, the asset price bubble. 

The bubble bursts. And you still have the leverage. Boom, you have a balance sheet problem on your hands.

This time, we may have the bust without the boom. In lieu of a big dramatic Lehman moment, what you’re likely to get is a sustained deterioration in asset quality. 

How long can small and medium-size businesses that are still dealing with the closures, with a very uncertain environment, maintain debt servicing? 

There are financial fragilities. There are financial crises that come about with less drama, [because of] a significant cumulative deterioration in asset quality. 

We are not out of the woods. This really applies globally.

The World Bank is concerned about income inequality. Do loose policies make it worse?

They already have. This is a very unequal crisis, hitting lower-income, most-vulnerable groups of the population, and across countries, as well. 

The ability to do what we’re doing and work from home has not been evenly distributed across income groups. 

The poorest countries have the least capacity to do the kind of stimulus that ensures people have even the minimum minimorum of a safety net.

The recent World Bank report on poverty and shared prosperity for 2020 showed the first spike in global poverty rates in more than 20 years. 

The inequality dimension is already very significant. Prosperity takes a long time to build, but it takes a much shorter period to destroy.

How does the developing world emerge from this crisis?

Let’s talk about China: It’s very important to understand its recovery in the developing world. Coming out of the 2008-09 crisis, China was the engine of growth for developing and emerging economies. 

In the decade that ended in 2013, China’s growth rate averaged double digits, a little over 10% or so. That’s not where China is today.

The first thing that jumps out is how successfully China was able to contain the pandemic, because everything follows from that—comparatively strong performance relative to everyone else. 

Is China going to be the kind of growth engine for the developing and emerging world that it was at the end of the 2008-09 crisis? I don’t think so.

Over the past decade, Chinese corporates took on record levels of debt. The capacity to be a vibrant exporter is very much still there, but the rest of the world is in a different shape. 

Much of China’s spectacular growth after the global financial crisis was from infrastructure investment. The idea that you can go into another mega-fixed-investment-boom is not feasible. 

And the China commodity boom, which lasted longer than any commodity boom in the past 200 years—we’re not likely to get there. Another engine was that China became the largest lender to low-income countries and some middle-income ones. 

Many of the countries now facing serious debt-repayment difficulties have taken on quite a bit of debt from China. That source of new financing is not there now.

Which countries will be in the worst shape?

If you’re a commodity producer, your export revenues have been shot. Your government revenues have been shot. 

Economic activity is less capable of rebounding if the sovereign government is in the midst of a debt crisis. The most immediately, heavily impacted are many low-income countries, but there are a lot of middle-income countries, especially in Latin America, that are hit especially hard. 

When you look back over the past 20 years, one of the great achievements of globalization was the narrowing gap between rich and poor countries. That [gap] is widening markedly again.

Thank you, Carmen.

Kuwait’s Struggle to Create a Modern State

The country’s reputation as a liberal Middle Eastern state obscures the underlying social tensions.

By: Hilal Khashan

With a free press, active parliament and dynamic political system, Kuwait is the most liberal member of the Gulf Cooperation Council. 

But its reputation as an open society masks the country’s abysmal human rights record and underlying social tensions. 

It’s a small, oil-rich country with a relatively prosperous population whose economic wealth far exceeds its level of social and political development. 

Its deficiencies in this regard are best seen in the treatment of nonnationals – including both foreign laborers and those considered stateless people who have roots in the country extending centuries.


Kuwait’s modern history began in 1716 when three tribes from north-central Arabia – al-Sabah, al-Khalifa and al-Jalahima, which together formed the al-Utub confederation – immigrated to Kadima on the northwestern coast of the Persian Gulf. 

In 1775, the Persian Zand dynasty seized Basra in southern Iraq, turning Kuwait’s port into a vital lifeline in the Persian Gulf’s northwest. But as the turmoil in Persia and Iraq persisted, wariness of foreigners grew and helped shape government decisions. 

Adverse local and regional conditions helped further divide Kuwaiti society along tribal, religious and sectarian lines.

Thus, throughout Kuwait’s history, citizenship has had little meaning other than entitlement to government welfare provisions. 

The country’s tribal structure is reflected in its political system. 

The parliament is a modern version of the "diwaniyas," or tribal meeting places, where each tribe assembles in a separate diwaniya to discuss political issues and choose its parliamentary representatives.

