The Dawn of a New Era

A Paradigm Shift Accelerated by the Coronavirus

Even before the arrival of COVID-19, humanity found itself stuck in several crises at once. The current shock delivered by the coronavirus could accelerate a paradigm shift that was already underway. It may result in a better and more sustainable world.

By Ullrich Fichtner

Paris, in times of the coronavirus
Paris, in times of the coronavirus / Robin Utrecht/ Echoes Wire/ Barcroft Media/ Getty Images

I. The Crash

The world that we still considered to be "normal" back in February has collapsed in an historically unprecedented crash. Half of humanity is currently adhering to some form of lockdown protocols and every single continent has been affected - poor regions and wealthy regions, urban areas and rural ones.

Huge portions of the global economy have come to a grinding halt and 180 countries around the world that just a few weeks ago were experiencing economic growth and rising prosperity have now plunged into a deep recession.

The collapse of tourism, the massive disruptions to the global transportation sector and the suppression of urban life has, in many places, affected the entire spectrum of human activity, crippling the retail, production and service industries in addition to bringing sports, the arts and cultural life to a standstill. The entire leisure industry has been paralyzed.

The World Trade Organization (WTO) estimates that global trade will shrink this year by between 13 and 32 percent – numbers that are so unbelievable that they leave one gasping for breath. Companies and entire nations will go bankrupt as a result, and the disruptions could trigger revolts and even revolutions.

In the United States, the labor market went from historically positive numbers to historically negative numbers almost overnight, an event with nothing even close to an historical precedent. Almost 22 million Americans have lost their jobs in the course of the last four weeks and economists believe that unemployment could reach as high as 32 percent this summer.

Adam Tooze, the economic historian at Columbia University, believes that if things continue on the current path, the U.S. economy could shrink by up to a quarter, similar to the crash in 1929 - with the difference that the plunge back then took place over the course of four years while the current implosion may by compressed into just a few months. "There has never been a crash landing like this before," Tooze wrote in the magazine Foreign Policy. And it is an analysis that applies to the entire world.

Wealthy countries are currently slinging around trillions of dollars to cushion the initial consequences of the disaster and help keep companies alive. It is certainly the correct course of action, but the structural fractures that are currently opening up will ultimately be unavoidable.

Many – a huge number, in fact – of the stores and restaurants that are now closed will never open their doors again. Many factories around the world that were producing at maximum capacity just a few weeks ago have shut down for good.

It will soon become clear that the question as to when restrictions should be loosened and production resumed is not the primary issue. It is very clearly one thing to enact a decree paralyzing entire industries, but a completely different one to restart them after weeks or perhaps months of stoppage.

There is no switch that can be flipped. There is no proven plan that can be turned to. In the puzzle of modern-day manufacturing practices, the near future will see myriad instances where one small piece will be missing to complete the final product.

It will take time to fill the gaps and it will become necessary to rethink entire production processes. In the globalized economy with its famously long supply chains, no country can restart economic activity on its own – not even if that country is called Germany.

Uncertainty has crept into the erstwhile so tightly planned business processes of global capitalism. The "black swan," which became known during the 2008 financial crisis as a metaphor for an extremely unlikely event, has been transformed by the coronavirus into the new totem animal of the global economy. "Radical uncertainty," which until recently was merely an abstract concern, has now become our constant companion, says Tooze.

One might even begin to believe that it would be better to start all over again from the beginning instead of trying to fix the old system one more time.

COVID-19 crashed into a world that was already in crisis.

II. The Power of Inertia

Nothing is as it was any longer, as everyone is currently saying and writing. In the German daily the Frankfurter Allgemeine Zeitung, former German Foreign Minister Joschka Fischer recently called it "the first crisis for humanity in the 21st century."

European Commissioner Thierry Breton, who holds the common market portfolio, believes that the closely networked continents will once again grow more independent of each other.

The head of the International Monetary Fund, Kristalina Georgiewa, has spoken of "humanity's darkest hour." Pope Francis believes it is now time to turn away from what he termed "functional hypocrisy." Blackrock CEO Larry Fink also wrote in a letter to investors that they must prepare for a new world of uncertainty.

Everyone with power, money and reputation is currently saying that we are facing radical change, the beginning of a new world. But what do they actually mean? Do they really mean it seriously? Is it possible that death, the great equalizer, might somehow improve humanity?

Is it possible that the virus may trigger a global moment of reflection characterized not just by fear and danger but also by new visions for the way forward in which we are able to distinguish the important from the inconsequential? Could this be the moment when we finally actually try to tackle the important tasks we are faced with?

Should that be the case, then the virus could emerge as a kind of salubrious shock leading to a new design for the 21st century. But are we ready for the realization that our lives must change and that the way our economy functioned until how was beset by too many shortcomings? Are we prepared for the recognition that the insanity of mass consumption and resource exploitation cannot continue?

Initial signs are far from encouraging. The head-butting between European finance ministers, who were only able to agree on a confusing array of aid measures after hours of contentious video conferencing, has not made it seem as though we are at the dawn of a new era.

The decision forced through by the Netherlands - and not prevented by the Germans – to force conditions on struggling countries in exchange for financial assistance was a perfect example of long-festering deficiencies.

Even beyond that, initial impressions from the approach to this allegedly world-changing crisis are sobering. The ugly international competition for masks and equipment, the unilateral border closures, the lack of international coordination on aid packages - none of that has signaled the beginning of a new epoch, at least not a good one.

More than that, the fact that some hedge funds in London earned billions in profits from the corona-induced stock market crash is reminiscent of the worst excesses of casino capitalism.

The nation-state has returned – in Europe, of all places – in all of its dark glory, and it has already served up nationalistic missteps. In her historic televised address on the eve of Germany's coronavirus lockdown, German Chancellor Angela Merkel didn't make a single mention of the European Union. There was no mention of Germany's neighbors or international cooperation, and the word "Europe" didn't make an appearance either.

The chancellor's focus was entirely on the Germans, and the same phenomenon could be observed across the continent. The French are taking care of their crisis, the Spanish are focused on theirs, as are the Austrians, the Swedes, the British, the Hungarians, and so on.

There is no sign of joint action -- and nor have many unified goals been identified. The view from the local church steeple in Europe is once again the extent of the global horizon.

Advice from international health experts and the plea from the World Health Organization (WHO) to refrain from closing national borders have been completely ignored. And now, the borders are closed, as though customs officials and border guards could stop pathogens the same way they can stop migrants.

But the most important questions have gone unanswered: How much suffering might have been avoided if, for example, eastern France and western Germany had not seen themselves as peripheral regions of the nation-states to which they belong, but instead as part of the same region in crisis? What if they had understood the cross-border region as a single zone confronting the same problems and suffering from the same shortages?

The fact that in the Alsace region, critically ill patients were transported to distant – French – hospitals despite the fact that beds in nearby – German – intensive care units were available is a function of the bad habits developed in an old world whose disappearance would be anything but detrimental.

It is shameful that Germany, the most powerful country in Europe, has again neglected to take any steps towards strengthening the union. It has once again become apparent that EU headquarters in Brussels has no power and that, in the opinion of EU member states, shouldn't get any. Old, nation-state attitudes have deep roots.

These attitudes are reflected in small things, such as the fact, for example, that political maps are consistently used to depict the expansion of this virus – as though it were a national problem. The colorings used on the maps are meant to show how each country is doing in the fight against the illness, while diagrams are used to identify model pupils (South Korea) and problem children (the United States).

