In the years before coronavirus, inequality was looming larger in American policy discussions. Income and wealth inequality had been rising for decades.
That was temporarily masked by the housing boom of the early 2000s, but the crash of 2008 put an end to such illusions.
Now the coronavirus pandemic threatens to make an already bad situation worse. Some have called the virus a great equaliser, because it can strike even the rich and powerful. But in terms of the long-term effect on economic outcomes, the disease is likely to be anything but an equaliser. Here are some of the ways that the pandemic will probably exacerbate inequality.
UNEMPLOYMENT
Research by economists has found that income inequality tends to rise for five years after a country suffers an epidemic. Unemployment is obviously a big part of this. Low-wage workers tend to be the first to lose their jobs and the last to be hired back. The economists found that workers with lower education suffer much more unemployment after a pandemic.
Unemployment also hurts lower-income people more because they are less financially equipped to manage it. High-earning workers who get laid off usually have a cushion of savings they can rely on. If not, it is generally not too hard for them to borrow.
But for poorer workers who have less savings and cannot borrow at low interest rates, a spell of unemployment can mean eviction, the loss of their car or other long-term damage that prevents them from bouncing back.
LESS REDISTRIBUTION
Countries tend to cut back on redistribution after a pandemic. That might seem strange, given the great lengths that governments are now going to in order to throw a lifeline to the unemployed. But those policies, as well as policies to support businesses during and after the pandemic, come with a heavy fiscal cost. Because of the loss of tax revenue from the depression, the fiscal pressure for austerity persists after the immediate danger is over. Rightly or wrongly, many governments will probably try to tighten their belts, meaning fewer social services and transfer payments for the poor and middle class.
ASSET-MARKET SUPPORT
Stocks, real estate and other financial assets tend to fall in value at the beginning of recessions, because companies' earnings and tenants' ability to pay rents both take a hit. But increasingly, central banks are propping up asset values by acting as the buyer of last resort. As long as there is downward pressure on prices, the Federal Reserve and other central banks can create money and buy stocks.
As stocks are owned disproportionately by the rich, this yields greater wealth inequality. Real estate, an asset in which the middle class holds much of its wealth, is less likely to get a direct bailout. And the poor have few financial assets whatsoever.
GEOGRAPHIC INEQUALITY
The epidemic has struck some states and cities much harder than others. And measures to suppress the outbreak have varied greatly - some states have successfully squelched their outbreaks with lockdowns, others are using widespread testing and contact tracing to control the spread, while the rest are reopening businesses prematurely with few suppression measures in place. This will create the equivalent of red zones and green zones.
Businesses and incomes will suffer more in the former while flourishing in the latter. This is exactly what happened after the Spanish flu of 1918-19. Those who are unlucky enough to live in states with poor pandemic responses will suffer more.
LIFESTYLE INEQUALITY
Coronavirus has imposed great changes on the way people live and work. Many knowledge workers are able to work remotely, while those in lower-skilled occupations, such as retail and construction, have to choose between risking their health and losing their incomes. Thus, the pandemic has also created inequalities in safety and convenience, which tend to line up with disparities in income and wealth.
INTERNATIONAL INEQUALITY
This has been one of the few bright spots over the past few decades, as poor countries have gained ground on rich ones. But much of this was due to globalisation, which is now in full retreat. Commodity prices have collapsed, which will be a devastating blow to the large swathes of the developing world that still rely on exporting natural resources. Falling global trade is choking off industrialising nations' export markets. If tensions between China and the rest of the world continue to increase, or if the pandemic gives rise to strident nationalism, the decline of globalisation could be long-lasting and catch-up growth could largely end.
BLOOMBERG
• The writer is an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