The tribal confederation and the business class agreed on an unwritten social contract based on Islam’s consultative system. 

The al-Sabah royals, whose reign the tribes and merchants endorsed in 1752, dismissed the consultative council in 1896. Kuwait’s first legislative council was formed in 1938 but quickly collapsed because of disputes between Arabs, Persians and commercial families. 

That same year, Kuwait’s hydrocarbon era began, refocusing its economy from commerce, pearl harvesting and fishing to oil production. 

Society discovered modern modes of interpersonal interaction, which paved the way, a year after independence in 1961, for a new social contract and an ostensibly democratic political system in which sovereignty emanated from the people.

From the onset of independence, Kuwait’s royals opposed empowering civil society because of their vested interest in preserving the state’s tribal nature and preventing the rise of strong parliamentary blocs. 

The ruling al-Sabah family considers the business elite a historical adversary and competitor, and it is determined to prevent them from regaining their political influence. 

In 2012, Kuwait’s emir changed the four-votes-per-person voting system to a one-person-one-vote system, which dealt a blow to the forces of change and precluded the opposition’s ability to form weighty parliamentary blocs.

For years, the state manipulated the tribes to strengthen its grip on power and weaken the parliament. 

The political movements that sprang up in the 1950s and 1960s – Arab nationalists, the Baath Party and Islamist political groups – failed to include broader segments of society and thus did not forge an integrated political community. 

The royals, meanwhile, failed to establish a state ideology to translate the constitution’s national principles. 

Instead, they chose to co-opt the tribes as a countervailing force to the merchants and ideological political parties. 

Despite the tribes’ increasing education levels, they remained economically disadvantaged and, more recently, began to turn on the ruling elite.


Kuwaiti society has a long history of discrimination against marginalized groups. It surged following Iraq’s 1990 invasion of Kuwait, when the entire royal family fled to Saudi Arabia and left Kuwaitis to face the unknown. 

After liberation, demands surged for a population balance policy, primarily aimed at expelling the 450,000 Palestinian expatriates living in Kuwait due to the Palestine Liberation Organization’s public support for Iraq’s invasion. At that point, running a traffic light became a sufficient reason to deport a Palestinian. 

More than 360,000 Palestinians who played a crucial role in modernizing the country were deported to Jordan. 

In 2013, the Ministry of Health introduced a new checkup protocol at public hospitals that segregated Kuwaitis from expatriates and gave them preferential treatment, even though the vast majority of the medical staff is foreign.

Since the outbreak of the COVID-19 pandemic, racism has again seen a resurgence, this time targeting Asian laborers, many of whom lost their jobs because they were seen as linked to the virus. 

Some politicians have also accused expatriates of spreading COVID-19 and overburdening the health care system. 

Indeed, many Kuwaitis, irrespective of their social standing, have negative attitudes toward expatriates, most notably laborers from Southeast Asia and Egypt. Roughly 825,000 Indians, 518,000 Egyptians and 186,000 Filipinos live in Kuwait. 

Employee abuse has particularly been an issue for the Filipino community. In 2018, Philippine President Rodrigo Duterte condemned the ill-treatment of Filipino workers in Kuwait. 

He banned Filipinos from seeking employment in Kuwait amid confirmed reports of widespread human rights violations by employers, including murder, rape and subhuman working conditions. 

Between 2016 and 2018, more than 200 Filipino workers in Kuwait died on the job, 22 by suicide. A Kuwaiti lawmaker demanded halting all foreign aid to the Philippines in response to Duterte’s criticism. 

A few months later, the ban was lifted, likely a result of the fact that remittances from Filipino workers in Kuwait are a valuable source of income for the Philippines.

There are several other anecdotal examples of the prejudice toward foreign workers. A Kuwaiti actress who disparaged Arab communities living in the country called for Egyptians to be thrown in the desert. 

An Emirati poet attempted to defend her by saying she meant Bengalis, not fellow Arabs. In another incident, a Kuwaiti food handler beat a hungry Indian laborer queuing for food during Ramadan because he was Hindu. 

Kuwaitis have mostly ignored the criticism over foreign worker abuse. They often argue that they are entitled to do what they want in their own country. 