Each country's supply of face masks is carefully enumerated while national stockpiles of medical equipment are compared. It may sound cynical, but the daily tables showing the number of infections and deaths look almost like the medal counts from some macabre Olympics. None of it is particularly encouraging.

A climate protest in San Francisco in September 2019: Radical insecurity
A climate protest in San Francisco in September 2019: Radical insecurity KATE MUNSCH / Reuters

If coronavirus marks a turning point in human history, then it apparently hasn't yet been reached. We apparently have to wait for the post-corona era. The general impression at the moment is not that plans for a better future are being laid. Instead, it looks more as though everyone's energy is currently being focused on returning to what was considered normal back in January or February.

The aid programs slapped together by national governments - the German one on its own has been funded with 750 billion euros – are aimed at a rapid return to the pre-corona age and its ultimate continuation. As though nothing had happened. Hopes are being nurtured that the damage done by COVID-19 can be repaired and that everything can then continue on as before. It isn't likely that such efforts will be successful. But if they are, then the world will have learned nothing from this disaster.

Finance ministers and central bankers are currently shifting around unprecedented amounts of money: millions, billions, trillions. To try to get an idea of what is at stake, a comparison with the famous Marshall Plan, with which the U.S. financed the post-World War II reconstruction of numerous European countries, is helpful. It had a volume of around 13 billion dollars, the equivalent today of around 130 billion euros.

Berlin has now made six times that sum available – for Germany alone. Given that amount of quantitative assistance, are qualitative expectations allowed? Are they, perhaps, imperative? Should the state merely be a silent partner in many companies or should it not, perhaps, speak up here and there?

Helen Mountford of the renowned U.S. think tank World Resources Institute has described what is at stake. Governments and countries that are now looking at their options for surviving the crisis, she wrote in her blog, have only two options: "They can lock in decades of polluting, inefficient, high-carbon and unsustainable development," or they can take advantage of the opportunity for a rapid reorientation.

Such hopes are being harbored by environmental activists. But there also a number of other rather large challenges at our door. After all, things were far from "normal" in the world into which coronavirus was born, the situation was far from optimal, despite our current hindsight skewed by a few weeks of crisis. COVID-19 crashed into a world that was already in crisis. Indeed, it was suffering from several crises at the same time. Or have we forgotten?

Democracies rooted in the rule of law were under attack both internally and externally – from international populists and domestic extremists.

The multilateral postwar order, with its many global organizations, was merely a shadow of its previous self, in part intentionally destroyed by the occupant of the White House, in part allowed to disintegrate by the disinterest of larger countries.

Back toward restraint, to a more clearly defined state, to security, moderation, docility and the desire for order.

The international community of nations was unable to find solutions to crises and conflicts that continue to smolder in Syria, Afghanistan, Yemen, Mali, Venezuela and elsewhere.

Vast numbers of displaced people triggered ongoing human tragedy on all continents and, in particular, between Europe and Africa.

The capitalist cycle of production and consumption seemed to have entered a late phase of decadence.

The internet, and the social media platforms it supports, had unleashed a destructive force that was corroding politics, societies and even families.

There are, in other words, plenty of reasons for resisting the urge to return to the era before the times of COVID-19 struck. The virus arrived in a world where there was already significant unease about the way things were going. It would be helpful to not lose sight of that now. Indeed, it would be advantageous if the changes we are now facing were so radical that simply continuing as before were no longer possible, if new perspectives were to open up and if a new opportunity for a different future were grasped. It is time for change.

III. A Glimpse of the Future

Throughout history, there have been numerous catastrophes that contemporaries saw as a turning point or, at the very least, as a wakeup call. The Lisbon earthquake of 1755 marked the end of an era and can be considered as one of the triggers of the Enlightenment.

The eruption of Krakatoa in Indonesia in 1883 was, thanks to the advent of the telegram, one of the first apocalyptic global news events. Rather than wondering about the degree of humankind's responsibility for large disasters, people tended to question how an omnipotent God could allow so much suffering.

The coronavirus could ultimately have similarly far-reaching consequences. Just as belief in an all-powerful God began to crumble in the 18th century, questions about the effects of human activity can no longer be ignored. It's as if the shock of coronavirus is making more palpable the multiple crises that we, more or less unwittingly, have maneuvered ourselves into.

In light of the current situation, the WWF has issued a reminder about issues that are related to the virus and the illness it causes. Those issues include advancing deforestation, humanity's encroachment on the habitats of wild animals and the sale and consumption of exotic animal species.

All of them are practices that must finally be ended, says the WWF. It is, the organization says, the only way to prevent future pandemics caused by the dangerous transfer of viruses from animals to humans, so-called zoonoses.

Hygiene at farmer's markets and street markets, particularly in Asia, needs to be prioritized by public officials - and it is in their own interest to do so. It must be permitted to ask – without being lectured about cultural insensitivity – whether the highly risky consumption of certain wild animals necessarily has to be part of a nation's culture. A critical gaze must also be cast on traditional Chinese medicine, which processes animals into pastes, powders and tinctures.

But this is no blame game and assigning such is a waste of time. Only the question of one's own individual responsibility will actually get us anywhere. Should studies produce reliable data that heavy air pollution has contributed to significantly higher COVID-19 fatality rates, then cities and industrial regions around the world suddenly have quite a few more urgent items on their to-do lists.

There are a lot of enormous questions currently in need of attention. But they no longer have to do with God. They include: Why are humans so destructive? Why are we, eyes wide open, destroying the very foundation of human life? Why have we – at a global level – been so unable to stop doing the wrong thing and start doing the right thing?

Refugees off the Libyan coast in 2017: Questions about the effects of human activity can no longer be ignored.
Refugees off the Libyan coast in 2017: Questions about the effects of human activity can no longer be ignored. / Taha Jawashi / AFP

In a shock like the one we are currently experiencing, such questions are lent a great deal more urgency. Changes already underway accelerate and previously complicated knowledge suddenly becomes so obvious that even a child can understand.

That is currently the case with the charts and graphs showing the significant reduction in air pollution as a result of the coronavirus lockdown.

They won't simply be forgotten again after the crisis is over. They will become part of our broader awareness. The colorful charts and images tell us a lot. First and foremost, that its not all in vain, that action can in fact lead to results.

It also shines a new light on the excuses employed by politicians when they claim - at least on environmental questions – that they are unable to take the steps that are required.

The images from this global lockdown – the empty cities, the quiet boulevards – will have a lasting effect on politics. How will world leaders, after placing entire nations under house arrest, explain to their citizens that a rapid ban on plastic bags is unfortunately out of the realm of possibility?

That it is impossible to push through stricter regulations for this or that chemical? Who will believe in the future that there isn't a simple way to stop industrialized animal cruelty, pesticides, noise pollution, dirty air and substandard food products? Who will re-elect politicians who do nothing to protect our climate?

IV. Paradigm Shift

COVID-19 will change the world because even before the pandemic, it was already in the grips of a far-reaching transformation. The best evidence for that transformation is the book, published in October of last year, two months before the appearance of the novel coronavirus, called "The End of Illusions."

The author, German sociologist Andreas Reckwitz, describes how societal upheavals take place, how collective thought shifts and how useful, decades-old paradigms suddenly disintegrate and are replaced by a new one.

According to Reckwitz, our Western capitalist societies had arrived at just such a moment in history last fall. His book shows that at least since 2010, following the financial crisis, globalization had entered a "crisis of extreme dynamism" that was producing an increasing number of unpleasant consequences. And now, in 2019-2020, this "late modern" period was reaching its end – something that would have happened even without COVID-19, it just would have taken longer. The virus is merely speeding up a vast cultural shift.

