Economies won’t be able to recover after shutdowns

Citizens seem to be clamoring for shutdowns to prevent the spread of COVID-19. There is one major difficulty, however. Once an economy has been shut down, it is extremely difficult for the economy to recover back to the level it had reached previously. In fact, the longer the shutdown lasts, the more critical the problem is likely to be. China can shut down its economy for two weeks over the Chinese New Year, each year, without much damage. But, if the outage is longer and more widespread, damaging effects are likely.

A major reason why economies around the world will have difficulty restarting is because the world economy was in very poor shape before COVID-19 hit; shutting down major parts of the economy for a time leads to even more people with low wages or without any job. It will be very difficult and time-consuming to replace the failed businesses that provided these jobs.

When an outbreak of COVID-19 hit, epidemiologists recommended social distancing approaches that seemed to be helpful back in 1918-1919. The issue, however, is that the world economy has changed. Social distancing rules have a much more adverse impact on today’s economy than on the economy of 100 years ago.

Governments that wanted to push back found themselves up against a wall of citizen expectations. A common belief, even among economists, was that any shutdown would be short, and the recovery would be V-shaped. False information (really propaganda) published by China tended to reinforce the expectation that shutdowns could truly be helpful. But if we look at the real situation, Chinese workers are finding themselves newly laid off as they attempt to return to work. This is leading to protests in the Hubei area.

My analysis indicates that now, in 2020, the world economy cannot withstand long shutdowns. One very serious problem is the fact that the prices of many commodities (including oil, copper and lithium) will fall far too low for producers, leading to disruption in supplies. Broken supply chains can be expected to lead to the loss of many products previously available. Ultimately, the world economy may be headed for collapse.

In this post, I explain some of the reasons for my concerns.

[1] An economy is a self-organizing system that can grow only under the right conditions. Removing a large number of businesses and the corresponding jobs for an extended shutdown will clearly have a detrimental effect on the economy. 

Figure 1. Chart by author, using photo of building toy “Leonardo Sticks,” with notes showing a few types of elements the world economy.

An economy is a self-organizing networked system that grows, under the right circumstances. I have attempted to give an idea of how this happens in Figure 1. This is an image of a child’s building toy. The growth of an economy is somewhat like building a structure with many layers using such a toy.

The precise makeup of the economy is constantly changing. New businesses are formed, and new consumers grow up and take jobs. Governments enact laws, partly to collect taxes, and partly to ensure fair treatment of all. Consumers decide which products to buy based on a combination of factors, including their level of wages, the prices being charged for the available goods, the availability of debt, and the interest rate on that debt. Resources of various kinds are used in producing goods and services.

At the same time, some deletions are taking place. Big businesses buy smaller businesses; some customers die or move away. Products that become obsolete are discontinued. The inside of the dome becomes hollow from the deletions.

If a large number of businesses are closed for an extended period, this will have many adverse impacts on the economy:

  • Fewer goods and services, in total, will be made for the economy during the period of the shutdown.
  • Many workers will be laid off, either temporarily or permanently. Goods and services will suddenly be less affordable for these former workers. Many will fall behind on their rent and other obligations.
  • The laid off workers will be unable to pay much in taxes. In the US, state and local governments will need to cut back the size of their programs to match lower revenue because they cannot borrow to offset the deficit.
  • If fewer goods and services are made, demand for commodities will fall. This will push the prices of commodities, such as oil and copper, very low.
  • Commodity producers, airlines and the travel industry are likely to head toward permanent contraction, further adding to layoffs.
  • Broken supply lines become problems. For example:
    • A lack of parts from China has led to the closing of many automobile factories around the world.
    • There is not enough cargo capacity on airplanes because much cargo was carried on passenger flights previously, and passenger flights have been cut back.

These adverse impacts become increasingly destabilizing for the economy, the longer the shutdowns go on. It is as if a huge number of deletions are made simultaneously in Figure 1. Temporary margins, such as storage of spare parts in warehouses, can provide only a temporary buffer. The remaining portions of the economy become less and less able to support themselves. If the economy was already in poor shape, the economy may collapse.

