Nowadays, we are living through a unique crisis on several levels, that started as a public health problem but quickly spread to the economy and society. The consequences triggered by the COVID-19 crisis are undeniable, so comparisons with the last big crises are inevitable.

Thus, we take a closer look at these events that travelled to us through our collective memory, leaving their marks in the actual theoretical and practical conceptions of economic politics and science. Observing past economic disasters such as the Great Depression (1929) and the Great Recession (2007-08), one of the first visible indicators of the start of a crisis is the negative behaviour of the Dow Jones Industrial Average (DJIA). With the Great Depression, this index fell 89% from its pre-crisis peak in September of 1929, taking 25 years to reach that same level again. During the Great Recession, the fall was less severe, 49%, and the markets took approximately 4 years to recover completely. Since the 12th of February, due to the Coronavirus pandemic, DJIA has been falling, crashing 35% since the 22nd of March– opening doors, as the experience has shown us, for a new economic crisis. In fact, an accentuated drop in the exchange market has typically proven to be a precedent for major economic shifts. Lower levels of market activity, either in demand or supply, fiscal imbalances, bankruptcy, and rising rates of unemployment are some of them, leading to acute social problems. 

Today, besides the health care system issues already visible, other consequences will arise, creating a snowball effect. However, the idea that we are facing a new Great Recession still rests in conjectures, and some projections seem to suggest a more positive wave. On the 25th of March, Ben Bernanke, ex-president of the Fed (Federal Reserve), defended, in an interview to CNBC, that what we face is more likely to be a big “snowstorm” than a major recession like we saw in the ’30s or one decade ago. Consequences will be severe, but recovery must be quick. It is important to note that the 1929 and the 2008 crises both have the burst of speculative bubbles in common, indorsed by an uncontrolled incentive to credit. This implies that they are based on internal economic factors. On the contrary, the Coronavirus crisis results from external factors. Therefore, trust of economic agents in the market might rise faster, depending on a well thought out and rapid prevention of future economic consequences.

Policymakers and state leaders are already anticipating these consequences. As Angel Gurría, Secretary-General of OECD, stated on the 21st of March, countries affected by Coronavirus should pursue the Marshal Plan (1947-1952) goals alongside with a New Deal (1933-1936) vision. This means there is a perceptible need to develop a socio-economic recovery project, surely less intense but no less imperative than the post-World War II scenario required, reinforced with public work projects, social protection, financial reforms and stronger economic statism, similar to the actions undertaken during the Great Depression. In fact, what Gurría proposes is a transversal stimulus to the economy and an anti-cyclic political response. In the United States, for example, Trump signed off on a $2.2 trillion economic rescue package on the 27th of March, to fund efforts towards defeating the virus and protecting the labour, health and economic systems. Across Europe, similar measures are being approved. On the 9th of April, the Eurogroup announced an emergency fund of €540 billion to protect member states’ economic sectors and promote convergence, whereas an extra stimulus package is still being discussed. But a brittle financial situation boosted by high levels of public debt, particularly in southern Europe, might raise the dependency of this region on international solidarity.

At the same time, it is possible to recover some practical ideologies from the Great Recession, more related to monetary policy, to prevent major costs. Numerous central banks announced liquidity injection programs in the financial sector, including a coordinated action between the Fed and the ECB (European Central Bank). Additionally, the Fed indorsed a sudden cut of the federal funds rate to near-zero and an unlimited program of Quantitative Easing by way of hundreds of millions of dollars. The ECB promoted a Purchase Programme (PEPP) of €750 billion, covering government debt and private securities before the end of 2020, abandoning the limits associated with it, which were defined during the previous crisis. It also announced the easing of conditions for targeted longer-term refinancing operations (TLTRO III), currently negative.

Nevertheless, while an idyllic scenario is based upon international cooperation and coordination, it is evident that there have been discrepancies between the positions of the governments of some of the world’s most affected regions. Coronabonds, a mechanism of debt mutualisation, are widely desired by several Eurogroup countries, but an agreement on this topic has not yet been reached. Despite different ways of dealing with the pandemic, the fundamental ideologies across the world seem to be consensual: monetary policy can help but must be combined with a strong fiscal policy, focusing on health care systems and employment protection, not forgetting that the starting-point of socio-economic institutions differs geographically.

Hence, reflections about political and economic systems emerge. The way peoples’ lives and labour structures are organized moulds the way in which society is impacted by a factor that directly influences these structures, as is the case with COVID-19. Most economies, from Chinese Socialism to American Capitalism, are built upon massification of industries and production, as well as a high dependency on globalization, which helped to massify the virus propagation. Yet, the process of dealing with the dissemination of the disease proved to be different. Not only in China but across Asia in general, agility paired with powerful regulation and monitoring (allowed by the widespread use of technology and private data access systems), culminated in a relatively apparent good level of disease containment. Western capitalist cultures seem to struggle more, particularly the USA, Italy and Spain, surpassing the number of infected individuals and deaths registered in the pandemic epicentre. This can be related to the underestimation of the effects by both public and private agents, leading to a late government response. In a posterior phase, worldwide inequalities may be emphasised by the weaknesses of several health care systems, seemingly fragile in some European and South American countries, or mostly privatized, like in the United States.

But we need to consider that, at this moment, the numbers-based assessment is deeply fallible, as is the accurate reasoning of this issue, due to its novelty. Despite the diverse spectrum of actions, what we know is that the cost of a passive government is high. Efforts around the globe have shown that states haven’t been inert. Nonetheless, it is important to note that the altruistic goal of saving human lives is simply masking the greatest goal of all, to protect the life of the economic system.