We contemporaries have frequently sensed that shift, that something was ending, in recent years. Radical globalization, the "neo-liberal competitive state," to use Reckwitz's term, lost the attraction that they exuded back in the 1990s. Growing social inequality, the scandalous gulf between the poor working class and the fabulously wealthy ownership class became a source of gnawing dissatisfaction in an unsustainable environment.

The arguments and the rage of social movements such as Occupy Wall Street, the World Social Forum and Fridays for Future managed to trickle into the mainstream, despite widespread skepticism directed at the activists.

The point, though, is not to cast aspersions within the right-left political schema solely on the evils of neo-liberal globalization as conceived on the right – as Reckwitz masterfully demonstrates. The era now coming to an end was defined by much more than economic radicalism.

It also produced significant advances in individual freedoms. It raised awareness for the sufferings of minorities and achieved recognition for marginalized cultures.

The paradigm that is currently struggling for survival didn't just liberate the economy, but also society at large. It wasn't just labor laws and job protections that were deregulated, but also links to cultural traditions and the straitjacket of gender determinism. A new middle class developed that transformed the shaping of one's own biography – from career to leisure time to family – into a fulfilling challenge.

The fact that protecting resources was not a priority can be seen in the globally expanding fleet of SUVs or in the comically low prices charged by budget airlines. Airbnb and Uber became symbolic brands in a world were socioeconomic and socio-cultural winners went hand in hand.

The political right celebrated its – economic – liberation while the political left profited from new – cultural – freedoms.

Together, though, the capitalists and the hedonists ultimately produced too many losers, which is why the dominant paradigm finally slid into crisis. If it is true that we are at the end of an epoch, and everything indicates that we are, then our lives in the pre-corona era were long in a phase of decadence.

Neo-liberalism was not able to cushion the social inequality that it had created and was very clearly in the process of digging its own grave: A society in which inept bankers are allowed to shower themselves with multimillion-dollar bonuses while hundreds of thousands of retirees are threatened with old-age poverty cannot avoid eventual instability.

How will world leaders, after placing entire nations under house arrest, explain to their citizens that a rapid ban on plastic bags is unfortunately out of the realm of possibility?

But the leftist, progressive current produced losers, writes Reckwitz. As an insulated class of urban, generally well-educated elites, they produced a kind of cultural exclusion, subtly devaluing those who felt threatened rather than enriched by the multicultural, environmentally focused society.

Right in the heart of the general cosmopolitanism, an old middle class was lost, one that "fluctuated between maintaining and losing status all while facing cultural degradation." The fact that members of this group have proved particularly susceptible to the polemic offerings of right-wing populist rabble-rousers isn’t difficult to comprehend.

The fact that their fears were undervalued by the ruling culture of comprehensive globalization was a significant factor in the crisis that had ripened just before the appearance of the novel coronavirus.

A new political paradigm is necessary, a new "foundation for political thought and action" that better matches the challenges we face than the old one. Societal values and the "utopia of the desirable" changed, unnoticed at first, but then hard to ignore. And now, we are trending away from opening and liberalization and self-realization - and back toward restraint, to a more clearly defined state, to security, moderation, docility and the desire for order.

"Embedded" liberalism is the future, Reckwitz wrote six months ago – a time that seems from today's perspective like a completely different time. But even then, it was the same world in which we now live – and even then, it was deep in the grips of change. The virus has merely made the transformation more visible, thus speeding it up. It won't, however, make things easier.

For as long as the crisis lasts and nobody is able to predict when it will end, there will be a competition between a variety of apocalyptic scenarios that we are already familiar with. On the right of the political spectrum, the collapse of the Western world is invoked, while leftist critics of capitalism are collecting arguments for the collapse of capitalism. Greta Thunberg, in her environmental niche, will not suddenly stop talking about the climate collapse.

But mainstream society has also always had its own apocalyptical fantasies and is yearning for deliverance. The undiscerning internet-euphoria had already come to an end before the arrival of COVID-19, with the worldwide web long seeming to have been corroded by fears of cybercrime and constant surveillance by large companies and national governments.

The political campaigns, filter bubbles and constant online bullying that infused the social networks belied the erstwhile digital promise that the internet would produce liberty, equality and fraternity.

The flood of fake news in the corona crisis has further intensified doubts about the benefits of the World Wide Web. Here, too, stricter, not fewer, rules will be the consequence.

Again, our modern, Western, capitalist societies were already in deep crisis when corona arrived on the scene. And they knew it. "What began as a welcome, emancipatory empowerment of responsible citizens," Reckwitz writes, "ultimately threatened in the culture of late-modernity to transform into individual self-interest against the institutions."

He wrote that back in October. In April 2020, this sentence already seems like a product of a past era. With just a few strokes of the pen, the state eliminated individual self-interest. And hardly anybody seemed to mind. Because the world is undergoing fundamental change.

V. On the Other Side

Epochal theories are always subject to chance. Claims of a fundamental shift are, despite all the arguments presented, little more than a game. In his tome "Cultural History of the Modern Age," the both brilliant and enjoyable Austrian Egon Friedell made the observation that humans have always been unable to understand the times in which they live.

Contemporaries, Friedell wrote in the early 20th century, are never able to see the entirety of an historical event, but only seemingly arbitrary pieces.

It's a point of view that is difficult to argue with. The events of this dramatic pandemic are inconceivable, with our focus fluctuating wildly between the global crisis and the urge to panic buy toilet paper, between images of suffering and Italians singing from their balconies.

How will the narrative of this era ultimately be written? When did the story begin? How many chapters have already been completed? What are the pieces that will ultimately become part of the completed work?

French economist Jacques Attali wrote a dictionary for the 21st century already in 1998 called "Dictionnaire du XXIe siècle." From A for activity to Z for zen, Attali – known as a kind of intellectual adviser to a number of French presidents – let his imagination run wild, thus securing his reputation as a futurist.

Lehman Borthers CEO Richard Fulud in October 2008: It will beneficial to put a stop to harmful developments that have been with us for too long.
Lehman Borthers CEO Richard Fulud in October 2008: It will beneficial to put a stop to harmful developments that have been with us for too long. / JONATHAN ERNST / REUTERS

Attali was right about a lot of things. He recognized "nomadism" - the free movement of people, goods, information, institutions and factories – as a significant characteristic of the future world, an idea that wasn't completely a given at the time. He felt that a new, precarious civilization was on the way, one that would find itself confronted by new dangers. He even included an entry for "epidemic."

Globalization could boost the return of huge epidemics, he wrote. Viral illnesses, he added, could prove just as dangerous as the Spanish Flu epidemic in the winter of 1918-1919. In the new millennium, he predicted, pandemics would be triggered by the destruction of the habitats of certain animal species. "A mass-extinction event is to be expected in the south," Attali wrote, and it will be necessary for global measures to be implemented to combat new diseases – measures that could call into question the entire culture of "nomadism" and even democracy itself.

That is where we currently find ourselves. Our primary concerns are still reserved for those who are sick and dying, with fear and mourning the dominant emotions in regions that have been hardest hit. Thousands of people are dead, tens of thousands are still getting sick each day, and nobody can say with any degree of certainty how the pandemic will evolve and when a vaccine might be found. It is possible that we will see a second, or even a third wave. A new round of lockdown measures. Reports from South Korea that recovered patients may be vulnerable to coming down with COVID-19 again are cause for deep concern.

