Article: Why the outlook for the economy just got worse
Title:
Date: 9th March 2020
Author: Irwin Neil
Page: 1
Publisher & publication date: New York Times
Web Address (worth 10 points): https://www.nytimes.com/2020/03/09/upshot/coronavirus-oil-prices-bond-yields-recession.html
The article laments over the shifting economic landscape brought about by the Corona Virus pandemic. The shift in economics, according to Neil, causes a heavy reliance on bond yields and commodity prices due to stay at home policies. Further, the article discusses the massive plummet in oil prices fueled by Russia and the Saudi Arabia oil war. Although cheap oil benefits consumers, Neil states that oil-producing location would suffer a significant economic crisis. The article asserts that it is not coincidental that the oil crisis begun immediately after the COVID 19 pandemic. Also, spillovers from the epidemic are notable in other economic sectors due to the stay at home policies that impair the consumer-centric economy.
Economic spillovers are events that occur as a side effect of seemingly unrelated activities. In this article’s context, the spillovers are negative externalities that come as a result of the Corona Virus pandemic. Although Neil’s article mainly examines the virus’ spillovers in the U.S., Ozili, and Arun (2020) contend that COVID 19 would lead to a global recession. For instance, the stay at home policies has led to a loss of over 200 billion dollars globally, in less than three months (Ozili & Arun, 2020). Moreover, the travel bar affects not only the aviation industry but also the sports and entertainment sectors due to the cancellation of events.
The negative impact of the Corona Virus also significantly affected U.S. companies due to their lending customs (Neil, 2020). Since these businesses continually borrow from major lending companies, their structures and stability would fail, leading to bankruptcy. These companies would have problems rolling over their loans and would thus lose investors and consumers. Besides, the spillover would also affect banks and other financing agencies. These banks would have high exposure to credit risks and face a decline in bank transactions.
Additionally, the oil industry would also affect the shale gas energy producers and consumers in the U.S. and globally. Due to lower fuel prices as a result of the pandemic’s spillover, consumers would forgo shale gases for cheaper fuels, leading to massive losses in the industry. Ozil and Arun (2020) also state that the Coronavirus pandemic also affected other energy industries such as coal and renewable energy markets.
The article contains several contradictions in is themes. While Neil asserts that the pandemic would lead to a significant global recession, he also states that American consumers would benefit from this pandemic. The writer argues that the low oil costs brought about by the virus would reduce consumer expenses even though most countries are on lockdown. His argument is thus, flawed because not many consumers use oil during the lockdown, and if the epidemic prolongs, people would consume all their liquid money and won’t be able to afford this cheaper oil. Moreover, the article does not offer any solutions to the impending economic doom. The author should give options like shifting financial markets solely to online retail to coax more revenue. The article also leaves unanswered questions such as the essence of a fiscal stimulus during this spillover. Niel (2020) should have pointed out that the incentive is crucial in relieving the tax burdens on citizens globally to ensure survival during the epidemic. The stimulus would also prevent long-term damage in case a massive economic recession does occur.
References
Neil, I. (2020). Why the outlook for the economy just got worse. New York Times. Retrieved from https://www.nytimes.com/2020/03/09/upshot/coronavirus-oil-prices-bond-yields-recession.html
Ozili, P., & Arun, T. Spillover of COVID-19: Impact on the Global economy. SSRN Economic journal, 1-27, doi: 10.2139/ssrn.3562570