Originally, I planned to write an article titled "Will it be a soft landing or hard landing?" which would have been about the future of the world's financial markets and the economy.
The US Federal Reserve Board's chairman, Jerome Powell, confirmed to the US Congress that he would maintain an ultra-easy monetary policy by keeping interest rates near zero and continuing to pump money into the US economy amid rising inflationary pressure.
However, the speech was made before the June inflation figure came in. Persistently rising US inflation rates may make him unable to to keep his word. These are the US inflation figures from January to June 2021 respectively: 1.4%, 1.7%, 2.6%, 4.2%, 5.0% and 5.4%. Keeping Fed fund rates at 0.00-0.25% in a 5% inflation-rate environment might be a suicidal task. The last time we saw US inflation rates at this level was right before the collapse of Lehman Brothers in September of 2008. Inflation is not something even Mr Powell can ignore.
But the analysis of the world economy can wait because the pandemic situation at home is more serious and needs urgent attention. Thais might accept reports of over 10,000 infection cases and about 100 deaths per day as the new normal. But one cannot deny the fact that our healthcare system has already collapsed and future serious cases will likely go to the morgue, if there is room left.
As of July 20, 73,591 Covid patients are occupying hospital beds and at least 2,000 new patients are seeking more beds every day. This is an impossible task.
All efforts to control the outbreak have failed. When the government issued Covid control measures on June 28, we had 5,406 infection cases per day. If the measures were effective, new cases would have to start falling after a week or less.
That didn't happen and a 14-day lockdown in the "Dark Red Zones" was imposed starting on July 12. Daily infection cases rose to 8,656 that day. After daily cases rose past the 10,000 mark, the government issued even stricter lockdown restrictions for July 20-Aug 2.
The effect of the new lockdown restrictions remains to be seen, but many no longer have faith in government measures. The 13,002 infection cases and 108 deaths on July 21 are not encouraging.
What is the next step then? Health authorities mentioned the "Wuhan Lockdown Model" where all human mobility was prohibited and people were locked up in their homes while the government supplied food and necessities.
Wuhan was indeed a successful model in outbreak control. However, it took Wuhan's government 76 days to completely control the outbreak; not a week or two like Thai health authorities might imagine. Is the Thai government prepared to supply food and necessities to 10 million Thais for two and a half months?
Outbreak control is not my job nor my expertise. I am an economist. Readers might have heard about the hardship of Wuhan locals during the lockdown. But few have ideas about the economic costs of lockdown. Here you go: you read it first here.
There is an excellent research paper titled "Assessment of monthly economic losses in Wuhan under the lockdown against Covid-19". The title of the paper is self-explanatory. The paper was a collaboration of researchers from Wuhan University, Shanxi University, and Wilfrid Laurier University, Canada. According to the paper, a one-month lockdown in Wuhan costed 177 billion yuan (about 885 billion baht) or equivalent to 52.7% of Wuhan's first quarter GDP.
Was that a serious blow to the Chinese economy? No at all. China GDP is 101.6 trillion yuan. Therefore, the Wuhan lockdown only resulted in a reduction of 0.174 % to Chinese economic growth. If China shut down Wuhan for half a year, China's GDP growth would be cut by merely 1.04%. Now you understand why China did not have to worry much about the economic consequences of a Wuhan lockdown.
Obviously, this is not the case for a Bangkok lockdown. Bangkok and its vicinities' GDP accounts for 47.5% of Thailand's total GDP. Applying Wuhan's number, a one-month total lockdown of Bangkok would result in a contraction of 25.03% to the country's quarterly GDP.
A two-month lockdown of Bangkok will, of course, produce twice the effects. If that were to be the case, we could see Thailand 2021 GDP growth shrink by 12.5%. Can we afford that? With zero income in the Bangkok Metropolitan area, riots and looting will be common scenes.
If I may, I would like to suggest economic solutions in the case a total lockdown of Bangkok is inevitable. The first option is for government to pour enormous amounts of money into economic relief programmes like they did in the second quarter of 2020 when about 327 billion baht was spent. Even with such relief spending, the economy shrank 12.1% in that quarter. This time a much higher relief budget will be needed. Shall I say 500 billion baht?
Some might say we are in luck because an emergency decree allowing the government to borrow an additional 500 billion baht was announced in the Royal Gazette on May 20. This amount of money could be available to support the economy in times of need. Really? If that were to be the case, why has not a single baht from that decree been used in two months since the announcement in the Royal Gazette?
Has the economy not been desperate enough? The answer is the money is not meant for economic relief programmes, but rather to supplement the 2020 and 2021 fiscal budgets. The government knows well that tax revenues for both fiscal years would be much lower than estimates. Therefore, additional borrowing outside approved budgets are necessary. The 500 billion baht is reserved for such a purpose.
Do I care? No. That is the government's problem. There is a more important priority. Unfortunately, even if the government is brave enough to put people as their top priority, the domestic monetary system does not have enough cash to support the government.
When the government fails to help, the private sector can fill in. This is the second option. It happened in Japan's Edo period (1603-1867) when famine caused widespread riots and looting for food in Tokyo. The Edo government was as helpless as the Thai government is now. Wealthy merchants came in to save the city by setting up large storage facilities filled with a six-month supply of rice for everybody who needed it. After stomachs were filled, the economy was restored.