It is quite likely that this pandemic marks the moment when constant health concerns become a dominant element of our daily lives. The desire for a return to the insouciance of the pre-corona era will likely remain nothing more than a dream. From now on, the risk of a pandemic will constantly be hanging over our heads. Just as humanity used to live under the constant threat of nuclear war, as Bill Gates said in a speech five years ago, we will have to live in fear of a deadly virus from now on.

We will, in any case, take the danger more seriously than we did until recently. That alone will have clear consequences: Goods will no longer flow around the globe as they have because supply chains and industrial production will be set up differently. New food safety norms will be introduced, with agricultural production, animal husbandry and the handling of fresh produce being subjected to new regulations. The preference for local over international, the familiar over the exotic, will become stronger.

The EU, and what remains of it, will become more protective. United Nations agencies will search out new roles and will remind us that the blueprint for a better, fairer, healthier and safer world has already been produced, in the form of the Millennium Goals. International corporations will have to reorganize. The traveling circus of conferences and meetings will have to become smaller, with video conferencing taking their place.

Internet companies will grow into new areas of business and play an even larger role in our working lives than they do now. Company executives will have to carefully consider whether they want to relocate factories abroad, and if they do, they will perhaps prefer five smaller production sites in three different countries over a single vast factory in China.

That will drive up costs and sacrifice efficiency, but it will minimize risk and make production more sustainable. And sustainability is good. Sustainability will be a keyword in the new era that is dawning with the coronavirus.

The word will be broadly understood and will be applied to all human activity, even at the private level. If the U.S. doesn't rein in its exorbitantly wasteful lifestyle, it will soon be treated by the international community as a rogue nation. Europe and China will grow closer as partners on environmental protections.

It will be exciting to be part of this new world. It will beneficial to put a stop to harmful developments that have been with us for too long. It will be fascinating to watch the development of a new paradigm, to see old ideas die and new ideas take their place. It will feel good to finally surmount the pre-corona era.

It had reached its end. In his Easter speech, German President Frank-Walter Steinmeier put it like this: "Perhaps we believed for too long that we were invincible, that we could continue to go faster, higher, farther. That was a mistake." The time has now come to fix it.

What would Keynes do?

The pandemic will leave the rich world deep in debt, and force some hard choices

Who takes the pain, and can there be gain

IN “HOW TO PAY FOR THE WAR”, a pamphlet published in 1940, John Maynard Keynes looked back on the way that the British government had, in the late 1910s, tried to pay off enormous quantities of debt with a combination of higher taxes and inflation. Wages had not kept up with inflation, meaning “that consumers’ incomes pass[ed] into the hands of the capitalist class”.

Meanwhile the rich, as bondholders, had benefited from interest on the loans.

This time, Keynes argued, it would be better to take money from the workers directly by forcing them to lend to the government while the war was on and there was little to spend money on anyway. Later the government could pay the workers back the money they had lent it with interest, using the proceeds of a substantial wealth tax. “

I have endeavoured”, Keynes wrote, “to snatch from the exigency of war positive social improvements.”

Like a war, the fight against covid-19 has seen governments, particularly those in the rich world, rack up debts so large that the way in which they are paid off could have a long-lasting effect on their economies, and significantly affect the distribution of wealth.

There are deep differences between today’s circumstances and those which Keynes surveyed, perhaps foremost among which is that advanced economies now routinely shoulder a level of debt that Keynes would have seen as an unmanageable burden (see chart 1).

But those dealing with the aftermath of this year’s remarkable borrowing should still heed his example in looking for the right way to distribute the pain as they do so.

Debt before dishonour

The numbers involved are enormous. Advanced economies will run an average deficit this year of 11% of GDP, according to the IMF, even if the second half of the year sees no more lockdowns and a gradual recovery. Rich-world public debt could run to $66trn, which might be 122% of GDP by year’s end.

Governments wishing to see such debt burdens diminish must tread one of three broadly defined paths.

First, they can pay back the borrowing using taxation.

Second, they can decide not to pay, or agree with creditors to pay less than they owe.

Third, they can wait it out, rolling over their debts while hoping that they shrink relative to the economy over time.

The likely constraint on paying off debt with future tax revenues is politics. Such a strategy requires some mix of raising taxes—which upsets quite a few people—and cutting spending on other things—which also upsets quite a few people, including some who will not have liked the tax increases either.

Nevertheless, after the global financial crisis of 2007-09, which increased debt levels by about a third in advanced economies, many countries chose to reduce public spending as a share of the economy. Between 2010 and 2019 America and the euro zone cut their public-spending-to-GDP ratios by about 3.5 percentage points. Britain’s fell by 6 percentage points. Taxation, meanwhile, rose by between 1 and 2 percentage points of GDP.

Public appetite for paying off pandemic debts through a return to such austerity seems likely to be scant. The emotional, as opposed to economic, logic of austerity—people had spent too much, and must rein themselves in—does not apply.

What is more, post-covid publics are likely to want more spent on their health, not less. More than half of Britons supported tax increases that would pay for more spending on the National Health Service even before the pandemic struck.

Ageing populations are also increasing the demand for public spending, as are investments needed to tackle climate change.

The second option—defaulting or restructuring debts—may be forced on to emerging economies which lack any other way out. If it is, that will cause significant suffering. In advanced economies, though, such things have been increasingly rare since Keynes’s day, and look unlikely to make a comeback. A modern economy integrated into global financial markets has a huge problem if capital markets lock it out as a bad risk.

That said, there may be more than one way to default. Kenneth Rogoff of Harvard University argues that promises to increase health-care and pension spending in coming decades should also be viewed as government debt of a sort, and that this sort of debt is easier to back out of than obligations to bondholders.

It is hard to ascertain whether the “default” risk in these debts—ie, the risk that politicians cut health-care and pension spending, reneging on their promises to ageing populations—is rising.

Unlike bonds they are not traded on financial markets that provide signals of such things. But it almost surely is, especially in countries, like Italy, where pension spending is already enormous.

Rich-country politicians unwilling to shift away from spending and towards taxing, or to risk finding out how terrible a default would be, are likely to choose to grow their way out of hock.

The secret to this is ensuring that the economy’s combined level of real economic growth and inflation stays handily above the interest rate the government pays on its debt. That allows the debt-to-GDP ratio to shrink over time.

In a much-noted speech in 2019 which called for a “richer discussion” about the costs of debt, Olivier Blanchard of the Peterson Institute for International Economics, a think-tank, argued that such a strategy was more plausible than many might think. In the United States, he pointed out, nominal growth rates higher than interest rates are the historical norm.

Many rich-world governments pursued this sort of strategy after the second world war with some success. At its wartime height, America’s public debt was 112% of GDP, Britain’s 259%. By 1980 America’s debt-to-GDP ratio had fallen to 26% and Britain’s to 43%.

Achieving those results involved both a high tolerance for inflation and an ability to stop interest rates from following it upwards. The second of these feats was achieved by means of a regulatory system which, by depriving citizens of better investment options, forced them in effect to lend to governments at low interest rates. By the 1970s economists were calling this “financial repression”.

In a paper published in 2015, Carmen Reinhart of Harvard University and Belen Sbrancia of the IMF calculated that France, Italy, Japan, Britain and America spent at least half of that period in so-called “liquidation” years in which interest rates adjusted for inflation were negative.

They estimated that the average annual “liquidation tax” to governments resulting from real interest kept low by inflation and financial repression ranged from 1.9% of GDP in America to 7.2% in Japan.

The violence inherent in the system

To attempt such repression today, though, would require redeploying tools used by post-war governments—tools such as capital controls, fixed exchange rates, rationed bank lending and caps on interest rates. This would be offensive to lovers of economic freedom. It would also be sufficiently contrary to the interests of investors and savers to be politically very demanding.

