The world is still under stress by the coronavirus outbrake, and so it is the global economy and its remainings.Hard choices for global leaders, but also for the economy policy makers.They both face a completely unexpected situation which for economist is out of any economics text books.In fact , economics as a science rose to become a core on new knowledge concerning society behavior(right or wrong), based upon productive uses of scarce resources and its alternatives allocations.That is what economics policy issues are all about.However, now there is a huge challenge under way which does not have a proper match with the economic text books and policy response, other than to be prepare for the worst and hope for the best.-
In a usual situation , most of the policy decision deals with the economy working at a certain level of productive capacity, even in a recession with low levels of activity, there is always a minimun capacity ready to be used. But now, that capacity shrink to almost zero when most of the productive force on the one hand, and consumer on the other hands must stay at home in both developed and less developed economies.The economy get the status of a global sudden stop. -
Given its consequences (Severe recession,coupled with high social cost), the sudden stop scenario has been a key subject of macroeconomic research,Calvo (1998), Agosin,Maureira & Karnani (2017),such as it has been posible to set a signal to prevent it: Look at the correlation between inflow and outflows of capital.Wheher it is high , there are fewer chances of a financial account sudden stop.Agosin, et al (2017).-
But now the situation is different , part of global economy has become like a global Hospital,and it may stay that way before a fully recovery take place because of lagged response to both fiscal and monetary policy action. So, what are the tools the economy has available to deal with this situaion in the short run?. At its best just a few, at its worst None. Fiscal policy lag is shorter than that one of monetary policy.However, the issue it is matter of sanitary policy which is far beyond the reach of macroeconomic policy framework which assumes both healthy and rational labor force, consumers and economic agent.-
The COVID -19 pandemic so far, has hit the global services sector (50 million jobs) ,and the manufactures process as well, through he supply chain disruption(global production chains) . Air lines,(10% drop in past months schedule flights ) tourism, hotels, food industry all face a very difficult situation ,and the expectation arising from the vacation season to get it over,are probably gone. In the south Hemisphere the prospect of a winter more severe than previously expected will increase the burden upon sanitary facilities.So there is a simultaneous collapse of both suplly and demand which may lead to a deflationary recession ,and while the key productive forces are in quarantine either on the hospitals or at home , the policy makers are unable to do anything with real inmediate impact on the path of keeping the economy stable.So it looks like we will live for a while in the Zombie economy which has fear as its key driver.-
The Zombie economy will work through the network connecting consumer at home and business capable of dealing with delivery process through drone .Those doing their job using telework or net working, will keep the economy on wait and survive mode.Internet will replace the physical usual transaction chanels as never before,so there will be a huge transformation the way economic agents used to do business. The probably outcome following the Zombie economcy may be a stronger Virtual economy with an higher share of real economy transactions than before reinforcing the pattern of shifting places away from public shopping malls .A lot of traditional business will be replaced by virtual (internet) alternatives.Firms will have to redefine the way to apply sanitary policies and how to care about its talented people , so it will in the tourism industry as a whole.-
As a bounded optimism approach it is important to take into account that nothing is worst than do nothing.The scientifc community is working hard to overcome the crisis with a Vaccine, the necessary condition to make the economic policy tools to work fully again. The sooner the better.-