[2] The world economy was approaching resource limits even before the coronavirus epidemic appeared. This is not too different a situation than many earlier economies faced before they collapsed. Coronavirus pushes the world economy further toward collapse. 

Reaching resource limits is sometimes described as, “The population outgrew the carrying capacity of the land.” The group of people living in the area could not grow enough food and firewood using the resources available at the time (such as arable land, energy from the sun, draft animals, and technology of the day) for their expanding populations.

Collapses have been studied by many researchers. The book Secular Cycles by Peter Turchin and Sergey Nefedov analyze eight agricultural economies that collapsed. Figure 2 is a chart I prepared, based on my analysis of the economies described in that book:

Figure 2. Chart by author based on Turchin and Nefedov’s Secular Cycles.

Economies tend to grow for many years before the population becomes high enough that the carrying capacity of the land they occupy is approached. Once the carrying capacity is hit, they enter a stagflation stage, during which population and GDP growth slow. Growing debt becomes an issue, as do both wage and wealth disparity.

Eventually, a crisis period is reached. The problems of the stagflation period become worse (wage and wealth disparity; need for debt by those with inadequate income) during the crisis period. Changes tend to take place during the crisis period that lead to substantial drops in GDP and population. For example, we read about some economies entering into wars during the crisis period in the attempt to gain more land and other resources. We also read about economies being attacked from outside in their weakened state.

Also, during the crisis period, with the high level of wage and wealth disparity, it becomes increasingly difficult for governments to collect enough taxes. This problem can lead to governments being overthrown because of unhappiness with high taxes and wage disparity. In some cases, as in the 1991 collapse of the central government of the Soviet Union, the top level government simply collapses, leaving the next lower level of government.

Strangely enough, epidemics also seem to occur within collapse periods. The rising population leads to people living closer to each other, increasing the risk of transmission. People with low wages often find it increasingly difficult to eat an adequate diet. As a result, their immune systems easily succumb to new communicable diseases. Part of the collapse process is often the loss of a significant share of the population to a communicable disease.

Looking back at Figure 2, I believe that the current economic cycle started with the use of fossil fuels back in the 1800s. The world economy hit the stagflation period in the 1970s, when oil supply first became constrained. The Great Recession of 2008-2009 seems to be a marker for the beginning of the crisis period in the current cycle. If I am right in this assessment, the world economy is in the period in which we should expect crises, such as pandemics or wars, to occur.

The world was already pushing up against resource limits before all of the shutdowns took place. The shutdowns can be expected to push the world economy toward a more rapid decline in output per capita. They also appear to increase the likelihood that citizens will try to overthrow their governments, once the quarantine restrictions are removed.

[3] The carrying capacity of the world today is augmented by the world’s energy supply. A major issue since 2014 is that oil prices have been too low for oil producers. The coronavirus problem is pushing oil prices even lower yet.

Strangely enough, the world economy is facing a resource shortage problem, but it manifests itself as low commodity prices and excessive wage and wealth disparity.

Most economists have not figured out that economies are, in physics terms, dissipative structures. These are self-organizing systems that grow, at least for a time. Hurricanes (powered by energy from warm water) and ecosystems (powered by sunlight) are other examples of dissipative structures. Humans are dissipative structures, as well; we are powered by the energy content of foods. Economies require energy for all of the processes that we associate with generating GDP, such as refining metals and transporting goods. Electricity is a form of energy.

Energy can be used to work around shortages of almost any kind of resource. For example, if fresh water is a problem, energy products can be used to build desalination plants. If lack of phosphate rocks is an issue for adequate fertilization, energy products can be used to extract these rocks from less accessible locations. If pollution is a problem, fossil fuels can be used to build so-called renewable energy devices such as wind turbines and solar panels, to try to reduce future CO2 pollution.

The growth in energy consumption correlates quite well with the growth of the world economy. In fact, increases in energy consumption seem to precede growth in GDP, suggesting that it is energy consumption growth that allows the growth of GDP.

