After the disease

The long goodbye to covid-19

The pandemic is still far from over, but glimpses of its legacy are emerging


When will it end? 

For a year and a half, covid-19 has gripped one country after another. 

Just when you think the virus is beaten, a new variant comes storming back, more infectious than the last. 

And yet, as the number of vaccinations passes 3bn, glimpses of post-covid life are emerging. 

Already, two things are clear: that the last phase of the pandemic will be drawn-out and painful; and that covid-19 will leave behind a different world.

This week The Economist publishes a normalcy index, which reflects both these realities. 

Taking the pre-pandemic average as 100, it tracks such things as flights, traffic and retailing across 50 countries comprising 76% of Earth’s population. 

Today it stands at 66, almost double the level in April 2020.

Yet the ravages of covid-19 are still apparent in many countries. 

Consider our index’s worst performer, Malaysia, which is suffering a wave of infections six times more deadly than the surge in January and scores just 27. 

The main reason for this is that vaccination remains incomplete.

In sub-Saharan Africa, suffering a lethal outbreak, just 2.4% of the population aged over 12 has had a single dose. 

Even in America, where vaccines are plentiful, only around 30% of Mississippians and Alabamans are fully protected. 

Although the world is set to produce around 11bn doses of vaccine this year, it will be months before all those jabs find arms, and longer if rich countries hog doses on the off-chance that they may need them.

The lack of vaccination is aggravated by new variants. 

Delta, first spotted in India, is two to three times more infectious than the virus that came out of Wuhan. 

Cases spread so fast that hospitals can rapidly run out of beds and medical staff (and sometimes oxygen), even in places where 30% of people have had jabs. 

Today’s variants are spreading even among the vaccinated. 

No mutation has yet put a dent in the vaccines’ ability to prevent almost all severe disease and death. 

But the next one might.

None of this alters the fact that the pandemic will eventually abate, even though the virus itself is likely to survive. 

For those fortunate enough to have been fully vaccinated and to have access to new treatments, covid-19 is already fast becoming a non-lethal disease. 

In Britain, where Delta is dominant, the fatality rate if you become infected is now about 0.1%, similar to seasonal flu: a danger, but a manageable one. 

If a variant required a reformulated vaccine, it would not take long to create.

However, as vaccines and treatments become more plentiful in rich countries, so will anger at seeing people in poor ones die for want of supplies. 

That will cause friction between rich countries and the rest. 

Travel bans will keep the two worlds apart.

Eventually flights will resume, but other changes in behaviour will last. 

Some will be profound. 

Take America, where the booming economy surged past its pre-pandemic level back in March, but which still scores only 73 on our index—partly because big cities are quieter, and more people work from home.

So far it looks as if the legacy of covid-19 will follow the pattern set by past pandemics. 

Nicholas Christakis of Yale University identifies three shifts: the collective threat prompts a growth in state power; the overturning of everyday life leads to a search for meaning; and the closeness of death which brings caution while the disease rages, spurs audacity when it has passed. 

Each will mark society in its own way.

When people in rich countries retreated into their houses during lockdowns, the state barricaded itself in with them. 

During the pandemic governments have been the main channel for information, the setters of rules, a source of cash and, ultimately, providers of vaccines. 

Very roughly, rich-country governments paid out 90 cents for every dollar of lost output. 

Slightly to their own amazement, politicians who restricted civil liberties found that most of their citizens applauded.

There is a vigorous academic debate about whether lockdowns were “worth it”. 

But the big-government legacy of the pandemic is already on display. 

Just look at the spending plans of the Biden administration. 

Whatever the problem—inequality, sluggish economic growth, the security of supply chains—a bigger, more activist government seems to be the preferred solution.

There is also evidence of a renewed search for meaning. 

This is reinforcing the shift towards identity politics on both the right and the left, but it goes deeper than that. 

Roughly one in five people in Italy and the Netherlands told Pew, a pollster, that the pandemic had made their countries more religious. 

In Spain and Canada about two in five said family ties had become stronger.

Leisure has been affected, too. 

People say they have had 15% more time on their hands. 