That said, the coming years could prove to be politically demanding times. But if governments did enact such changes, they would spur responses unavailable to investors of the 1950s and 1960s, such as investment in cryptocurrencies and other immaterial products.

Even without a mechanism for keeping interest rates low, inflation can go some way to lessening the debt burden. “My gut instinct is that we will need higher inflation to wash away some of the debt,” says Maurice Obstfeld of the University of California, Berkeley (who, like Mr Blanchard and Mr Rogoff, was once chief economist at the IMF).

Yet though inflation may be necessary if debt burdens are to shrink, it may not be readily forthcoming. A few economists think inflation will surge of its own accord when the enormous economic stimulus they expect butts up against the supply disruptions imposed by lockdowns. But Mr Obstfeld and many others worry instead about deflation, or at least less inflation than they would like.

For some, the cause of this is “debt overhang”—the idea that debts sap the economy of demand. Wealthy bondholders, by definition, prefer saving to spending. Many others make a simpler judgment. The circumstances of the pandemic which made massive borrowing necessary in the first place—such as surging unemployment—are also likely to cause a deflationary slump.

Since the pandemic started, the cost of insuring against inflation through financial markets has fallen, reflecting a belief that there is unlikely to be much of it about. Investors seem to be predicting that five to ten years from now the Bank of Japan, the European Central Bank (ECB) and the Federal Reserve will all be undershooting their inflation targets.

Low inflation is bad for nominal growth. But it does at least reduce borrowing costs. Central banks can cut interest rates, if they have any room left to do so, and create money with impunity. In the five weeks leading up to April 16th, the Fed bought $1.3trn of American government debt: 5.9% of 2019 GDP and more than the entire budget deficit.

Thanks in part to the Fed’s actions, the American government can borrow for ten years at an interest rate of just 0.6%. In low-growth, lower-inflation Japan ten-year bonds are pegged at around 0%. Only in indebted countries in the euro zone, such as Italy, do bond yields threaten to exceed recent nominal growth rates.

These low interest rates make the fiscal picture seem less bleak. Vitor Gaspar, a senior official at the IMF, says the fund expects a combination of low rates and rebounding growth to see debt burdens stabilise or decline in the “vast majority” of countries in 2021. And bond-buying by central banks takes much of the worry out of some of the debt.

Take Japan. Its gross-debt-to-GDP ratio in 2019 was around 240% of GDP, which sounds truly astonishing. But years of quantitative easing (QE) have left the Bank of Japan with government bonds worth nearly 85% of GDP.

And the government could, in theory, sell financial assets of a similar magnitude if it had to. Adjust the debt to take these things into account and what remains is a little over 70% of GDP—less than a third of the gross figure and roughly comparable to what the figure is for America if you make the same adjustments (see chart 2).

Well before the pandemic such analysis had led many influential economists to start treating higher public debt as sustainable in a low-inflation, low-interest-rate world. Because the pandemic has pushed both inflation and interest rates the same way—down—their logic still holds.

However, there are reasons for scepticism.

Start with central-bank debt holdings. QE does not really neutralise public debt. Central banks buy government bonds by creating new money which sits in the banking system in the form of reserves. And central banks pay interest on those reserves.

Because the central bank is ultimately owned by the government, QE replaces one government debt-interest bill, interest payments on bonds, with another, interest payment on bank reserves.

And although the latter are very low today—negative, in fact, in several places—they will stay so only so long as central banks do not need to raise rates to fight inflation.

Since the global financial crisis, betting on low rates has paid off; some have gone so far as to see them as a new normal, part of a low-growth economy in which demand needs constant stimulation.

But that brings out another flaw in the sanguine view of public debt: it assumes that the future will be like the past. Although markets expect rates to remain low, it is not a sure thing. There is, for example, the possibility that lockdowns and stimulus in close succession do indeed bring on price rises.

There is also the possibility that a great deal of the deflationary pressure has been due to oil prices, which as of today really do seem to have no further to fall.

An alternative critique is that the past may not offer the reassurance some might seek there. A preliminary working paper by Paolo Mauro and Jing Zhou of the IMF, riffing on Mr Blanchard’s theme, examines borrowing costs and economic growth for 55 advanced and emerging economies over, in some cases, as much as 200 years.

The 24 advanced economies they study have on average benefited from interest rates which are below the nominal growth rate 61% of the time. Yet they find that such differentials are “essentially useless” for predicting sovereign defaults. “Can we sleep more soundly” with interest rates below growth rates? they ask. “Not really,” they answer.

The first sign of any debt trouble in the rich world would probably be rising inflation. At first, that might be a relief, given the present deflationary risk and the recent history of persistently insufficient inflation. It would be a sign that the economy was recovering. By reducing real interest rates it would further boost growth.

And central banks that have long fallen a percentage point or so short of their inflation targets might feel comfortable seeing inflation ride a percentage point or so proud of it. But a somewhat relaxed attitude to 3% does not mean a willingness to accept 6%.

Inflation rising further above targets than it has been below them would bring on a stark choice for heavily indebted governments. Should they leave the central bank alone, let it raise rates to keep inflation at target, and look to taxpayers—or pensioners—to pay for the resulting rise in debt-interest costs? Or should they lean on their central banks to keep interest rates low, permitting inflation to rise and thereby easing their debt burdens?

Some context for that question comes from the blurring between fiscal and monetary policy the pandemic has already seen. Steve Mnuchin, America’s treasury secretary, has said that on some days he has spoken to Jerome Powell, chairman of the Federal Reserve, more than 30 times.

The Bank of England has co-ordinated interest-rate cuts with Britain’s treasury and recently agreed to increase the government’s overdraft. The Bank of Japan has long been an enthusiastic partner in the economic agenda of Abe Shinzo, the prime minister. The outlier is the euro zone where, because of the horror of inflation found in countries such as Germany and the Netherlands, political pressure on the ECB is just as likely to result in hawkish policy.

Facing the exigencies

Conveniently for politicians, some of the pain of high inflation would be borne by foreign investors, whose share of public debt exceeds 30% in many rich countries. “In a crunch, will Chinese debt-holders be treated as senior to US pensioners?” asks Mr Rogoff.

But less foreign investment in years to come would need to be set against that advantage. A perception that a nominally independent central bank was in fact a creature of politicians would create a risk premium on investment that would slow growth throughout the economy.

Inflation would bring arbitrary redistributions of wealth to the disadvantage of the poor, just as Keynes observed it to have done in the late 1910s. Richer people are more likely to hold the houses and shares that rise in value with inflation, not to mention mortgages that would be inflated away alongside government debt. Higher inflation would also provide a bail-out that favoured more indebted companies over the less indebted.

Higher taxes, tried a little in the wake of the financial crisis, could be targeted more precisely to reduce inequality—much as they were in some countries after the second world war. Wealth taxes, as favoured by Keynes back then and increasingly discussed by academics and left-wing politicians today, could find that their time had come.

Post-pandemic populations may welcome the sort of cost-free-to-most all-in-it-togetherness they might provide. Less radically, a value-added tax in America (which lacks one), higher taxes on land or inheritance, or new taxes on carbon emissions could be on the cards. Like inflation, however, tax rises inhibit and distort the economy while producing a backlash among those who must pay.

While the world’s chief problem is battling an economic slump in which inflation is falling, such choices are tomorrow’s business. They will not weigh heavily on policymakers’ minds. Even economists with reputations as fiscal hawks tend to support today’s emergency spending, and some want it enlarged.