Figure 3. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

The thing that economists tend to miss is the fact that extracting enough fossil fuels (or commodities of any type) is a two-sided price problem. Prices must be both:

  1. High enough for companies extracting the resources to make an after tax profit.
  2. Low enough for consumers to afford finished goods made with these resources.

Most economists believe that an inadequate supply of energy products will be marked by high prices. In fact, the situation seems to be almost “upside down” in a networked economy. Inadequate energy supplies seem to be marked by excessive wage and wealth disparity. This wage and wealth disparity leads to commodity prices that are too low for producers. Current WTI oil prices are about $20 per barrel, for example (Figure 4).

Figure 4. Daily spot price of West Texas Intermediate oil, based on EIA data.

The low-price commodity price issue is really an affordability problem. The many people with low wages cannot afford goods such as cars, homes with heating and air conditioning, and vacation travel. In fact, they may even have difficulty affording food. Spending by rich people does not make up for the shortfall in spending by the poor because the rich tend to spend their wealth differently. They tend to buy services such as tax planning and expensive private college educations for their children. These services require proportionately less commodity use than goods purchased by the poor.

The problem of low commodity prices becomes especially acute in countries that produce commodities for export. Producers find it difficult to pay workers adequate wages to live on. Also, governments are not able to collect enough taxes for the services workers expect, such as public transit. The combination is likely to lead to protests by citizens whenever the opportunity arises. Once shutdowns end, these countries are especially in danger of having their governments overthrown.

[4] There are limits to what governments and central banks can fix. 

Governments can give citizens checks so that they have enough funds to buy groceries. This may, indeed, keep the price of food products high enough for food producers. There may still be problems with broken supply lines, so there may still be shortages of some products. For example, if there are eggs but no egg cartons, there may be no eggs for sale in grocery stores.

Central banks can act as buyers for many kinds of assets such as bonds and even shares of stock. In this way, they can perhaps keep stock market prices reasonably high. If enough gimmicks are used, perhaps they can even keep the prices of homes and farms reasonably high.

Central banks can also keep interest rates paid by governments low. In fact, interest rates can even be negative, especially for the short term. Businesses whose profitability has been reduced and workers who have been laid off are likely to discover that their credit ratings have been downgraded. This is likely to lead to higher interest costs for these borrowers, even if interest rates for the most creditworthy are kept low.

One area where governments and central banks seem to be fairly helpless is with respect to low prices for commodities used by industry, such as oil, natural gas, coal, copper and lithium. These commodities are traded internationally, so it is not just their own producers that need to be propped up; the market intervention needs to affect the entire world market.

One approach to raising world commodity prices would be to buy up large quantities of the commodities and store them somewhere. This is impractical, because no one has adequate storage for the huge quantities involved.

Another approach for raising world commodity prices would be to try to raise worldwide demand for finished goods and services. (Making more finished goods and services will use more commodities, and thus will tend to raise commodity prices.) To do this, checks would somehow need to go to the many poor people in the world, including those in India, Bangladesh and Nigeria, allowing these people to buy cars, homes, and other finished goods. Sending out checks only to people in one’s own economy would not be sufficient. It is unlikely that the US or the European Union would undertake a task such as this.

A major problem after many people have been out of work for a quite a while is the fact that many of these people will be behind on their regular payments, such as rent and car payments. They will be in no mood to buy a new vehicle or a new cell phone, simply because they have been offered a check that covers groceries and not much more. They will remain in a mode of cutting back on purchases, not adding more. Demand for most kinds of goods will remain low.

This lack of demand will make it difficult for business to have enough sales to make it profitable to reopen at the level of output that they had previously. Thus, employment and sales are likely to remain depressed even after the economy seems to be reopening. China seems to be having this problem. The Wall Street Journal reports China Is Open for Business, but the Postcoronavirus Reboot Looks Slow and Rocky. It also reports, Another Shortage in China’s Virus-Hit Economy: Jobs for College Grads.

[5] There is a significant likelihood that the COVID-19 problem is not going away, even if economies can “bend the trend line” with respect to new cases.