In Britain young women spent 50% longer with their nose in a book. 

Literary agents have been swamped with first novels. 

Some of this will fade: media firms fear an “attention recession”. 

But some changes will stick.

For example, people may decide they want to escape pre-pandemic drudgery at work, and tight labour markets may help them. 

In Britain applications to medical school were up by 21% in 2020. 

In America business creation has been its highest since records began in 2004. 

One in three Americans who can work from home wants to do so five days a week, according to surveys. 

Some bosses are ordering people into the office; others are trying to entice them in.

Those who don’t die roll the dice

It is still unclear whether the appetite for risk is about to rebound. 

In principle, if you survive a life-threatening disease, you may count yourself as one of the lucky ones and the devil may care. 

In the years after the Spanish flu a century ago, a hunger for excitement burst onto the scene in every sphere, from sexual licence to the arts to the craze for speed. 

This time the new frontiers could range from space travel to genetic engineering, artificial intelligence and enhanced reality.

Even before the coronavirus came along, the digital revolution, climate change and China’s rise seemed to be bringing the post-second-world-war, Western-led order to an end. 

The pandemic will hasten the transformation.

Monetary policy is not the solution to inequality

But the necessary structural reforms will be harder than many economists imagine

Martin Wolf

    © James Ferguson


Should central banks do something about inequality and, if so, what? 

This has become a hot topic, which has persuaded the Bank for International Settlements to focus on it in its latest annual report. 

Its conclusions are what one would expect: monetary policy is neither the main cause of inequality nor a cure for it. 

Broadly speaking, this is correct. 

But in a world in which central bankers have become such aggressive actors, it may not be enough.

A striking fact noted by the BIS is that since what it calls the “Great Financial Crisis”, the proportion of speeches by central bankers mentioning inequality has soared. 

This partly reflects rising political concern about inequality. 

But it also reflects a specific critique. 

This is, in the report’s words, that “central banks have deployed policies featuring exceptionally low interest rates and extensive use of balance sheets to support economic activity and lower unemployment. 

Such measures have fuelled concerns that central banks’ actions, by boosting asset prices, have benefited mostly the rich”. 

That critique is popular among conservatives who detest activist central banks. (See charts.)

Yet there is also an opposite critique from people who upbraid central banks for not being activist enough. 

People in this camp argue that the failure has been to be too passive, letting inflation remain too low and labour markets stay too weak. 

At present, central banks, even the European Central Bank, are far closer to this position than to the more conservative one. 

Central banks, one might assert, have become more than a little “woke”.


This is an important debate, bearing on the legitimacy and consequences of what central banks are doing, especially in this era of crises. 

The view of the BIS itself is threefold. First, the rise in inequality since 1980 is “largely due to structural factors, well outside the reach of monetary policy, and is best addressed by fiscal and structural policies”. 

Second, by fulfilling their monetary mandates, central banks can reduce the impact of shorter-term shocks to economic welfare caused by inflation, financial crises and, no doubt, real shocks (such as pandemics). 

Finally, central banks can also do something about inequality with good prudential regulation, promoting financial development and inclusion and ensuring safe and effective payments.


All this is sensible, so far as it goes. 

It is clear, for example, that falling real interest rates and easy monetary policies have tended to raise asset prices, to the benefit of the wealthiest. 

But, interestingly, the measured impact on wealth inequality has not been as dramatic as one might have expected. 

More important, it would have made no sense to adopt a deliberately more restrictive monetary policy solely in order to lower asset prices. 

This would have reduced activity and raised unemployment. 

That is the worst thing that could happen to people who are dependent on their wages for their livelihoods. 

Meanwhile, how would the majority of people, who own almost no assets, be better off because billionaires were a bit poorer? 

It would be mad for central banks to cause slumps in order to lower asset prices.


A more relevant concern is raised by the dominant contemporary demand to “run the economy hot”. 

That raises two real (and possibly related) dangers: inflation and financial instability.

On the former, proponents of this approach argue that one cannot know where the risk of significant inflation lies without pushing the economy not just to, but beyond, the limit. 