Yet one way or another, the bills will eventually come due.

When they do, there may not be a painless way of settling them.

Why some investors think more big falls are coming

‘There’s no such thing as a bear market without a bear market rally,’ says one CIO

Katie Martin in London and Robin Wigglesworth in Oslo

Aggressive central bank intervention led to market rallies but some analysts fear there may be further falls later © FT montage; Bloomberg

When markets were in freefall under the pressure of coronavirus last month, Gregory Perdon was tempted to fall back on a tried-and-tested maxim that has assured investors a healthy profit for the past decade.

“Every portfolio manager is mindful of the mantra to ‘buy the dip’,” said the co-chief investment officer at London-based private bank Arbuthnot Latham. At first, that included him.

“Initially, I thought this would be a V-shaped recovery,” he said — a speedy return to health for the global economy and the capital markets after a short spell of distress triggered at the end of February by virus outbreaks and lockdowns in Europe.

“What changed my view was when the Fed came in all guns blazing, and the markets still went red.” The US central bank slashed interest rates by a full percentage point, among a series of other supportive measures, before markets opened on March 16.

The grand intervention was followed by the deepest stock market declines since 1987, triggering Mr Perdon’s change of heart.

Now he focuses his efforts on what he describes as “curbing the enthusiasm” of some colleagues. “There’s no such thing as a bear market without a bear market rally,” he said.

Since their mid-March low, US stocks have gained about 25 per cent, technically lifting them back into a new bull market, albeit one tinged with extreme uncertainty over the outlook for companies and the global economy.

Markets bounce back after aggressive central bank intervention

This presents a dilemma for investors. Is it wise to piggyback on the government and central bank support pouring into financial markets and snap up assets while their prices are still beaten up?

This could, in years to come, end up being seen as the buying opportunity of a lifetime. Or is the epic shake-out in markets in March just the start of a long, slow decline in riskier assets?

Deep pullbacks are, after all, a common feature of markets in the immediate aftermath of abrupt crises, as was evident in 2001, 2008, and even back to the great US stock market crash of 1929 and the subsequent Great Depression.

US stocks did not reclaim their 1929 highs until 1958. Some analysts therefore reckon that the rally since late March is what is often dubbed a “bear market trap”.Robert Buckland, chief global equity strategist at Citi, points out that a decent rule of thumb is that stock markets fall roughly as much as corporate earnings do.

The depth and extent of the global recession indicates that profits should halve this year — but the FTSE All-World index is now back within 20 per cent of its peak. Fund managers must try to balance the huge scale of central banks’ support — underlined again on Thursday when the Fed announced yet another big support package to the tune of $2.3tn — against economies in deep distress, as seen in a record-breaking acceleration in US job losses.

Not everyone is convinced the stimulus is enough.

Bank of America analysts note that US equities have never taken less than six months to find their bottom, once they have tumbled 30 per cent and the economy is in a recession. They therefore predict that markets have further to fall.

“While those banking on a rapid equity market recovery are [expecting] unprecedented stimulus to erase the pain, history would also suggest they may be banking on a miracle,” they wrote in a recent report.

Signs that the coronavirus spread is slowing is not necessarily enough, either.

Some analysts point out that while some countries — such as Norway, Denmark, the Czech Republic and Austria — have recently announced plans to gradually end their lockdowns, the economic damage is likely to linger.

Howard Marks, the 73-year-old billionaire founder of Oaktree Capital Management famed for his knack for scooping up bargains at times of economic distress, said in a note this week that with the course of the virus so difficult to predict, and its effects so sprawling, investors should be willing to admit that they simply do not know what happens next.

That is a tough task for a profession that prides itself on making predictions and anticipating their market impact, but “no one can tell you this is the time to buy”, he wrote.

“Nobody knows.”

Nonetheless, Mr Marks said that extreme caution was now no longer warranted, given drops in asset prices and the wave of central bank support that has neutralised some systemic risks.

He recalled how he and his partner Bruce Karsh snapped up $450m worth of corporate debt each week for 15 straight weeks after Lehman Brothers went bust in 2008.

“What I would do is figure out how much you’ll want to have invested by the time the bottom is reached, and spend part of it today,” he wrote.

“Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left to buy more.

That’s life for people who accept that they don’t know what the future holds.”

The COVID-19 Balancing Act

Although the economic and human costs of the COVID-19 pandemic have been devastating, a strategy for reducing the health risks of a gradual return to normalcy has begun to take shape. The task now is to navigate the difficult trade-offs and even more difficult politics of the crisis as sensibly as possible.

Michael J. Boskin

boskin70_JASON CONNOLLYAFP via Getty Images_coronavirusUSlockdownprotest

STANFORD – For a long time, as health spending accounted for an ever-larger share of US GDP, I would joke that health economists were becoming macroeconomists, and that macroeconomists needed to become health economists.

Sadly, the joke is now reality. The US and the global economy are in the deepest contraction since the Great Depression, owing to lockdowns to mitigate the spread of COVID-19 and prevent hospitals from being overwhelmed. Citizens are confined to their homes, and only “essential” services – food, utilities, health care, police, and the like – are operating.

According to the International Monetary Fund’s most recent forecast, the US economy will shrink by almost 6% this year (compared to a contraction of around 7% in the eurozone and 5% in Japan). Private forecasters, meanwhile, foresee an annualized second-quarter decline in the US of as much as 40%, with a return to growth in the third quarter.

If the government were not spending several trillion dollars to keep businesses afloat, workers on payrolls, and incomes at tolerable levels, the damage would be worse.

Nonetheless, US unemployment has soared to its highest level in more than 70 years.

Fortunately, fears of the virus taking as many as 2.2 million lives in the US (under a scenario of taking no action) were quickly dispelled. Only a few hospitals, in hotspots like New York City, have been temporarily overwhelmed; with federal and state support, they have accommodated the upsurge in patients.

Tens of thousands have died, and the virus will continue to pose a threat, particularly to the elderly and those with comorbidities like diabetes, respiratory diseases, and heart conditions. But social distancing at least seems to be paying off, implying fewer hospitalizations and deaths.

And yet, the immense economic toll of the crisis also carries health risks. Household financial stress tends to lead to increased substance abuse, domestic violence, and even suicide. Some governments are under increasing pressure from workers, businesses, and others demanding an end to lockdowns.

Several European countries have already begun to reopen their economies, and US President Donald Trump’s administration and several state governors are preparing guidelines for doing the same, in consultation with health experts.

Can the health and economic risks be sensibly balanced? The risk of returning to work and school will not fall to zero until an effective vaccine has become widely available, or until the population has achieved “herd immunity.”

In both cases, that would probably take a year or longer. Still, there are several ways to reduce the health risks associated with a gradual return to normal economic activity.

For starters, ensuring sufficient hospital capacity and medical supplies would ensure that health systems in future hotspots are not overwhelmed, as would new therapeutics that can substantially reduce COVID-19’s most harmful effects on the body.

There is also a clear need for substantially more testing, both for the virus itself, to prevent further community transmission, and for antibodies to determine may already be immune, as well as herd immunity levels.

In California, Governor Gavin Newsom’s administration has begun to hire thousands of people to conduct contact tracing of those who test positive, though this is bound to raise questions about governmental violations of individual privacy.

Meanwhile, widespread social distancing, continued sheltering in place for the most vulnerable, and staggered shifts for essential workers will continue to play a critical role, as will individual safety precautions, such as wearing masks in public and frequent hand washing.