Bending the trend line has to do with trying to keep hospitals and medical providers from being overwhelmed. It is likely to mean that herd immunity is built up slowly, making repeat outbreaks more likely. Thus, if social isolation is stopped, COVID-19 illnesses can be expected to revisit prior locations. We know that this has been an issue in the past. The Spanish Flu epidemic came in three waves, over the years 1918-1919. The second wave was the most deadly.

A recent study by members of the Harvard School of Public Health says that the COVID-19 epidemic may appear in waves until into 2022. In fact, it could be back on a seasonal basis thereafter. It also indicates that more than one period of social distancing is likely to be required:

“A single period of social distancing will not be sufficient to prevent critical care capacities from being overwhelmed by the COVID-19 epidemic, because under any scenario considered it leaves enough of the population susceptible that a rebound in transmission after the end of the period will lead to an epidemic that exceeds this capacity.”

Thus, even if the COVID-19 problem seems to be fixed in a few weeks, it likely will be back again within a few months. With this level of uncertainty, businesses will not be willing to set up new operations. They will not hire many additional employees. The retired population will not run out and buy more tickets on cruise ships for next year. In fact, citizens are likely to continue to be worried about airplane flights being a place for transmitting illnesses, making the longer term prospects for the airline industry less optimistic.


The economy was already near the edge before COVID-19 hit. Wage and wealth disparity were big problems. Local populations of many areas objected to immigrants, fearing that the added population would reduce job opportunities for people who already lived there, among other things. As a result, many areas were experiencing protests because of unhappiness with the current economic situation.

The shutdowns temporarily cut back the protests, but they certainly do not fix the underlying situations. Instead, the shutdowns add to the number of people with very low wages or no income at all. The shutdowns also reduce the total quantity of goods and services available to purchase, regardless of how much money is added to the system. Many people will end up poorer, in some real sense.

As soon as the shutdowns end, it will be obvious that the world economy is in worse condition than it was before the shutdown. The longer the shutdowns last, the worse shape the world economy will be in. Thus, when businesses are restarted, we can expect even more protests and more divisive politics. Some governments may be overthrown, or they may collapse without being pushed. I fear that the world economy will be further down the road toward overall collapse.




About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
This entry was posted in Energy policy, Financial Implications, News Related Post and tagged , , , . Bookmark the permalink.

4,744 Responses to Economies won’t be able to recover after shutdowns

  1. Fast Eddy says:

    500 IQ time:

    The Common Cold and the Flu

    While most of the medical community has long believed that the flu cannot be passed from human to animal, recent cases have shown that the adaptable nature of the flu may very well mean that some strains can indeed be passed from humans to other animals, including dogs.

    Like Wow…. did anyone think to check this before posting rubbish about dogs catching Wuhan as if it was evidence that Wuhan is not just another flu?

    Bring more …. I am ready

    IQ for sale IQ for sale — come and get your IQ…..

    • JesseJames says:

      Looking at a couple of states data we find the following.
      Alabama 15,500 hospital beds. 2000 Covid cases to date. 272 total hospitalizations since 3/13. 39 deaths from illness…of which many no doubt were extremely elderly, obese or had numerous other preexisting conditions. Interestingly enough, Alabama reports total reported deaths (presumably due to flu like symptoms) of 53, not quite but almost double that of the Covid 19 deaths. So people are dying anyway, regardless of COvid 19.
      Texas 58000 hospital beds. 7200 cases reported. 1153 currently in hospitals. 140 fatalities.
      California 74000 hospital beds. 2500 patients reported with 82% of hospitals reporting. 1085 cases in ICU.

      This number of deaths is noise. I am with FE in calling this BS. The quickest way to get back to normal is herd immunity. Everyone will get this eventually. There will be wave after wave.

      We are being played. The NAZI propaganda machine would be proud. I am of the mind that the fittest survive. peoples, tribes, nations. And if a nation lets itself be imprisoned and destroyed by fear porn, then perhaps it deserves to wither. Destroying an economy because “one life might be lost” is the ultimate in foolishness.

      • Rural says:

        No you aren’t being played. You are being managed, along with everybody else. Not perfectly managed, but not too badly.

