Essay on New Normal Under Pandemic
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Nicholas Eberstadt offers insights into the challenges to U.S. leadership in a post-pandemic world. This is the inaugural essay in the series “The New Normal in Asia,” which explores ways in which the Covid-19 pandemic might adjust, shape, or reorder the world across multiple dimensions.
Though we are as yet barely weeks into the Covid-19 pandemic, what should already be apparent is that it has precipitated the deepest and most fundamental crisis for Pax Americana that this set of global economic and security arrangements has faced in the past three postwar generations.
We are still very much in the “fog of war” phase of the calamity. The novel coronavirus and its worldwide carnage have come as a strategic surprise to thought leaders and political decision-makers alike. Indeed, it appears to be the intellectual equivalent of an unexpected asteroid strike for almost all who must cope in these unfamiliar new surroundings. Few had seriously considered the contingency that the world economy might be shaken to its foundations by a communicable disease. And even now that this has happened, many remain trapped in the mental coordinates of a world that no longer exists.
Such “prewar” thinking is evident everywhere right now in the earliest phase of what may turn out to be a grave and protracted crisis. Here in the United States, we watch, week by week, as highly regarded financial analysts from Wall Street and economists from the academy misestimate the depths of the damage we can expect—always erring on the side of optimism.
After the March lockdown of the country to “flatten the curve,” the boldest voices dared to venture that the United States might hit 10% unemployment before the worst was over. Four weekly jobless claims reports and 22 million unemployment insurance applications later, U.S. unemployment is already above the 15% mark: north of 1931 levels, in other words. By the end of April, we could well reach or break the 20% threshold, bringing us to 1935 levels, and 1933 levels (25%) no longer sound fantastical. Even so, political and financial leaders talk of a rapid “V-shaped recovery” commencing in the summer, bringing us back to economic normalcy within months. This is prewar thinking, and it is looking increasingly like the economic equivalent of talk in earlier times about how “the boys will be home by Christmas.”
This is moreover a global crisis, and vision has not yet focused on the new realities in other leading powers and major economies. If we try to take an unflinching measure of the impact globally, we can see both good news and bad news—although the two are by no means equally balanced.
The good news is that policymakers the world over have learned from the prewar Great Depression and are unlikely to repeat its exact mistakes. Instead of reducing the money supply and forcing bank collapses, the U.S. Federal Reserve this time is flooding the world with liquidity. Likewise, U.S. fiscal policy, far from attempting to impose further austerity on an already imploding economy through balancing budgets, is embracing Keynesianism with an abandon that might have startled Keynes himself. Given the “stimulus” packages already passed in the last month, this year’s U.S. budget deficit to GDP ratio is already certain to be of World War II scale. And, at least so far, no emanations of Smoot-Hawley-like impulses are on the policy horizon. Last time around, protectionism had devastating reverberations on an already severely stressed international trade and financial system. Confidence in U.S. and international economic management of the current crisis, at least for the time being, is reflected inter alia in the surprisingly sanguine valuations of the stock indices both in the United States and abroad.
The bad news, on the other hand, lies in the nature of the virus itself and in its implications for human life and socioeconomic arrangements. Covid-19 is an extremely contagious virus with high lethality for those exposed to it, and it can be transmitted by asymptomatic “super spreaders.” Further, since this disease is zoonotic (contracted from another species) and novel (our species has no preexisting immunity), the pandemic will roam the world in search of human quarry until an effective vaccine is invented and mass-produced—or until so many people are infected that herd immunity is conferred.
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