The U.S. Economy Is Uniquely Vulnerable to the Coronavirus

The U.S. growth model is built in such a way that it simply cannot shut down without inflicting catastrophic damage on itself.

By Mark Blyth and cross-posted from Foreign Affairs.

Two competing epidemiological models currently guide and divide expert opinion on how best to respond to the novel coronavirus. The first, from Imperial College London, scared the U.S. and British governments into instituting strict social-distancing measures. It predicted that if left unchecked, COVID-19, the disease caused by the virus, could kill over half a million people in the United Kingdom and 2.2 million in the United States—not counting the many additional deaths caused by the collapse of each country’s health-care system. The second model, developed by researchers at Oxford University, suggested that the virus had already infected as much as 40 percent of the British population but that most had shown mild or no symptoms. According to this model, COVID-19 would still cause many deaths, and it would still severely stress health-care systems. But because it predicted fewer critical cases to come, the Oxford model suggested that an indefinite lockdown might not be necessary.

The attractions of the Oxford model are obvious. But if political leaders plan based on the Oxford model and turn out to be living in a world described by the Imperial College London model, they will have made a bad situation much, much worse.

Similarly, high-stakes decisions must be made about how to protect national economies from the effects of COVID-19—decisions that can be predicted with another kind of model. Political economists use “growth models” to describe what countries do to promote growth under normal circumstances, but these models also indicate how countries are likely to respond in the event of a crisis, such as a deadly pandemic. The United Kingdom’s basic growth model, for example, is driven by finance, housing, and, above all, domestic consumption. When the British economy got walloped by the coronavirus crisis and everyone was told to stay home, taking measures to boost consumption—such as guaranteeing 80 percent of wages—was the necessary response. By contrast, in Germany, which is essentially a giant export platform sucking in demand from elsewhere, the necessary response included instituting a shorter workweek and guaranteeing company balance sheets, but not supporting wages.

For the United States, the question of how best to shield the economy from the effects of the pandemic is more complicated. In growth model terms, the United States is a massive exporter of primary products, aircraft, weapons, oil, services, software, e-commerce, and finance—simply because its economy represents a quarter of global GDP. But most of what drives the U.S. economy is still domestic consumption, and while that isn’t as credit-driven or debt dependent as some analysts have claimed—the United States lies in the middle of the pack of Organization for Economic Cooperation and Development countries in terms of the ratio of household debt to household income—the role that private-sector debt plays in the U.S. economy makes it difficult to respond to a crisis like this one. This reality is thrown into sharp relief when contrasting the U.S. growth model with those of other countries

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