        Look, had the world just accepted COVID-19 without any behavioural modification, we would have pure exponential growth and infections would be much more widely spread at this time. Instead, the rate of infection has been slowed, reducing the impact on hospitals, for now. In the meantime, progress is being made on strategies for treating the infection.

        If you want an idea of how things would go without the distancing measures and shutdowns, hang out in a hospital in New York city.

        Besides, reading yourselves and others here on OFW, the economy was a lost cause anyway.

        • JesseJames says:

          “You are being managed”
          change it to this…”You are being over-managed”
          Fixed it for you.

        • Fast Eddy says:

          Try calling Elherst – I just called again but it’s 4am so nobody is picking up… nap break.

          I will call again before I head up to watch my 5 minute ration of Curb.

          Maybe someone else could take the baton … the lady was a bit curt with me last time — she said NO it’s not busy — but if all you have is a bit of a sore throat maybe you should not be using the ER… try a lozenge and rest

    • Joebanana says:

      I’ve got a boatload of guns but not one stainless single action in 45 Colt. Gots to get me one of them.

  2. Chrome Mags says:

    ‘A new antiviral drug heading into clinical trials offers hope for COVID-19 treatment — in part because it can be taken as a pill’

    “The study found that EIDD-2801 can prevent severe lung injury in infected mice. (EIDD-2801 is an orally available form of the antiviral compound EIDD-1931; it can be taken as a pill.”

  3. Marco Bruciati says:

    New deal of Roosevelt was good whitout cheap oil???

  4. Harry McGibbs says:

    “As the coronavirus pandemic penetrates more deeply into global supply chains, prices for key staples are starting to soar in some parts of the world.”

  5. Harry McGibbs says:

    “The financial fallout from the coronavirus is spreading rapidly and that’s ugly news for many developing countries. The risk of contagion, where the collapse of one currency triggers a global panic, is very real.”

    • Harry McGibbs says:

      “Under current conditions, many countries simply cannot service their debts, which, in the absence of a global stay on repayment, could lead to massive, rolling defaults.

      “In many developing and emerging economies, the government’s only choice is either to funnel more income to foreign creditors or allow more of its citizens to die.”

      • Harry McGibbs says:

        “Fitch Ratings on Monday cut Argentina’s foreign currency sovereign credit rating to restricted default after the government announced a plan to postpone payments on $9.8 billion worth of local-law, US dollar-denominated bonds until December 31, 2020, at the latest.”

      • We are facing lots and lots of international defaults under current conditions. The Guardian author says:

        First, full use must be made of the International Monetary Fund’s special drawing rights, a form of “global money” that the institution was authorised to create at its founding. The SDR is an essential ingredient in the international monetary order that John Maynard Keynes advocated during the Bretton Woods Conference of 1944. The idea is that, because all countries will obviously want to protect their own citizens and economies during crises, the international community should have a tool for assisting the neediest countries without requiring national budgets to take a hit.

        A standard SDR issuance – with some 40% of the SDRs going to developing and emerging economies – would make an enormous difference. But it would be even better if advanced economies such as the US donated or lent (on concessionary terms) their SDRs to a trust fund dedicated to helping poorer countries. One might expect that the countries providing this assistance would attach conditions, in particular, that the money not go to bailing out creditors.

        It is also crucial that creditor countries help by announcing a stay on developing and emerging economies’ debt service.

        With everyone as bad off as they are, I doubt this will happen.

  6. Harry McGibbs says:

    “The nation’s former top central banker called the damage “absolutely shocking.” The head of America’s largest bank said he’s preparing for financial dysfunction similar to 2008.”

  7. Given the observable evidence so far.. there are several major scenarios/probabilities how to tackle the evolving situation on the ground:

    The dominating msm/gov narrative:
    Yes, GFC_ver2 is coming, but you know = pandemics, and because your are perhaps not upto speed yet, from now on all is related and muddied with pandemics.. pandemics anyone?

    The finally looted and now burned down casino narrative:
    Yes, GFC_ver2 happened, so speculative capitalists unite and lets bail out of here and leave the mess to be solved by someone else.

