Just Looking Out for No. 1 Is Wrong Way to Defeat the Virus

Extremely stressed markets and investors rushing to exit through an increasingly smaller door have contributed mightily to the recent wild swings in stocks worldwide. It’s a highly disruptive phase that will pass, though not without collateral damage. But it is being underpinned by an underlying dynamic that is more critical both in the immediate and longer term. It involves a race between, in one lane, the coronavirus shutting down the global economy while also spreading fear and uncertainty and, in the other lane, the economic and financial policy responses. Policies will ultimately prevail, but the means and the timing will determine what the subsequent landscape looks like. Everyone, from governments to companies to households to investors, can do their part to achieve a better outcome.

It has become abundantly evident that the cascading economic sudden stops unleashed by the virus have reached critical mass not only in the most systemically important economies but worldwide. This results in a huge and simultaneous destruction of supply and demand. Neither notional demand nor notional supply can become effective.