This fascinating post by Matthew Wright explains why the world financial system is so vulnerable to shocks to the system like COVID-19. The world economy is indeed a reflection of the collective psyche. Collective confidence and fear play very real roles in the direction of the economy. And this is without further considering the increasing effects of climate breakdown.
What worries me about the COVID-19 coronavirus outbreak isn’t so much the virus itself. It’s the economic effects of the way people – and societies – have been reacting to it since the outbreak began. Because of the way western economics has gone in the past forty-odd years, what economists call a ‘shock’ can have real-world effects that run far beyond the scale and nature of whatever that ‘shock’ might be.
In economic terms, a ‘shock’ refers to an unexpected shift, usually to do with pricing associated with a commodity. The classic western example is the 1973 oil shock, which sent oil availability plummeting and prices skyrocketing. The resulting economic impact was significantly greater than the scale of the oil embargo that provoked it.
These days, world economies are far more fragile. It’s not just the fact that the ‘General Financial Crisis’ of 2008-10 wasn’t actually resolved. It’s the fact…
View original post 1,262 more words