Martin Wolf – The COVID Crisis Will Last Five to Six Years

The world is smaller and people are poorer as a result of the COVID-19 crisis, from which it will take five to six years to recover, according to Martin Wolf.

Wolf is an editor, author, economist and award-winning journalist based in London. He currently serves as associate editor and chief economics commentator at the Financial Times of London. He spoke via webcast as part of the Munk Dialogues.

The COVID-19 crisis is much worse than the global financial crisis (GFC), according to Wolff, because of its “scarring” – closed businesses, private and public debt accumulation, more cautious governments and financial institutions, job losses that will erode motivation and skills, and lower corporate investment. “There will be some gains in technology usage,” he said, “but on balance this scarring will be long term.”

“This will be a five- to six-year hit to per-capita GDP growth,” Wolf said. “Unless things go spectacularly well, that is pretty well certain.”

But why are the equity markets signaling prosperity?

He agrees with Paul Krugman that the stock market is not the economy; it tells you what intelligent investors think about the present value of profits. But profits are only a small part of the economy, he said, and are much smaller than wages. “Profits can be good while real incomes are stagnant,” Wolf said.

Certain sectors of the market, like technology, have done vastly better than others. It employs very few people and no unskilled workers. It is quite possible for those companies to do “fantastically well,” he said, without providing a benefit to the public, except to consumers who buy those products.

He noted that Zoom passed Exxon in market capitalization, with only 1% of its workforce.