The official response is usually that these are isolated events that do not represent Kuwaiti values. (Ironically, Kuwaiti ruler Sheikh Sabah Al Ahmad Al Sabah, who passed away last September, was known as “the emir of humanity,” despite the country’s appalling human rights record.)

Undocumented Residents

The poor treatment of nonnationals extends not just to temporary foreign workers but also to those who have deep, ancestral links to the country. 

Less than 30 percent of Kuwait’s 4.5 million residents are citizens; the rest are either expatriates residing in the country or "bidoon," meaning stateless people. 

When Kuwait won its independence from Britain in 1961, the local population totaled 310,000 people. One-third of them received citizenship as descendants of the al-Utub confederation state founders, and another one-third was also granted citizenship. 

The rest were labeled bidoon, despite the fact that their ancestors had lived in the country for centuries. 

According to official statistics, the native population has grown sixfold since independence, but the number of bidoon has remained stable at roughly 110,000 people.

The bidoon are Bedouins who, for the most part, came from southern Iraq in the 18th and 19th centuries. Their Shiite background is the primary reason they have been denied Kuwaiti citizenship. 

For many of them, their naturalization applications were either discarded or rejected by the Interior Ministry when Kuwait gained independence. Until the Iran-Iraq War in the 1980s, they received generous state benefits, but since then, they have been treated as illegals and deprived of fundamental human rights such as public education and hospital access. 

Many live in abject poverty and are seen by the public as traitors, despite the fact that many bidoon fought and died for Kuwait when the Iraqi army occupied the country in 1990. The bidoon issue is essentially a human rights matter, but the government has treated it as a political matter, one that threatens to disrupt Kuwait’s fragile social balance.

With the population balancing policy, Kuwait missed an opportunity to learn the lessons of its past. Instead of building an indigenous labor force, Kuwait has replaced Palestinians mostly with Egyptians and contracted hundreds of thousands of Asian laborers. 

The country is facing severe challenges that require substantial reforms, both political and economic. Oil, Kuwait’s sole source of revenue, is losing its luster as prices fall. The Gulf region is as unstable as ever, and expatriates are leaving Kuwait in increasing numbers. 

The pressure will continue to mount on the royal family to transition to genuine constitutionalism and on Kuwaitis to become economically productive. 

Only these substantive changes will help Kuwait transform into a modern state. 

The Myth of American Innocence

The Capitol attack shows the danger of forgetting America’s history.

By Brent Staples

The mob assault on the Capitol was an outgrowth of what came before.Credit...Erin Schaff/The New York Times

The history of the United States is rife with episodes of political violence far bloodier and more destructive than the one President Trump incited at the Capitol on Wednesday. 

Nevertheless, ignorance of a grisly past well documented by historians like W.E.B. DuBois, John Hope Franklin and Richard Hofstadter was painfully evident in the aftermath of this week’s mob invasion of Congress. 

Talking heads queued up to tell the country again and again that the carnage was an aberration and “not who we are” as a people.

This willful act of forgetting — compounded by the myth of American innocence — has shown itself to be dangerous on a variety of counts. 

For starters, it allowed many Americans to view the president’s insistence that he had won an election in which he was actually trounced, and his simultaneous embrace of right-wing extremism, as political theater that will pass uneventfully from the stage when Joe Biden is inaugurated.

“What’s the harm in humoring him?” the argument went. “Mr. Trump will soon be gone.” 

As it turns out, Republicans in Congress who played along with the ruse encouraged a mob weaned on presidential lies to believe the fiction that Mr. Trump had been robbed of a victory. 

The resulting invasion of the government — which has thus far reportedly taken at least five lives — should make clear to everyone that the potential for political violence is a proverbial river of gasoline, waiting for a demagogue like Mr. Trump to drop the lighted match.

The circumstances that led up to the sacking of the Capitol are reminiscent of the 19th century, when Southerners rolled back the period of Black self-determination known as Reconstruction, unleashing a reign of racial tyranny. 

During the November election, Mr. Trump echoed Southern white supremacists of a bygone era when he falsely asserted that there had been widespread voting fraud in majority-Black cities.

The nation’s history of violence against Black citizens echoed in the rampage.Credit...Joseph Prezioso/Agence France-Presse — Getty Images

This month, a coalition of Republican senators led by Ted Cruz of Texas summoned up this blood-drenched history when they parroted the voting fraud lie and demanded that Congress appoint an electoral commission to sort out the 2020 election.

