A Wake-up Call - But There Were Warnings in the Past
Center for Systems Science and Engineering (CSSE) at Johns Hopkins University
Last week, the World Health Organization declared the COVID-19 virus a global pandemic - over 150,000 people have been infected causing more than 6,000 deaths. As a result, 1) social distancing is commonplace, 2) demand for testing exceeds supply, 3) global asset prices moved wildly and 4) global leaders struggle.
Addressing the challenge, German Chancellor Angela Merkel said,
“We have to understand that many people will be infected ... The consensus among experts is that 60 to 70 percent of the population will be infected as long as this remains the situation.
“We must take all necessary measures … That is true for the government and everyone in a position of political responsibility. But it is also true for all citizens, the 83 million people who live in our country. It is about protecting older people, those with previous illnesses and vulnerable groups.
"This is putting our solidarity, our common sense and our openheartedness for one another to the test ... I hope that we will pass it.”
The Brookings Institute, in its “COVID-19 is a reminder that interconnectivity is unavoidable” report (March 12, 2020), said:
“The spread of the novel coronavirus (COVID-19) has been a disaster for the economy, shown weaknesses in public health systems, and killed several thousand people worldwide. It has also made clear how interconnected the modern world has become. Walls are futile for preventing the rapid movement of the virus around the globe.
"Despite the painful and empirical evidence that we live in an interconnected world, many still take this interdependence as an affront to national sovereignty. They hide within the rhetoric of populism and nationalism."
Highlighting that the potential for a crisis is not "new news", on January 29, 2019 Daniel Coats (Director of National intelligence) presented “Worldwide Threat Assessment of the US Intelligence Community” to the U.S. Senate. Comments from the report include:
“We assess that the United States and the world will remain vulnerable to the next flu pandemic or large-scale outbreak of a contagious disease that could lead to massive rates of death and disability, severely affect the world economy, strain international resources, and increase calls on the United States for support.
"Although the international community has made tenuous improvements to global health security, these gains may be inadequate to address the challenge of what we anticipate will be more frequent outbreaks of infectious diseases because of rapid unplanned urbanization, prolonged humanitarian crises, human incursion into previously unsettled land, expansion of international travel and trade, and regional climate change.
Note: Coats' tenure within the current White House administration was challenging. He left during August 2019.
Also, the 2014 report "Climate Change Impacts in the United States", based on research by multiple US government agencies, said:
" Climate change, together with other natural and human-made health stressors, influences human health and disease in numerous ways.
"Some existing health threats will intensify and new health threats will emerge."
As the virus infection rate increased, global market volatility reached heightened levels driven by 1) uncertainty about how the crisis would be managed, 2) concerns about the virus' economic impact and 3) Saudi Arabia’s efforts to start an oil price war.
The following chart presents the S&P 500 stock volatility index (VIX) since January 2004. The significant upward spike last week (approaching levels last seen during the financial crisis) indicate heightened uncertainty and fear among investors. Note: Bonds, currencies, crypto-currencies and other assets were impacted as well.
OUR TAKE
Merkel's comments likely reflect a worst case scenario for Germany (and for other regions). Her focus on the need for everyone to work together (perhaps with humility) is commendable.
Regarding comments from the Brookings Institute: Today's supply chains, commerce and communication are global. In this context, nationalism is more an impediment to our future rather than an asset.
Regarding the 2014 and 2019 reports from the US Government: Their concerns address the reality of COVID-19 and the need for innovative approaches to public health and bio-security. Note: Other organizations have provided similar warnings in the past.
Regarding the market turbulence: The rapid rise in market volatility seems unprecedented - suggesting that the global economy may not be as stable as anticipated. Expect more dislocation.
Bottom line: Because COVID-19 type events may become more frequent, we should prepare for a "new normal” that requires 1) more adaptive and less reactive leadership, 2) an understanding that science matters and 3) greater global cooperation.