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This is the way the world ends. This is the way the world ends. This is the way the world ends. Not with a bang, but with a virus.
OK, it's not that bad — or at least I don't think it is. The coronavirus isn't the Black Death; so far there's no reason to believe that it will be remotely as deadly as the influenza epidemic that swept the world in 1918-19, killing as many as 50 million people.
But that said, we've clearly missed whatever chance we had of containing the disease's spread. And it's going to be seriously disruptive.
For some reason markets, which had been weirdly complacent for weeks, decided to panic yesterday. I don't know why it took so long, but there are three good reasons to be very worried about the economic impact of what isn't yet officially a pandemic, but is obviously headed for that status.
First, we have a deeply interdependent world economy, and China — still the epicenter of the pandemic, although this thing is going global fast — plays a very big role in world manufacturing. The last time we saw a comparable event — the SARS outbreak of 2002-3 — China accounted for around 7 percent of world manufacturing. Now it's more than a quarter, and a lot of production around the world depends on Chinese components.
And I'm not just talking about iPhones and all that. China, it turns out, supplies some of the crucial raw materials used in modern pharmaceuticals. This virus won't just disrupt world trade, it will disrupt the medical response.
Second, the world economy is poorly prepared to handle an adverse shock of any kind. Unemployment may be low — it's especially low in the United States, but even in Europe it's low by historical standards. But we've only been able to get close to full employment thanks to extremely low interest rates, which means that there's very little room to cut rates further if something goes wrong. And the coronavirus looks like something.
True, we could respond with fiscal stimulus — public spending and other measures to prop up demand. In fact, that's what the Chinese are doing. But the West seems paralyzed by ideology. In America, Republicans seem incapable of coming up with any proposal that doesn't involve tax cuts for the rich. In Europe, the Germans still treat economics as a branch of moral philosophy; saving is virtuous, and nobody can convince them that sometimes you need to spend.
Finally, the Trump administration seems both woefully and willfully unprepared to deal with a public health crisis. President Obama created a global disease "czar" to deal with Ebola; Trump eliminated the position, and substantially cut funding for the Centers for Disease Control, because his administration didn't consider pandemics a significant national security threat. So who's going to take charge if things get really scary? Jared Kushner?
Two indicators of the seriousness with which our current leadership is confronting the risks: Rush Limbaugh, recent recipient of the Presidential Medal of Freedom, dismisses the coronavirus as just the common cold, being "weaponized" against Donald Trump. And Larry Kudlow, the administration's top economist, responded to the market's fears by … urging Americans to buy stocks.
We still don't know how big a deal this virus will turn out to be. But there are good reasons to be seriously scared.