Mr. Cruz inappropriately cited as a precedent a commission created to adjudicate the election of 1876. At the time, it was unclear who had won the election; some states submitted multiple election returns, a set for the Republican, Rutherford B. Hayes, and a set for the Democrat, Samuel J. Tilden.

Mr. Cruz’s analogy was dishonest on its face, given that there is no valid dispute about electoral votes today. But by bringing up 1876, the senator unwittingly pointed to the ancestry of the voter suppression practices in which his party is heavily invested. The 1876 election, as the historians Rachel Shelden and Erik B. Alexander noted this week in The Washington Post, was riddled with bloodshed and intimidation. 

White terror organizations targeted African-Americans throughout the South in the run-up to Election Day. In the Black stronghold of Hamburg, S.C., the authors write, “hundreds of gun-toting whites from South Carolina and nearby Georgia descended on the town, executing members of the militia and ransacking Black homes and shops.”

The federal government eventually withdrew the troops that were protecting Black rights in the South. This set the stage for the system of slavery by another name that persisted until the passage of the Civil Rights Act of 1964 and the Voting Rights Act of 1965.

The days leading up to the mob invasion of the Capitol presented several echoes of the intricately planned coup d’état carried out against the city government of Wilmington, N.C., in 1898. White supremacists overthrew a government that had been elected through an alliance that included African-Americans and white progressives.

As Mr. Hofstadter and Michael Wallace report in “American Violence: A Documentary History,” military units poured into Wilmington from other places to assist the new regime: “African continued to cringe before Caucasian as the troops paraded the streets, as the guns barked and the bayonets flared, for a new municipal administration of the ‘White Supremacy’ persuasion.”

Untold numbers of Black citizens were killed, and well-known Wilmingtonians were banished from the city under pain of death. As was the case at the Capitol on Wednesday, the Wilmington mob was especially keen to silence journalists who had resisted the rising tide of racism. To that end, the marauders burned the Black-owned Daily Record, whose editor, Alexander Manly, fled the city.

White supremacists eventually took control of the state, bringing down the curtain on Black political participation. Given this history, it is in no way a coincidence that North Carolina remains a battleground where African-Americans continue to struggle against the effects of gerrymandering and other forms of suppression.

Large and small, these violent assaults on Black self-determination continued into the 20th century. While sometimes expressly intended to destroy Black electoral power, they were just as often deployed to crush Black economic independence by destroying homes and, particularly, businesses that competed with white-owned ones in the marketplace.

Perhaps the most pointed example of such an assault was the Tulsa Race Massacre of 1921 in Oklahoma. A white mob unleashed partly by the Tulsa police murdered at will while incinerating 35 square blocks of the Black enclave of Greenwood, reducing to ashes a muscular business strip known as the Negro Wall Street.

As the historian Jelani Cobb noted in The New Yorker two months before the election, America’s record of willfully ignoring the violent suppression of Black voting rights is much more extensive than its record of protecting Black voters. 

While the public tends to view instances of election violence “as a static record of the past,” he wrote, “historians tend to look at them the way that meteorologists look at hurricanes: as a predictable outcome when a number of recognizable variables align in familiar ways.” 

As Mr. Cobb said last fall — when political violence was clearly trending upward — the metaphorical hurricane was close at hand indeed.

The mob assault on the Capitol was an outgrowth of what came before. It followed a heavily racialized campaign by a president who falsely portrayed African-American cities as hot spots of voting fraud, while endearing himself to white supremacists. 

Republicans who subscribe to this toxic strategy deserve to be held responsible for the chaos it reaps. For shades of things to come, they need look no further than the damaged Capitol and the dead and injured who were hauled away on gurneys.

Mr. Staples is a member of the editorial board.


Why stocks are still cheap relative to bonds

The expected return on equities has rarely been lower—yet still outpaces bonds

Billy connolly, the great Scottish comedian who recently retired from performing, had a joke about two men filming a lion for a wildlife documentary. The lion suddenly looks up. The men fear they have been spotted. 

One of them slowly removes his boots and puts on a pair of running shoes. “You will never outrun a lion in those,” says his colleague. 

“I don’t need to outrun the lion,” replies the first man as he slowly ties his shoelaces. “I just need to outrun you.”

