Unsurprisingly, denying the pandemic is unstoppable and consequential is the order of the day: authorities everywhere are terrified these realities might leak through all their oh-so-obviously desperate firewalls and filters. Why are they terrified? Because they know the entire global economy, including the linchpin Chinese and U.S. economies, was extremely fragile before the pandemic arose: why else the panic-stimulus and panic-repo policies of the Federal Reserve and the People’s Bank of China in the pre-pandemic months of Q4 2019?
And so everything is covered up, and if that doesn’t work, then outright denial is the default policy. The number of cases globally is absurdly understated, the number of deaths in China is absurdly under-reported, and so on.
But the biggest denial campaign is aimed at masking the fragility of the global economy, as the only thing keeping the rickety, speculative-bubble, insolvent global economy from imploding is the belief and confidence of the masses that everything is going swimmingly, so keep on borrowing, borrowing, borrowing, buying, buying, buying and speculating, speculating, speculating.
While the real-world battle to limit the spread of the virus in China gets the headlines, the battle inside your head to maintain your confidence in the system is just as important. Economists talk about recession and depression in quantitative terms: deflation, sales, profits, employment and so on.
The key dynamic in recessions and depressions is confidence: confidence that the condo you buy today will be worth a lot more tomorrow, the business investment you make today will generate higher profits tomorrow, your job benefits will increase tomorrow, your house value will rise tomorrow, and so on.
Once confidence in ever-higher wages, benefits, sales, profits and speculative gains withers, all bets are off. The loss of confidence is akin to a loss of faith or loss of credibility: none of these can be restored overnight. Once your confidence that a speculative gamble will pay off is dashed, you’re not going to rush out to make the same gamble tomorrow.
Once your trust in authorities has been shattered by gross incompetence, authoritarian suppression and a laughably unbelievable tsunami of lies, you don’t wake up the next morning with your trust in bogus statistics and reassurances fully restored.
Once credibility has been destroyed by an endless parade of fabrications, lies and transparently false reassurances, your faith and trust that what you’re being told 24/7 is actually true is not magically restored.
Loss of confidence, trust, faith and credibility are self-reinforcing. Once you realize your speculative gamble is not just no longer going up but it’s crashing, you want out, not in. Once you see your neighbors going broke, you shut down your business before you lose everything.
Confidence doesn’t just evaporate; it’s replaced by uncertainty, anxiety and fear. Better safe than sorry becomes the implicit context: better to close now than gamble on a magical-thinking return to normalcy tomorrow. Better to go back to the ancestral village now rather than risk going back to work and becoming a victim of the “no big deal, just another flu” who ends up dead as a result of trusting the authorities’ reassurances.
The tragic irony is that Chinese authorities hid the epidemic to save political face, but their increasingly transparent lies and desperation are destroying what little international credibility remained after their attempt to save political face blew up. Rather than saving face, they’ve lost the last shreds of credibility they still possessed.
As for the Chinese people: how does it feel to know that the political optics matter so much more than your health and well-being?
Quarantining 400 million people in China still leaves a reservoir of 1 billion people in hundreds of small cities and towns and thousands of villages who may catch the virus from people who returned home from cities before they were locked down.
Here’s how contagious viruses spread: a traveler who has the virus but doesn’t yet have any symptoms rubs his nose beneath his mask and then takes the bus ticket and hands it to the driver. Then the traveler grabs the handrail in the bus, leaving viral particles. Later, in another bus station’s bathroom, he lifts his mask because it’s hot and uncomfortable and sneezes. Hundreds of other travelers pass through the bathroom within hours.
This is why those most familiar with epidemics and pandemics say that trying to control the spread of a highly contagious virus is like trying to control the wind.
The irony of all this is razor-sharp: the more authorities try to mask reality to maintain confidence, the more they destroy credibility, confidence, trust and faith. Once these intangibles are lost, the loss of confidence is self-reinforcing.
Depression isn’t just an economic number. It’s a self-reinforcing loss of confidence. Do you really think quarantining 400 million people will stop the pandemic? Based on what, other than magical thinking and the reassurances of authorities who’ve sacrificed all credibility?
Do you really think the Chinese economy can grind to a halt and absolutely nothing else in the global economy will be adversely impacted? Based on what, other than magical thinking and the reassurances of authorities who’ve sacrificed all credibility?
With the loss of trust and faith comes disorder. When you’ve been lied to, you’ve been betrayed. Betrayal has consequences.
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