But that could also prove costly if, as some fear, inflation soars and that overshoot proves very expensive to reverse.


On the latter, it is hoped that sophisticated regulation will contain financial instability, even in the easiest imaginable monetary environment. 

That could be true, under ideal regulation. 

But regulation is never ideal. 

Moreover, it is already easy to identify vulnerabilities, notably in the non-bank financial sector. 

There is simply so much debt. 

That may be fine if interest rates stay low. 

But will they? 

Focusing on outcomes, not forecasts, makes this less likely.

Where the BIS is clearly correct is that fiscal and structural policies are the main way to address inequality. 

Indeed, some high-income countries are quite effective in using the former in this way. 

The big contrast between the US and other high-income countries in income inequality, for example, is in the relative absence of redistribution in the former. 

In some big emerging economies, there is little redistribution, especially in supposedly socialist China.


Structural policy is a still more complex issue. 

Too often, this is just a synonym for market liberalisation. 

But financial liberalisation has surely increased inequality and financial instability. 

So, good structural reform would almost certainly seek to constrain finance. 

Similarly, in labour markets with significant monopsonies, labour market deregulation might well be bad for employment and inequality. 

Moreover, rising inequality is almost certainly a factor in creating the structurally weak demand that explains the declining real interest rates and soaring indebtedness characteristic of our era of “secular stagnation”. 

For all these reasons, the structural reforms we should be thinking about are more difficult than conventional wisdom imagines.

The BIS is right that monetary policy cannot solve inequality. 

It can only aim at broad macroeconomic stability. 

Even that is hard to achieve, given our chronic reliance on expansionary monetary policy. 

In this context, financial excess is sure to re-emerge, making regulation an unending game of “whack a mole”. 

The BIS is correct to call for radical structural reforms. 

But they have to be the right kind of structural reforms.

Boris Johnson backs emergency plan to avoid disruption to UK food supplies

Supermarkets say move is inadequate because staff shortages in stores will negate measures at distribution centres

Jonathan Eley, George Parker, Jasmine Cameron-Chileshe and Oliver Barnes 

Empty shelves in Asda, Stamford Hill, north London. Downing Street confirmed that workers in certain sectors would be allowed to carry on working, even if they had been in close contact with someone with the virus © Marcin Nowak/LNP


Boris Johnson has backed an emergency plan to avoid disruption of UK food supplies caused by Covid-related staff shortages, although the government’s plans were denounced as inadequate by some supermarket bosses.

Ministers confirmed on Thursday night that the government would roll out a testing regime to as many as 500 food-related workplaces “so that contacts who would otherwise be self-isolating can instead take daily tests”.

The Department for Environment, Food and Rural Affairs said implementation would begin this week, adding that a scheme announced earlier in the week for named critical workers would also apply to key roles in the food industry.

“Food businesses across the country have been the hidden heroes of the pandemic. 

We are working closely with industry to allow staff to go about their essential work safely with daily testing,” said George Eustice, the environment secretary.

Two people with knowledge of a conference call between government officials and supermarket executives said the testing scheme would focus on distribution depots, processing facilities and logistics infrastructure rather than stores.

The British Retail Consortium welcomed the plans but stressed that it needed to be rolled out quickly and that ministers needed to “continue to listen to the concerns of the retail industry”.

But Richard Walker, managing director of Iceland Foods, said that including only processing and distribution roles was “idiotic”.

“You cannot do one half of the chain but not the other . . . we’ll end up with fully stocked stores but too few people to run them.”

Another supermarket executive described the approach as “half-cocked” and said the government was “not hearing what we’re saying”.

“It’s called a supply chain for a reason — it’s only as strong as its weakest link. 

The success of keeping the nation fed last year was that every link in the chain was protected, not just one.”

Separately, the government outlined further details of a different scheme intended to keep selected staff at work in sectors such as energy, transport, medicine, border control and local government.

Businesses will have to tell the relevant Whitehall department which staff they wish to be able to leave self-isolation and why. 

They will then receive letters “setting out the named critical workers designated and telling them what measures they and those workers need to follow”.

