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Mandy Money

Mandy Money

Why is COVID-19 actually bad for the economy?

We have all heard the news… COVID-19 lockdowns have economic consequences. If you have ever been caught pondering about why this is the case, read on…

Flows of money

Economics 101 is about understanding how money flows within an economy.

One person’s lunch money becomes another person’s income. This money may be used to pay an accountant, who uses that money to purchase a house. And it all circles back around.

Money moving across an economy supports employment and allows individuals to maintain their lifestyles.

However, COVID-19 has broken the chain. Disrupting many of the money flows.

Flow disruption

COVID-19 has brought many health risks, in response governments have put in place several restrictions to try to mend the health crisis. The most notable, lockdowns.

These lockdowns prevent movement and thus, commerce – restricting those flows of money. Leading to business closures.

A dangerous economic cycle

Once businesses close, jobs are lost. If people are earning less, they are spending less. Causing more businesses to close.

A scary economic prospect.

This cycle has been felt most strongly in industries that rely on the congregation or movement of people/goods. Airlines, live music and live food export are all examples of industries that have been hit particularly hard, with job losses in the tens of thousands.

Does JobKeeper help?

Although JobKeeper can be useful in temporarily substituting for other money flows, it does have some significant long-term consequences.

JobKeeper is funded by long-term government debt. To repay this debt in the future, increased taxes and reduced government spending may be required…

If COVID-19 happened in 2015 the remote working technology may not have been able to support levels of business productivity that are currently being achieved. 
Would the economic consequences have been more significant?

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