    The systemic survival narrative ver_A:
    Yes, GFC_ver2 is going to happen, in the context of Surplus/OFW, so let the proles on short leash via releasing boosted flue strain and stirred up panic for phasing in China style personal IDs as social score on IT cloud network, basically on/off food ration and freedom of movement leash in authoritarian-dystopian system under attempted degrowth.

    The systemic survival narrative ver_B(illyboy):
    The same as above, but the end game being updated with mandatory vaccination allowing not only for scanning bodies, but also to mutate immune receptors for even more deadlier virus strains of the future, i.e. prepping ground for the grand total depop scheme

    • Xabier says:

      ‘If you can look into the seeds of Time, and say which seed will grow and which will not, speak then to me!’

      Let’s call it ‘De-growth’; such a nice and fuzzy warm-feeling word, all eco-linens, home-canning, paper bags and 1940’s bicycles, and no greed at all anymore. Who wouldn’t want that?

      As for Their putative plans: they can’t touch the soul, so ultimately who cares?

      One’s life is between oneself and God, the gods, or the Final Abyss.

      Wonderful Spring weather here in England, I hope everyone is getting some sunlight, even in Italy?!

      • Joebanana says:

        Cold as f**k in Nova Scotia. It is still going well below zero at night and not much better during the day. Not that it makes any difference as I did all the end of the world preps. Now that the boys are not in school I’ve never ate more. The youngest has become an expert sourdough bread maker. I don’t normally eat much bread but dang his is good!

        On a serious note; where the heck is the collapse?

      • I noticed your quality rebuttal to “DeGrowth” at latest Surplus.
        There is a lot to agree upon, mind you I’m not proponent of such, only musing about the options at hand given the avail. evidence, which might change. That’s why I often use the phrase “attempted degrowth” or even more fitting “triage” both in domestic/internal as well foreign/meddling domain. In essence it’s only futile exercise to prolong IC and its various features..

        We are little ants against the a-bomb or bio-weapon possessing giants, nevertheless their action is to some degree predictable from cast shadows, so to speak.

  8. Harry McGibbs says:

    “The coronavirus crisis has hit the world economy “much harder and much faster than anything before”, and will have a deeper impact than the 2008 financial crash, former International Monetary Fund (IMF) chief Ajai Chopra has warned.”

    • Harry McGibbs says:

      “Unfortunately for the best-case scenario, the public-health response in advanced economies has fallen far short of what is needed to contain the pandemic, and the fiscal-policy package currently being debated is neither large nor rapid enough to create the conditions for a timely recovery.

      “As such, the risk of a new Great Depression, worse than the original – a Greater Depression – is rising by the day.”

      • Harry McGibbs says:

        “There is no doubt that this is a bigger black swan event and the impact is likely to be prolonged. In particular, when the world is more leveraged than it was during 2008-09.

        “As a matter of fact, global debt has increased to $253 trillion with global debt-to-GDP at 322%. It goes without saying that this can have disastrous consequences for the banking sector as the crisis prolongs.”

        • Harry McGibbs says:

          “…the intensification of the global economic crisis will also tighten the global debt chain and credit chain, the quality of bank assets will deteriorate, and the phenomenon of debt default will continue to increase.

          “Each of these partial crises will eventually be transmitted to the financial system and evolve into greater financial risks.”

          • Herbie R Ficklestein says:

            Dear Harry,
            Thank you so much for your posts and links! It makes these visits worth while and most appreciative and enlightening. We are indeed in a Black Swan event and uncharted territory.
            Fascinating how quickly it is unfolding and how it all falls down is anyone’s guess.
            One think for sure, the big one hasn’t got us yet…hold one!

            BAU hold on and don’t let goooooo……..

        • If global Debt to GDP is 322%, and GDP drops by half, then the Debt to GDP ratio becomes 644%, without adding all of the new loans added for stimulus. Sounds like fun!

      • Containing the coronavirus is impossible. Flattening the curve, which is what folks said they wanted to happen, has indeed happened. We will have COVID-19 around until we find a way to treat it or a vaccine.

        • Fast Eddy says:

          Flattening the curve is a catchy slogan from Don Draper…. it is nonsense. So you flatten the curve – then what? Unlock? Then what happens?

