There has been a tangible decline in the United States economy since the start of widespread preventative efforts in the face of the pandemic. Now, the U.S. must make a decision on whether to continue to support developing countries also afflicted by COVID-19 or focus on domestic responses to the coronavirus.
“The developed world is suffering from donor fatigue,” said Alex Crowther, visiting research professor in the Jack D. Gordon Institute for Public Policy and the Department of Criminology and Criminal Justice. “Our budget isn’t that big in the United States.”
Crowther was part of a discussion held by the Steven J. Green School of Public and International Affairs in collaboration with the Master of Arts in Global Affairs Program as part of the Dorothea Green Lecture Series. Moderated by Cem Karayalcin, professor and chair of the Department of Economics, the webinar focused on the impacts of the current health and economic crisis on international development throughout the world.
“[The International Monetary Fund and international aid groups] want to help but the pressing emergency is the raging budget deficits because of COVID-19,” continued Crowther. “I think [underdeveloped countries] are willing to accept aid from just about anyone at this point. I don’t think they’re interested in aid for education, but they want as much money as they can from anybody just to keep their governments afloat.”
According to Crowther, the United States no longer has a desire to support some of the underdeveloped countries on its donor list, a handful of which are in the Middle East. As it stands, the U.S. is already “unhappy” with Iraq and talking about pulling out of the area. While cutting financial ties with these countries, the U.S. government – particularly the Federal Reserve Bank – is trying to maintain its primary task of making sure there’s no separate financial crisis on top of the one that is already being faced.
“We’re trying to find the best combination of monetary policies and fiscal policies to make [the current financial situation] work,” said Sheng Guo, instructor in the Department of Economics. “We know the Federal Reserve has injected massive equity into the market — it has injected more than two trillion [dollars] since March.”
Hakan Yilmazkuday, professor in the Department of Economics, said cumulative welfare costs of reduced mobility due to COVID-19 is about 11 percent as of April 19th, 2020 within the U.S., with a range between 7 percent and 16 percent across U.S. counties. Towards the end of March, it was about 6 percent lower. This shows a direct correlation between social distancing practices and economic decline. Also, according to Yilmazkuday’s research, increases in COVID-19 cases in China are responsible for the reductions in the global economy, whereas increases in COVID-19 cases in the rest of the world are responsible for the reduction in crude oil prices.
“Because of the COVID-19 situation, many of these countries are laying off their foreign workers, and these foreign workers are now coming back to their homes,” said Abu Shonchoy, assistant professor in the Department of Economics. “So, when they are coming back home, they are also not only coming back home with the baggage, they’re also carrying the disease with them.”
“Knowing which areas I will be getting the outbreaks, [the government and other donors] can allocate the resources much more efficiently.”
Returning to the topic of the U.S. response to the pandemic, Karayalcin stated that there is a much bigger role for the federal government to play in this situation that state governments.
“There is a remarkable difference between state and federal governments,” said Karayalcin. “Most state governments in the U.S. are bound by their constitutions to run balanced budgets.”
This ultimately means that as the state tax revenues fall during the pandemic, the state governments are going to be forced to cut their expenditures. This then has the effect of causing said governments to cut back on services and begin laying off state workers, which then has the final effect of causing a financial ripple and making things worse on a federal level.
“The federal government has to expand its cares programs — its programs to transfer income to poor families,” said Karayalcin. “That is what the European governments are doing – that is what other developed economies are doing — that’s what this government has started to do, and that has to be continued.”
Watch the full discussion in the video below.