An economic contagionAn epidemic and an economic crisis can be similar in many ways. The outbreak of Middle East respiratory syndrome can be compared with the spread of financial ills. When Swine Flu struck the nation, the pandemic also drew comparisons with the spillover of the global economic crisis in 2008-9. Despite experience, we have learned nothing. History serves to provide a lesson and yet it has fallen on deaf ears. If we cannot learn from one experience, we may have to painfully endure more until we get it right.
Like a viral epidemic, an economic crisis is contagious. Economic ills are as perilous to the country as infectious diseases. We can take a bank run as an example. Upon rumors of a bank being in trouble, people rush to take out their money. They do not pay heed, even as authorities and the bank assures them of their money’s safety. In just a few days, the bank can collapse. Economist and New York Times columnist Paul Krugman pins the typical bank run as a self-fulfilling prophecy. Even if the bank is fundamentally sound, panicky actions by depositors can push it into liquidation.
Second, fear builds up in ignorance. Depositors would take out money from their banks upon talk of it being in trouble. During the financial crisis in 1997, panicky people all pulled out their bank deposits. The government scurried to offer payment guarantees and pledged to divulge a list of which banks are sound and which are not. Upon a report that a certain bank’s liquidity ratio fell below the international standard, even elderly people rushed to banks and asked to take their money out.
The same panic prevails over the MERS breakout. People stay away from all clinics and hospitals, even though they are sick, upon reports that the epidemic was spread in hospitals.
Patients hurry out of a hospital if there is talk that a person infected with the disease had been there. Subways, buses and trains are empty despite repeated assurance that the disease is not airborne.
Third, a communicable disease and a financial crisis can break and sprawl out because of lack of oversight. The financial crisis in the late 1990s was forewarned of many times. Several experts had advised restructuring the debt-ridden financial and corporate sector. There were warnings about the alarming level of short-term debt in banks and merchant banks. If the authorities or the private sector had paid heed, the country would not have had to seek international bailout. But politicians and the government were busy fighting among themselves and had no time to pay attention to ominous signs. While the country was completely oblivious, the illness built up and spread fast.
There were many opportunities to block and contain MERS. If the customs official had checked the first patient; if the patient had been more careful before he jumped from this hospital to another; if the first hospital was able to make the right diagnosis; and if Samsung Medical Center took thorough cautionary steps upon identifying the first patient, we may not have had an outbreak that spread across the country. The country brought upon the crisis because it was too careless.
An epidemic and financial crisis in today’s globalized environment can always break out. Viruses evolve. They defy and survive protections and medical advances through adapting and evolving. The plague fizzled out naturally after wiping out half of the European population across three centuries in the Middle Ages, not because humans defeated it with a cure. The next deadly virus may be quietly in the making, which could be said the same for a financial crisis that could strike in any cities around the world at any time. Money and the flow of human traffic has become completely free. There are no safety-proof antibiotics and protections against the spread of a pandemic and infections in humans and economies.
In any crisis, there are always disputes about overreaction. Excessive bailouts caused controversies during the financial crisis. Many criticized the oversized 64 trillion won ($58 billion) in public funds pumped into the financial sector. The criticisms led to a delay in the second bailout and a meltdown in the savings bank sector. MERS became out of control because the authorities hesitated in fear of creating a bad image and damaging on the economy. In hindsight, the first injection of public funds produced a successful result because the action was swift and sufficient. When a fire breaks out, it is best to put it out with a hose rather than buckets. Water should be poured on it until the last flames completely die out. In an emergency situation, firefighters can also make the wrong decisions. They can destroy unnecessary facilities. But still, they must not be discouraged. Their job is to tame and kill the fire entirely. We need to think like firefighters to extinguish MERS.
JoongAng Ilbo, June 19, Page 30
*The author is an editorial writer of the JoongAng Ilbo.
by Yi Jung-jae