          You cannot stop the flu. You cannot stop the common cold.

          Bolsonaro has this thing nailed DEAD on the HEAD. NO lockdowns. Masks for all. Soap for all. Get on with life.

          Let the riots re-start and spread…. and let total chaos to overwhelm the world …. let’s pick up where we left off pre virus…

          On second thought…. let’s continue to spread FEAR … and convince people to cower under their beds and starve in peace

  9. Fast Eddy says:

    Comprehensive version of Burry’s diatribe against this more on ic lockdown

    Michael Burry, the doctor-turned-investor who famously bet against mortgage securities before the 2008 financial crisis, has taken to Twitter with a controversial message: lockdowns intended to contain the coronavirus pandemic are worse than the disease itself.

    Government-directed shutdowns in the U.S., which led to millions of job losses and may trigger one of the country’s deepest-ever economic contractions, aren’t necessary to contain the epidemic and have disproportionately hurt low-income families and minorities, Burry argued in a series of tweets over the past two weeks. He also said some controversial treatments for Covid-19, such as the malaria drug hydroxycloroquine, should be made more widely available.

    Burry earned his M.D. at the Vanderbilt University School of Medicine, but decided to become a professional investor after making hugely profitable bets in the stock market. He shot to fame after his hedge fund’s bearish mortgage wagers were chronicled in “The Big Short,” an Oscar-winning movie based on the best-selling book by Michael Lewis.

    Although Burry has mostly kept a low profile since then, he started sharing his views more widely last year to warn of a central-bank fueled “bubble” in passive investment products. He’s now focusing on the outbreak that has shuttered economies, killed almost 75,000 people worldwide and changed how millions of people live and work.

    “Universal stay-at-home is the most devastating economic force in modern history,” Burry wrote in an email to Bloomberg News. “And it is man-made. It very suddenly reverses the gains of underprivileged groups, kills and creates drug addicts, beats and terrorizes women and children in violent now-jobless households, and more. It bleeds deep anguish and suicide.”

    Burry, whose utterances are closely watched by the financial community, began tweeting on March 23, describing his handle as the “real personal account of the real weird one from the book and movie, etc.” He said he began speaking out because of how people were suffering from measures taken to contain the pandemic. “Unconscionable,” is how he described job losses in the U.S., which have caused a once-unthinkable 10 million people to apply for unemployment benefits in the past two weeks.

    If COVID-19 testing were universal, the fatality rate would be less than 0.2%. This is no justication for sweeping government policies, lacking any and all nuance, that destroy the lives, jobs, and businesses of the other 99.8%.

    — michaeljburry (@michaeljburry) March 23, 2020
    Burry has taken on medical policymakers in tweets regarding the illness itself, saying coronavirus infections can be managed through common-sense measures like increased hand-washing and broader testing, without forcing everyone to stay at home. He’s also advocating for wider use of chloroquine and hydroxychloroquine to treat those who are infected. U.S. President Donald Trump has called the latter drug a “game changer” in the fight against Covid-19, but critics in the scientific community have urged caution, saying it isn’t fully tested or approved.

    Drugs Authorized for Covid-19? Why There’s Skepticism: QuickTake

    On Sunday, U.S. Surgeon General Jerome Adams said there had been some accounts that hydroxychloroquine was helping. “We feel a little bit better regarding its safety than we do about a completely novel drug, even though this is being used at much higher dosages,” he said.

    Burry has so far refrained from tweeting about his investments. He told Bloomberg News last month that he placed a “significant bearish market bet that is working out for now,” without providing details except to say it was a trade of a “good size” against indexes. He said the pandemic could unwind the passive investment boom, which he has compared to purchases of collateralized debt obligations that fueled the pre-2008 mortgage bubble.

    While Burry has been mostly critical of the economic and medical measures taken by authorities across the globe, he has also highlighted large economies that haven’t seen as much turmoil as the U.S. and Britain. Germany and Japan have been more measured in their responses and offer a model for the rest of the world, Burry said.