The joke rather neatly captures a particular approach to investing. What matters is not so much whether you can get ahead of some absolute goal for returns. The important thing is whether the asset you choose to invest in will comfortably beat the alternatives.

Share prices in America are at all-time highs. The cyclically adjusted price-earnings (cape) ratio, a measure of value popularised by Robert Shiller of Yale University, has only twice been higher than it is now—in the late 1920s and the early 2000s. 

Yet a recent study by Mr Shiller, Laurence Black and Farouk Jivraj suggests that today’s steep stock prices may still be warranted, because interest rates are so low. Indeed, compared with the real yields offered on risk-free government bonds, equity prices have plenty of appeal. 

Equities do not have to beat their historical returns to be worth holding, it would seem. 

They just need to outrun bonds by a decent margin.

A key strut to this thinking is that the earnings yield—the inverse of the price-earnings ratio—is a decent forecast of expected returns on equities. An empirical study in 1988 by Mr Shiller and John Campbell found that yields on equities help predict long-term returns. 

The dividend yield (ie, the dividend-to-price ratio) and three different measures of earnings yield all show some forecasting power, which is to say they explain at least some of the variation in future returns. 

The longer the horizon over which returns are measured, the better the prediction. And the best measure to use is an average of a few years of earnings, because profits are noisy from one year to the next. 

The use of an average of recent earnings goes back at least to Benjamin Graham, a pioneer of stock valuation. Mr Shiller’s cape is simply an extension of this approach.

The intuition behind the predictive relationship is straightforward. 

If stock prices are high relative to a measure of fundamental value, such as earnings, then subsequent returns tend to be low, and vice versa. 

A low earnings yield implies that investors are willing, at that point in time, to accept puny returns in the future. 

If you think this is trivial, consider the following. 

Low yields might instead be a forecast of bumper corporate profits. But they are not. 

This yields-predicts-returns analysis applies to assets other than equities, according to “Discount Rates” (2011), a panoramic survey by John Cochrane of the University of Chicago’s Booth School of Business. 

High house prices relative to rents signal low returns, not rising rents. 

Credit spreads on bonds are a signal of returns, not default probabilities.

All else being equal, you should be less keen to hold equities (or keener to hold fewer equities) the lower the earnings yield is. 

But not everything else is equal. 

The price of assets should equal expected cashflows discounted over the life of the asset. 

The earnings yield gives you the “expected” part of this equation; real bond yields cover the “discounted” part. 

The gap between these two is a forward-looking measure of the equity risk premium, the excess return for holding shares.

The chart shows a crude measure of this risk premium. 

It varies over time in large part because risk appetite varies over time. 

Although it has been higher in the past, it is not obviously low now. 

In the 1990s, during the dotcom boom, the premium for owning stocks was negative—real interest rates were a handsome 4%. Now real rates are negative. 

It is not hard to outrun that sort of yield. Mr Shiller and his colleagues use a similar measure, based on cape yields, and extend it to stockmarkets other than America’s. 

Their conclusion is that, despite high prices, equities are attractively priced relative to bonds—even in America, but more so in Britain, the rest of Europe and Japan.

A jump in real long-term interest rates worldwide would upset the whole constellation of high asset prices. It is hard to be confident that this is forthcoming. In an ideal world for investors, expected returns on all assets would be better. 

But we are where we are. If you can’t outrun the lion, perhaps all you can do is to try to outrun the other guy.

The pandemic

Who should get the jab?

The answer will decide not only who survives, but also the sort of world they will inherit

The urgency of vaccination against covid-19 is growing by the day. 

Two new variants of the virus, spotted in Britain and South Africa, are spreading around the world. 

Although they do not seem to be more deadly, they are a lot more contagious, threatening to overwhelm hospitals with patients too numerous to be treated.

Salvation lies in rapid vaccination. However, vaccines will remain scarce throughout 2021, even as deaths mount along with the sense that protection lies tantalisingly out of reach for billions of people. 

Getting the details right could save hundreds of thousands of lives. Getting them wrong will shatter people’s faith in their governments, in the benefits of public health and in the world’s ability to work together.

Start with government, where accusations have already begun to fly. Although Israel had inoculated 16% of its people by January 5th, France managed just 0.01% and the Netherlands has just started. 