But the government cautioned that the process “will not cover all or in most cases even the majority” of workers in critical sectors.

That is likely to cause more frustration among business leaders over the government’s approach to containing the so-called ‘pingdemic’. 

A record 618,913 people were alerted in the week to July 15 and asked to self-isolate.

Tony Danker, CBI director-general, said before Thursday’s announcement that the approach to self-isolation was “closing down the economy rather than opening it up”.

“Businesses have exhausted their contingency plans and are at risk of grinding to a halt in the next few weeks.”

But Johnson this week called self-isolation “one of the only shots we have left in the locker” to stop the virus from exploding out of control following his decision to remove most remaining Covid-19 restrictions on July 19.

He has defied pressure from business to bring forward from August 16 the proposed date from which double-jabbed adults can avoid self-isolation if “pinged” by the Covid-19 app.

Jeremy Hunt, former health secretary, said the self-isolation rule should be scrapped immediately for people who had been double jabbed, warning: “Otherwise we risk losing social consent.”

Ministers are already preparing the ground for reintroducing restrictions in the autumn, amid fears that the third wave will continue into September when schools return.

Nadhim Zahawi, the vaccines minister, told MPs that compulsory Covid passports could be extended from nightclubs to venues including sports venues, business events and concerts to prove that attenders were fully vaccinated.

The government reserved the right to mandate their use for “crowded unstructured indoor settings, large unstructured outdoor settings and, of course, very large events such as . . . spectator sports”.

Labour has said it would oppose compulsory Covid-19 passports — as would some Tory MPs. 

Steve Baker, a former minister, said he would not attend the Conservative conference if attenders were forced to prove their vaccine status.

However, ministers admit the threat of widespread use of Covid passports is partly intended to persuade 3m 18 to 30-year-olds to get jabbed — a policy that has been successful in France. 

But some ministers hope they will not have to carry through with the threat. 

“They would love it if they didn’t have to do it,” said one government official.

Meanwhile, the disruption caused by the third wave continued. 

Make UK, an industry group, released a survey showing that 13 per cent of companies had stopped production. 

A quarter said at least 10 per cent of staff were isolating.

Andrew Selley at Bidfood, a food wholesaler, told the BBC that it was asking staff who were “pinged” to take a PCR test and to return to work if it was negative, rather than isolating. 

Daily lateral flow tests would follow.

Govia, which runs about a quarter of all passenger journeys in the UK, will from Monday reduce weekday services on five routes across the Thameslink and Southern franchises. 

Bin collections and child care are among areas facing disruption.

The latest infection data, however, showed that the UK recorded a dip in new cases for the first time since the onset of the third wave. 

A further 39,906 cases were reported on Thursday, down from 48,553 on the same day last week. 

But deaths continue to climb, with 84 deaths reported on Thursday, compared with 63 on the same day last week.

Oliver Johnson, director of the Institute for Statistical Science at Bristol university, warned that, as with falls in case numbers during September last year before the second wave, the dip could be a “false dawn”.

He speculated it could be driven by a “limited availability of PCR tests or a fall in lateral flow testing in schools ahead of the summer holidays”. 

He added that falling cases could reflect a drop in social mixing after a “high point” around the Euro 2020 finals in England.

Is the Fed Getting Burned Again?

As in the stagflationary 1970s, the US Federal Reserve is once again denying that its own policies are the reason for a recent surge of inflation, even though there is good reason to think that they are. It is not too late to learn from past mistakes and reverse course – but the clock is quickly ticking down.

John  B. Taylor


STANFORD – Fifty years ago, on June 22, 1971, US Federal Reserve Chair Arthur Burns wrote a memorandum to President Richard Nixon that will long live in infamy. 

Inflation was picking up, and Burns wanted the White House to understand that the price surge was not due to monetary policy or to any action that the Fed had taken under his leadership. 

The issue, rather, was that “the structure of the economy [had] changed profoundly.” 

Accordingly, Burns was writing to recommend “a strong wage and price policy”:

“I have already outlined to you a possible path for such a policy – emphatic and pointed jawboning, followed by a wage and price review board (preferably through the instrumentality of the Cabinet Committee on Economic Policy); and in the event of insufficient success (which is now more probable than it would have been a year or two ago), followed – perhaps no later than next January – by a six-month wage and price freeze.”

