How do pandemics affect the economy? It may seem obvious that sickness destroys livelihoods and hurts growth. Yet the Black Death in the 14th Century was followed by an age of prosperity.

The grim irony of that health catastrophe was that mass casualties improved the prospects of the survivors: in an agriculture-based subsistence economy, they had more land to till. And labor shortages drove up wages.

There is no such parallel with Covid-19, noted Harvard economist Edward Glaeser. In today’s services-based economy, many unskilled workers find employment exists only in jobs that require face-to-face interactions, which are precisely the positions that have disappeared, many perhaps permanently.

Edward Glaeser, professor of economics at Harvard University

“Selling a latte with a smile is a safe haven in a world of automation," Glaeser explained. “That urban opportunity disappears when the smile turns into a source of peril rather than a source of pleasure."

Cities Day at the four-day Bloomberg New Economy Forum on Tuesday brought little cheer on the economic front, even as global markets respond with jubilation to company proclamations of promising vaccine tests. Christine Lagarde, president of the European Central Bank, said any medical breakthrough won’t alter her assumptions about the global economy next year.

“While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved,” she said. “The recovery may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine roll-out.”

Christine Lagarde, president of the European Central Bank 

And don’t even talk about travel, or at least not yet.

“Misery loves company,” said Arne Sorenson, chief executive of Marriott International, offering a droll greeting to fellow panelists that included Arnold Donald, CEO of Carnival Corp. But there was some optimism that, for their industry, there may be a silver lining down the road. “It will come back,” Sorenson said, adding that working from home will outlast the pandemic, and ultimately prolong the typical one-week family vacation.

For Donald, the frustration is compounded by the fact that his 90-plus ships are bobbing at anchor, completely empty, even though demand for cruising had been as high as it’s ever been.

Arnold Donald, president and CEO of Carnival Corp.

But here’s the bigger problem: one in ten jobs worldwide is linked to travel and tourism. And the industry is supported by a constellation of small enterprises—everything from bus companies to tour guides, restaurants and souvenir shops.

The challenge facing the global economy is how to funnel money to these companies—the “real”  economy—as opposed to the financial economy where money spins around in search of trading profits. If you’re running a zipline operation in Hawaii, noted Ajay Banga, CEO of MasterCard, “you’ve got a big problem.” One solution: streamline global standards. Big companies employ legions of lawyers and engineers to navigate regulations. Mom-and-pop firms don’t have that luxury.

One other idea from Banga: take loans to small businesses off of bank balance sheets and securitize them. That would be a “real” economy financial instrument. At the Bloomberg New Economy Forum, we’d rate that a “buy.”

By Bloomberg