In Spain Madrid used 6% of the vials it had received; the region of Asturias administered over 80%. 

In America, by January 7th, the federal government had shipped 17.3m doses, well short of its target. Only 5.3m people had received shots.

Part of the explanation is structural. A small country like Israel can move ultra-cold vaccine around without it spoiling. It has a digitised health system in which patients can easily be identified and contacted. America is large and federal, and its health care is fragmented. But incompetence has also played a role. 

Although countries have had months to get ready, they have wasted time and made mistakes. America’s federal government did not adequately fund the states to prepare for vaccination until just before the new year. 

In France, where anti-vax sentiment is strong, bureaucrats focused on consent instead of action. In some places vaccinations stopped or went slowly over the end-of-year holidays.

Given the lives at stake and the trillions of dollars lost to the world economy during lockdowns, governments must be creative. Open centres at night. If medical students, vets, laboratory scientists, dentists and retired medics have not been trained to inoculate, start now. 

Urge patients to fill out paperwork online before they arrive for a jab. Rather than threaten medics with losing their licence for breaking rules, encourage them to think for themselves. Learn from others. In 1947 New York City vaccinated 5m people against smallpox in two weeks.

Vaccination is also a test of public health. When the logistics are ironed out, as eventually they will be, the limiting factor will be how much vaccine is available. 

Pfizer, Moderna and AstraZeneca could provide a little over 5bn doses in 2021, enough for around 2.5bn people. More is needed, including over a billion doses of Sputnik V, from Russia, and two vaccines from China.

Both countries have offered vaccines widely, partly as tools of soft power. However, to fulfil their potential, they need to be licensed by an independent, rigorous regulator from another country or by the World Health Organisation (who). 

If countries sidestep licensing, as Argentina has with Sputnik V, too few people will trust vaccines to stop the virus. If they are licensed without proper trials, as a vaccine made by Bharat Biotech has been in India, vaccination in general may be discredited.

Another way to stretch supplies is to administer more first doses by delaying the booster, as Britain and Denmark will and Germany may. Critics argue that the vaccine may be less effective, undermining confidence in vaccination, and that exposure to partially protected people may help the virus acquire resistance.

Supporters say they have some evidence that delayed boosters will work and that immunology suggests people will retain plenty of protection against the virus.

To resolve this dispute requires real-world trials. Until such evidence has been collected, the who has rightly discouraged countries from delaying boosters except in the most desperate circumstances. Those could include the imminent collapse of many hospitals, as in Britain.

And vaccination is a test of whether the world can work together to confront common threats, such as organised crime and climate change. Developing countries have hosted clinical trials. 

Some of them, such as South Africa, which is undergoing a fierce outbreak, also make vaccines for multinational firms. They should share in their benefits. 

Modelling suggests that an optimal global distribution of vaccine according to need could save one and a half times as many lives as focusing supplies on rich countries alone. The more the virus is circulating, the more mutations there will be. 

Shortening the pandemic would boost the world economy. America and Europe have an interest in matching the diplomacy of China and Russia.

Early criticism about rich countries monopolising vaccines is harsh. Many ordered excess because they did not know which ones would work. The Pfizer and, to a lesser extent, Moderna vaccines require ultra-cold storage that many low- and middle-income countries lack. 

But by that logic, countries like Canada, which has five doses per Canadian, should release cheaper vaccines that tolerate higher temperatures, such as AstraZeneca’s, as soon as they can.

In this they should work through covax, a mechanism for pooling the purchasing and fair distribution of vaccines. It hopes to allocate almost 2bn doses this year. 

Ensuring it has the money to buy them must be a priority. covax hopes to inoculate the world’s 100m or so health-care workers by the summer. 

It will then need to find ways to dish out vaccine by need, which varies from country to country. A global scramble for vaccine that renders covax ineffective would lead to needless deaths.

Nerd immunity

The coming months will be hard. For as long as vaccines are scarce, vaccination will be the subject of conflict and uncertainty. 

If it is perceived to be chaotic or unjust, it will be taken as yet another example of how elites fail ordinary people. 

If the rich world monopolises supplies, countries will be set against each other. Either way, people would lose sight of how, within just a year of the coronavirus being spotted, 30 countries have begun to vaccinate against it. 

And that, after all, is something to cheer.