Compliance with such protocols will be easier for some than others: elected officials, firms, workers, and parents will face difficult choices. Actions taken (or not taken) now will produce different results at different times, and the longer-term consequences of any given response will not be easy to predict.

Pursuing all of the aforementioned pandemic-response measures simultaneously makes sense, but so does an approach that considers the trade-offs.

For example, if antibody testing and new therapeutics prove effective, these two measures combined could substantially reduce the risks from COVID-19. Recognizing that some adjustments and temporary reversals may still be necessary, these interventions can guide decisions about reopening the economy.

Moreover, we can learn from other countries. While Denmark is now reopening schools for the youngest children, Singapore is returning to lockdown mode, and Sweden is only beginning to impose one in earnest.

While these decisions should be based on a rational consideration of economic and health risks, it would be naive to think that politics won’t factor into pandemic policymaking. With the US presidential election approaching in November, partisan finger-pointing and negative campaigning have already begun.

Democratic governors will be pressured to distance themselves from decisions made by the White House; Republicans will be expected to embrace the same decisions.

Either way, the election was always going to be a referendum on Trump’s performance and conduct in office. The focus now will be on his handling of the pandemic and reopening of the economy.

Trump and his fellow Republicans will accuse congressional Democrats of delaying a rescue package, and Democratic governors of flubbing their responses to the crisis.

Joe Biden, Trump’s presumptive opponent, and his fellow Democrats will level the same charges against the president and other Republican leaders.

And yet, the biggest bungle so far was not made by a politician. That prize goes to the US Food and Drug Administration, which initially refused to allow commercial labs to develop and analyze COVID-19 tests.

Instead, it granted a monopoly to the US Centers for Disease Control and Prevention, which proceeded to botch its first round of tests, causing a delay of several crucial weeks. Fortunately, both agencies have since improved their performance.

Looking ahead, if the Democrats take the White House and the Senate while retaining control of the House of Representatives, they will pursue a radical expansion of the size and scope of government, redistributing incomes and raising taxes along the way.

In an economy still reeling from near collapse, these policies inevitably will delay full recovery by raising costs and creating uncertainty.

That, after all, is what a newly elected President Barack Obama and congressional Democrats did during the Great Recession, despite early warnings from me and others. It turned out to be slowest economic recovery since World War II.

Michael J. Boskin is Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. He was Chairman of George H.W. Bush’s Council of Economic Advisers from 1989 to 1993, and headed the so-called Boskin Commission, a congressional advisory body that highlighted errors in official US inflation estimates.

How Goldman’s vampire squid gave way to BlackRock

The sway held by the group extends far beyond its function as a vast asset manager

Patrick Jenkins

BlackRock’s regal chairman and chief executive, Larry Fink, has plugged it into the policymaking establishment © REUTERS

Does the world have a new vampire squid?

Ten years ago, that was how Rolling Stone magazine famously described Goldman Sachs, reflecting the way the bank was “wrapped around the face of humanity”.

For years the label stuck.

Goldman’s grip on global finance, through its own commercial operations and the influence of its alumni, seemed unshakeable. But as banking has changed, so the prestige of the Wall Street giant has declined.

The reverse is true of BlackRock, the world’s biggest asset manager. Despite the coronavirus crisis, it still booked $35bn of net inflows over the three months to the end of March.

And it was more than twice as profitable as Goldman.

Today BlackRock is among the top investors in almost every blue-chip company in the world.

But the sway that the group holds extends far beyond its function as a vast asset manager.Over recent years it has become one of the most vocal lobbyists of lawmakers in the US and Europe.

At the same time, its regal chairman and chief executive, Larry Fink, has plugged it into the policymaking establishment, by hiring a string of former politicians and central bankers — a kind of mirror image of the Goldman model that for years has seen alumni take up top roles in the US administration and at the world’s central banks.

Mr Fink has instead hired in from such institutions.

Philipp Hildebrand, who used to run Switzerland’s central bank, is a vice-chairman. George Osborne, the former UK chancellor, is a senior adviser.

So is Stanley Fischer, former vice-chairman of the Federal Reserve.

Friedrich Merz, the former CDU parliamentary chairman, was chairman of BlackRock Deutschland until last month, when he stepped down to focus on his ambition to head the CDU and replace Angela Merkel as chancellor.

Further underpinning BlackRock’s power base, and its crucial role in the global financial system, is its Aladdin technology platform, which connects the world’s biggest companies — from banks and rival asset managers to tech giants — into the markets for trading shares, bonds, derivatives and currencies.

Tens of trillions of dollars of assets sit on this systemic platform.

Against that background, consider the growing importance — and contentiousness — of BlackRock’s consulting division.

Last month, critics in the US attacked a contract BlackRock’s Financial Markets Advisory unit won with the Federal Reserve to manage billions of dollars of securities, potentially including ETFs in which BlackRock has a direct interest.

Early this month, the FMA secured a €280,000 mandate with the European Commission to advise on a project to integrate climate change into EU banking regulation.

This looks odd: a leading investor in big banks and oil companies will be involved in a project that could favour those interests.

Finance Watch, the Brussels-based counter-lobby group, has another qualm: BlackRock’s approach to climate change analysis is fundamentally at odds with the EU’s normal standards, which demand scrutiny of the non-financial reporting of responsible behaviour as well as financial metrics.

BlackRock insists that Mr Fink’s recent declaration that “purpose is the engine of long-term profitability” overrides this distinction. It also stresses it is the world’s leading investor in renewables.

Even so, sceptics will need to see evidence quickly that BlackRock’s fine green words are translating into concrete pressure on the climate-damaging companies it invests in.

Worsening the optics of the EU mandate, the company that won it was BlackRock Investment Management, which as its name implies is the legal entity that runs the group’s core funds business in the region — but also houses FMA.

BlackRock stresses there is a Chinese wall between FMA and its asset management business, though the consultancy arm is unregulated.More telling still is the price BlackRock is being given for its work — barely half the amount the EU planned to pay, according to its procurement documentation.

Getting underpaid is of no concern to BlackRock: the mandate is valuable in other ways.

It burnishes the group’s green credentials. And as with any public sector advisory work, it gives the group the cachet of direct interaction with policymaking, on the back of which other more lucrative commercial mandates may well be won.

All in all, BlackRock’s power and influence today are more formidable than ever.

And if Joe Biden were to oust Donald Trump from the White House in seven months’ time, Mr Fink might himself become the ultimate embodiment of that clout: he is widely seen as a favourite to be Mr Biden’s Treasury secretary.

Blaming China Is a Dangerous Distraction

Nobody denies that Chinese officials' initial effort to cover up the coronavirus outbreak in Wuhan at the turn of the year was an appallingly misguided decision. But anyone who is still focusing on China's failings instead of working toward a solution is essentially making the same mistake.

Jim O'Neill

oneill76_Kevin FrayerGetty Images_chiancoronavirusmediatvxi

LONDON – As the COVID-19 crisis roars on, so have debates about China’s role in it. Based on what is known, it is clear that some Chinese officials made a major error in late December and early January, when they tried to prevent disclosures of the coronavirus outbreak in Wuhan, even silencing health-care workers who tried to sound the alarm. China’s leaders will have to live with these mistakes, even if they succeed in resolving the crisis and adopting adequate measures to prevent a future outbreak.

What is less clear is why other countries think it is in their interest to keep referring to China’s initial errors, rather than working toward solutions. For many governments, naming and shaming China appears to be a ploy to divert attention from their own lack of preparedness.