    In a tweet on March 25, Burry issued his own prescription for Americans to overcome the crisis:

    Prudent plan: 1) Standardize on chloroquine and azithromycin -cheap and available 2) Sick and elderly voluntarily shelter in place. 3) Americans lead their normal lives with extra hand washing and special care if around elderly. Saving the economy means life, not murder.#COVID19

    — michaeljburry (@michaeljburry) March 25, 2020
    Burry responded to questions via email to offer more thoughts on the pandemic and the response to the outbreak. Here’s what he had to say about China’s response, how some countries have handled the outbreak differently and the long-term impact.

    How the Pandemic Happened
    “This is a new form of coronavirus that emanated from a country, China, that unfortunately covered it up. That was the original sin. It transmits very easily, and within the first month it was likely all over the world. Very poor testing infrastructure created an information vacuum as cases ramped, ventilator shortages were projected. Politicians panicked and media filled the space with their own ignorance and greed. It was a toxic mix that led to the shutdown of the U.S., and hence much of the world economy.”

    “In hindsight, each country should have immediately ramped up rapid field testing of at-risk groups. But as I understand it, the CDC was tasked with some of this, and botched it, and other departments were no better. The bureaucracy failed in a good number of countries. Turf wars and incompetence has ruled the day. So the political cover for that failure on the part of the technocrats and politicians is a very harsh stay-at-home policy.”

    The U.S. Policy Response
    “If there was ever a time for the government to stimulate with fiscal and monetary policy, it is now. Unfortunately, the U.S. has been adding $3 for every $1 of new GDP over a very long time, and interest rates were already near zero. Still, nothing is more important now that loans to small and mid-sized businesses, and the U.S. Treasury, backed by the Fed, is providing that liquidity, which is vital.”

    Potential Treatments
    “It’s pretty clear that hydrochloroquine is doing something good for many Covid-19 patients. The standard in medicine is a placebo-controlled double-blind study. But there is no time for that. The technocrats at the top are getting this wrong. Do the studies, make the vaccines, but allow doctors to have what they feel is working now. Don’t take tools or drugs out of the treating doctors’ hands. Trump should use the Defense Production Act more liberally in this area.”

    “A more nuanced approach would be for at risk groups — the obese, old and already-sick — to shelter in place, to execute widespread mandatory testing, and to ID and track as necessary while allowing society to function. Again, Trump should get the massive contract manufacturers like Flextronics to make testing machines.”

    Getting Back to Normal
    “I would lift stay-at-home orders except for known risk groups. We already know certain conditions that are predictive of severe disease. Especially since young healthy lungs tend to be resistant, I would let the virus circulate in the population that is not likely to get severe disease from it. This is the only path that comes close to balancing the needs of all groups. Vaccines are not coming anytime soon, so natural immunity is the only way out for now. Every day, every week in the current situation is ruining innumerable lives in a criminally unjust manner.”

    “When it comes to vaccines, coronaviruses are not known for imparting enduring immunity, and this will be one big challenge. It seems the genetic code is relatively conserved, and this will help the development of the vaccine. But we’re still looking at the end of the year. In the meantime, the world is an innovative place, and I expect many effective treatments — both new and repurposed — shortly. The question then will be regulation, expense and availability.”

    “Medically, the new normal will be the old normal. As long as innovation continues, medicine will conquer everything in our way.”

    Japan’s Response
    “I believe Prime Minister Shinzo Abe is trying his best to manage through the situation without shuttering the economy. He sees what it has done to the U.S., and would rather not force a shut in, but instead asks for common sense. Japan has certain features — such as a largely lawful and well-educated society — that make this more possible. As do Taiwan, Singapore, Korea.”

    Business Recovery
    “Economically speaking, we have to realize the policy-driven demand shock will be resolved by 2021. But Japan and the U.S. are putting more than 20% of the GDP into new fiscal stimulus, and easy money will be the rule. Those things will all bring stock and debt markets back.”

    “Countries will also look to bring supply chains home, and many employees will need retraining with higher cost. When we start working and playing again, inflation may be in store. The other big point is that consumers have learned new behaviors, which will drive business churn.”

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