Perhaps owing to Burns’s reputation as a renowned scholar (he was Milton Friedman’s teacher) and his long experience as a policymaker, the memo convinced Nixon to proceed with a wage and price freeze, and to follow that up with a policy of wage and price controls and guidelines for the entire economy. 

For a time after the freeze was implemented, the controls and guidelines seemed to be working. They were even politically popular for a brief period. 

Inflation inched down, and the freeze was followed by more compulsory controls requiring firms to get permission from a commission to change wages and prices.

But the intrusive nature of the system began to wear on people and the economy because every price increase had to be approved by a federal government bureaucracy. 

Moreover, it soon became obvious that the government controls and interventions were making matters worse.

Ignoring its responsibility to keep inflation low, the Fed had started letting the money supply increase faster, with the annual growth rate of M2 (a measure of cash, deposits, and highly liquid assets) averaging 10% in the 1970s, up from 7% in the 1960s. 

This compounded the impact of the decade’s oil shocks on the price level, and the inflation rate shot into double digits – rising above 12% three times (first in 1974 and then again in 1979 and 1980) – while the unemployment rate rose from 5.9% in June 1971 to 9% in 1975.

As we know now, the US economy’s performance in the 1970s was very poor owing at least partly to that era’s monetary policies. 

This was when the word “stagflation” was coined to describe a strange mix of rising inflation and stagnant economic growth. 

As James A. Dorn of the Cato Institute recently recounted, Nixon’s “price controls went on to distort market prices” and are rightly remembered as a cautionary tale. 

“We should not forget that the loss of economic freedom is a high price to pay for a false promise to end inflation by suppressing market forces” (emphasis mine).

As it happens, Choose Economic Freedomis the title of a book that I published last year with George P. Shultz, who passed away in February at the age of 100. 

Schultz had gained decades of wisdom and experience as both a diplomat and economic policymaker, serving as the Nixon administration’s budget director when Burns wrote his audacious memo. 

In an appendix to our book, we included the full text of that document, because it had only recently been discovered in the Hoover Institution archives. 

It should now be recognized as required reading for anyone seeking to understand the recent history of US economic policymaking.

The Burns memo is a perfect example of how bad ideas lead to bad policies, which in turn lead to bad economic outcomes. 

Despite Burns’s extraordinary reputation, his memo conveyed a set of terrible policy recommendations. 

By blaming everything on putative structural defects supposedly afflicting the entire economy, the memo’s worst effect was to shun the Fed’s responsibility for controlling inflation, even though it was clearly responsible for the rising price level.

By the same token, good ideas lead to good policy and good economic performance. 

As Schultz and I showed, this was certainly the case in the 1980s. 

The Fed reasserted itself as part of a broader economic reform, and the economy duly boomed.

The message from this historical experience – and many other examples in the United States and elsewhere – should be abundantly clear. 

And while history never repeats itself, it often rhymes, so consider where we are midway through 2021: inflation is picking up, and the Fed is once again claiming that it is not responsible for that development. 

Instead, Fed officials argue that today’s surge in prices merely reflects the bounce back from the low inflation of the last year.

Worse, the Fed’s policy is even more interventionist now than it was in Burns’s day. 

Its balance sheet has exploded from massive purchases of Treasury bonds and mortgage-backed securities, and the growth rate of M2 has risen sharply over the past year. 

The federal funds interest rate is now lower than virtually any tested monetary policy rule or strategy suggests it should be, including those listed on page 48 of the Fed’s own February 2021 Monetary Policy Report.

It is not too late to learn from past mistakes and turn monetary policy into the handmaiden of a sustained recovery from the pandemic. 

But time is running out.


John B. Taylor, a former under-secretary of the US Treasury (2001-05), is Professor of Economics at Stanford University and a senior fellow at the Hoover Institution. He is the author of Global Financial Warriors and co-author (with George P. Shultz) of Choose Economic Freedom.