Nobel laureate says coronavirus fears pose larger economic threat than restrictions
The venerated economist said people need to understand that business is what keeps the country going.
People's fears about being infected with coronavirus can pose a bigger threat to the economy than the government-ordered restrictions that were put in place to prevent the epidemic's spread, according to Bengt Holmström, the Nobel prize-winning Finnish economist.
In an interview on Yle TV1's breakfast programme on Wednesday, Holmström said it would be a waste of time for the government to ease restrictions and to attempt to stimulate the economy with state funds if residents simply don't dare to go shopping, go to work and use services.
He said fear itself is what makes the coronavirus crisis such a significant threat to the economy.
"If we discovered a treatment that would alleviate the illness and remove the fear of death and post-illness complications, then this crisis would be over in a short time," Holmström said, adding that it is important for authorities to loosen the restrictions imposed on society to make it safe for people to go to work and visit shops.
The economist said it's a good idea for people to wear face masks as well as keep appropriate distance from others while out and about, and noted that extensive coronavirus testing should be one tool that the country uses as the economy begins to gradually open up again.
"By testing, tracking and isolating we can create a safer environment without restrictions," he said.
"Business keeps the country going"
The economist serves on a panel of experts that is considering Finland's economic future in a post-coronavirus world. The group is led by Helsinki University professor of practice, Vesa Vihriälä, from the market-oriented think tank Etla.
In an assessment presented last week, the group said Finland needs to plough cash into supporting businesses, and then quickly cut spending and increase taxes after the coronavirus crisis. It warned that the country's GDP could shrink this year by between five and 13 percent due to the situation.
According to a previous outlook from the Ministry of Finance, the coronavirus crisis could cause Finland's GDP to shrink by around 5.5 percent this year.
Over a decade ago, the financial collapse that jolted the global economy caused Finland's GDP to fall by more than eight percent in 2009.
"We are in an entirely different situation now than during the financial crisis. Now, it is like a shot [to the system] that came from abroad. Now we are forced to live under the conditions of the epidemic for a long time," Holmström said, noting that he is worried over how businesses can be kept afloat during the crisis situation.
"Many firms have seen sales cut in half, and some sectors have stopped entirely. How should we keep these companies alive when we don't know how long this situation will continue?" he pondered.
In terms of government subsidies for businesses, Holmström said that firms that are in good shape should not be allowed to go bankrupt.
"People need to understand that it is ultimately business that keeps this country going," he said.
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