To date, the economic damage wrought by the pandemic has been mostly hidden by massive government subsidy. That’s about to change. And so the next few months will reveal the underlying economic impact of Covid-19 across the globe more clearly than we’ve seen so far. My bet: As governments withdraw fiscal support, the economic picture is going to look worse than commonly appreciated.
Getting a sense of what’s about to happen requires that we first be clear about how and why the pandemic has affected the economy: Is it because governments have required people to stay home, or is it because of the virus itself? New research shows that economic losses have come mainly from fear, not government mandate. So eliminating the mandates without ending the fear does very little.