Virus shock can be contained, reversed

I’m not prone to making directive calls in columns like this one or to using capital letters in my social media posts. Rather than telling people what to think, I strongly prefer to try to help them reach their own conclusions by providing analysis and insights.
In the last few weeks, however, I’ve made two notable exceptions: in repeatedly urging policy makers, companies and individuals to realise that the coronavirus shock was fundamentally different in that it would trigger unprecedented economic sudden stops, a phenomenon that is extremely unfamiliar outside of fragile or failed states and communities hit by big natural disasters; and, as I anticipated a much bigger and generalised market correction, by urging investors not to keep on buying the dip, an investment strategy that had performed extremely well in recent years.
During the weekend, I used capital letters again in a social media post — this time to warn that the cascading sudden stops were reaching CRITICAL MASS.
I reached this conclusion through multiple consultations over many weeks with doctors, economists and behavioral scientists and also by drawing on my experience decades ago working at the IMF on crises in developing countries, including failing states.
Think of what is happening as a huge paradigm shift for economies, institutions and social norms and practices that, critically, are not wired for such a phenomenon. It requires us to understand the dynamics, not only to navigate them well but also to avoid behaviours that make the situation a lot worse.
The bottom line is that the economic disruptions immediately ahead will be more severe and widespread than the ones experienced by the bulk of the population in advanced countries.
We live in a global economy wired for ever deepening interconnectivity; and we are living through a period in which the current phase of health policy — emphasizing social distancing, separation and isolation — runs counter to what drives economic growth, prosperity and financial stability. The effects of these two basic factors will be amplified by the economics of fear and uncertainty that tempt everyone not just to clear out supermarket shelves but sadly also reignite terrible conscious and unconscious biases.
All this will have stressful and immediate negative effects on institutions. Policies will be designed under “fog of war” conditions, including that awful trade-off between the critical need for urgency and both imperfect information and the absence of a playbook. The effectiveness of traditional measures will wane at a time of repeated need for streamlined and yet highly coordinated decision-making at the local, regional, national and international levels. And, if we are not careful, our own behaviors could compound this considerable list of challenges.
Wherever you look, economic activity is shutting down through a combination of government directives and social behaviors. US travel bans, European border closings, nationwide shutdowns and office and school shutdowns have become normal.
The most important turnaround catalyst will come from the effective deployment of medical tests, early treatment and, eventually, a combination of self-immunity and vaccine. Everyone can facilitate this process by following medical advice that seeks to protect both individuals and communities.
—Bloomberg

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens’ College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include “The Only Game in Town” and “When Markets Collide.”