Equally concerning is the growing criticism of the World Health Organization, not least by US President Donald Trump, who has attacked the organization for supposedly failing to hold the Chinese government to account. At a time when the top global priority should be to organize a comprehensive coordinated response to the dual health and economic crises unleashed by the coronavirus, this blame game is not just unhelpful but dangerous.

Globally and at the country level, we desperately need to do everything possible to accelerate the development of a safe and effective vaccine, while in the meantime stepping up collective efforts to deploy the diagnostic and therapeutic tools necessary to keep the health crisis under control. Given that there is no other global health organization with the capacity to confront the pandemic, the WHO will remain at the center of the response, whether certain political leaders like it or not.

Having dealt with the WHO to a modest degree during my time as chairman of the UK’s independent Review on Antimicrobial Resistance (AMR), I can say that it is similar to most large, bureaucratic international organizations. Like the International Monetary Fund, the World Bank, and the United Nations, it is not especially dynamic or inclined to think outside the box. But rather than sniping at these organizations from the sidelines, we should be working to improve them. In the current crisis, we should be doing everything we can to help both the WHO and the IMF to play an effective, leading role in the global response.

As I have argued before, the IMF should expand the scope of its annual Article IV assessments to include national public-health systems, given that these are critical determinants in a country’s ability to prevent or at least manage a crisis like the one we are now experiencing. I have even raised this idea with IMF officials themselves, only to be told that such reporting falls outside their remit because they lack the relevant expertise.

That answer was not good enough then, and it definitely isn’t good enough now. If the IMF lacks the expertise to assess public-health systems, it should acquire it. As the COVID-19 crisis makes abundantly clear, there is no useful distinction to be made between health and finance. The two policy domains are deeply interconnected, and should be treated as such.

In thinking about an international response to today’s health and economic emergency, the obvious analogy is to the 2008 global financial crisis. Everyone knows that crisis started with an unsustainable US housing bubble, which had been fed by foreign savings, owing to the lack of domestic savings in the United States. When the bubble finally burst, many other countries sustained more harm than the US did, just as the COVID-19 pandemic has hit some countries much harder than it hit China.

And yet, not many countries around the world sought to single out the US for presiding over a massively destructive housing bubble, even though the scars from that previous crisis are still visible. On the contrary, many welcomed the US economy’s return to sustained growth in recent years, because a strong US economy benefits the rest of the world.

So, rather than applying a double standard and fixating on China’s undoubtedly large errors, we would do better to consider what China can teach us. Specifically, we should be focused on better understanding the technologies and diagnostic techniques that China used to keep its (apparent) death toll so low compared to other countries, and to restart parts of its economy within weeks of the height of the outbreak.

And, for our own sakes, we also should be considering what policies China could adopt to put itself back on a path toward 6% annual growth, because the Chinese economy inevitably will play a significant role in the global recovery. If China’s post-pandemic growth model makes good on its leaders’ efforts in recent years to boost domestic consumption and imports from the rest of the world, we will all be better off.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Chair of Chatham House.

How the Virus Transformed the Way Americans Spend Their Money

By Lauren Leatherby and David Gelles

The chart shows the percentage change in spending from the beginning of the year. Each line is an average of the previous two weeks, which smooths out weekly anomalies. | Source: Earnest Research

The coronavirus has profoundly altered daily life in America, ushering in sweeping upheavals to the U.S. economy. Among the most immediate effects of the crisis? Radical changes to how people spend their money.

In a matter of weeks, pillars of American industry essentially ground to a halt. Airplanes, restaurants and arenas were suddenly empty. In many states, businesses deemed nonessential — including luxury goods retailers and golf courses — were ordered closed.

“This is the sharpest decline in consumer spending that we have ever seen,” said Luke Tilley, chief economist at Wilmington Trust.

All of the charts in this article are based on a New York Times analysis of data from Earnest Research, which tracks and analyzes credit card and debit card purchases of nearly six million people in the United States. While the data does not include cash transactions, and therefore does not reflect all sales, it provides a strong snapshot of the impact of the virus on the economy.

Some companies like Walmart, Amazon and Uber Eats have seen spikes in purchases. But customers of many other businesses have simply stopped spending, the data shows.

Change in spending from 2019 for the week ending April 1. Bubbles are sized by industry sales.

How people spend determines which companies survive, and who has a job. In recent weeks, more than 16 million workers in the country have filed for unemployment. And with no end to the outbreak in sight, consumer spending is likely to be fundamentally different for many months to come.

Here’s a look at how it has already been shifting.

Grocery sales are way up, as people cook at home.

Change in spending from 2019 for the week ending April 1.

As restaurants closed and people began staying home last month, grocery stores experienced a surge in demand. In a 7-day period that ended on March 18, grocery sales were up 79 percent from the previous year. There were runs on many household staples, including pasta, flour, toilet paper and soap. Processed foods and canned goods were back in vogue.

Sales have fallen since then, but they are still higher than normal for this time of year. Between March 26 and April 1, sales were up 7 percent. Among the biggest winners: online grocery delivery services and meal kit companies.

Change in spending from 2019 for the week ending April 1.

Stay-at-home orders issued around the country in recent weeks helped decimate the travel industry. Spending on airlines, hotels, cruises and rental cars has all but stopped. Online travel booking sites like Expedia, Airbnb and Priceline have seen their sales plunge.

And it is only getting worse. Sales in the travel sector have declined rapidly over the past month, with revenues for the week ending on April 1 down 85 percent from the same time a year earlier.  

In previous downturns, service businesses like restaurants fared relatively well.

Not this time. With social distancing the norm, most restaurants around the country have been ordered to stop offering sit-down service. Fine dining, casual dining and fast food have all been hit, with companies from Momofuku to McDonald’s feeling the pain. (Some restaurants are offering takeout, and delivery aggregators like Seamless have seen sales surge.)

Beyond contributing to a record surge in unemployment claims, the ruined restaurant industry is likely to aggravate the country’s broader economic woes.

“The service economy has traditionally been the thing that has helped keep the downturn from going too low,” Mr. Tilley said. “In this case, the forced stoppage of consumer spending on these things is precipitating the economic crisis.”

Many of America’s favorite diversions are simply off limits for now. Movie theaters are shuttered. Theme parks are closed. Clubs and concert halls have all gone quiet.

But while most types of entertainment that require people to congregate are on hold, there are a few bright spots. Spending on video game companies like Twitch and Nintendo is booming, and streaming services, including Netflix and Spotify, are enjoying gains as well.  

Even before the coronavirus, the retail industry was reeling as it struggled to adapt with the rise of e-commerce and discount brands. The current crisis has made things that much worse. Department stores, fast fashion, sneaker shops and others in the industry saw revenues dive in recent weeks.


For many, working from home has meant an end to commuting. As a result, taxis, ride sharing companies like Uber and Lyft, mass transit and parking services have all seen precipitous declines in sales. Scooter sharing companies like Lime and Bird, which were booming, have suffered potentially fatal blows. And with fewer cars on the road, car sales and auto parts sales are also down.

No one is going to the gym these days. That’s bad news for fitness companies like 24 Hour Fitness and SoulCycle. No one is going out much, period, which is also unfortunate for beauty and grooming companies like Sephora and Great Clips.

Spending is even down broadly across the health care industry for now, as those who conduct elective procedures, dentists and specialists not working on the coronavirus response are doing less business. Some hospitals, faced with lower revenues from canceled nonemergency work, have furloughed or cut the pay of doctors, nurses and other staff members.

“Surprisingly, we have actually seen a decline in health care spending,” Mr. Tilley said, “even in this environment.”