“Those who cannot remember the past are condemned to repeat it,” George Santayana famously quipped in 1905. It is a phrase that has been repeated for over a century, but rarely heeded. As COVID-19 decimates the global economy, our understanding of history could be the difference between a V- or U-shaped recession and a W-shaped one, in which incipient recovery is followed by successive relapses.
As recently as March, V-shaped recoveries in individual economies seemed plausible. Once infections and deaths had peaked and begun to decline, the logic went, people would eagerly return to work. Economic activity might even get an extra boost, as consumers released pent-up demand.
This is in line with the pattern of recovery from natural disasters, such as earthquakes and hurricanes, as well as the epidemic of severe acute respiratory syndrome in 2003. Though output in China – the outbreak’s epicenter – did suffer as a result of SARS, it recovered so fast that annual GDP was hardly affected.
Today, China reports that industrial production rebounded in March from its plunge in February. But, overall, it seems clear that forecasts of a V-shaped global recovery from COVID-19 are too optimistic.
Policymakers may, however, be able to engineer a U-shaped recovery. In such a scenario, certain segments of the economy would be reopened, with employees separated physically and, if possible, temporally (in shifts). This would keep the economy going until the health crisis is under control, at which point all sectors could be restarted and a full economic recovery could begin.
This scenario would require countries to ensure frequent, free testing on a massive scale. That is technically feasible, at least in high-income countries, though governance failures in many – such as the United Kingdom and the United States – have impeded its implementation. If effective tests for antibodies are developed, and the relationship between antibodies and immunity to COVID-19 is confirmed, a return of economic activity would be all the more achievable. Contact tracing – which has helped to limit the spread of the virus in parts of Asia, such as Singapore and South Korea – should also be considered.
Of course, a cure or vaccine would be a game changer. But even in the best-case scenario, testing and approving any breakthrough could take a year and a half. If economic activity remained severely depressed for that long would, the status of the current recession would be confirmed as by far the worst since the Great Depression of the 1930s.
But there is an even more devastating scenario: a prolonged W-shaped recovery, caused by political leaders’ failure to heed the lessons of history. Two policy mistakes – echoing those made in the interwar period – seem particularly likely.
The first mistake – toward which many leaders, beginning with US President Donald Trump, have already shown a dangerous predilection – would be to declare “victory” over the virus prematurely, abandon public-health interventions, and allow a second wave of infections to take hold. That is what happened during the so-called Spanish flu pandemic a century ago. The first wave hit the US in early 1918. The second wave, in September 1918, was far deadlier. The third wave persisted into 1920.
In 1918, like today, cities instituted social-distancing measures, including school closures, prohibitions on public gatherings, and face-mask requirements. But delayed action was common, and few maintained the interventions for long. A 2007 study from the National Academy of Sciences found that US cities’ success in reducing the number of deaths “was often very limited because of interventions being introduced too late and lifted too early.”