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The West’s COVID-19 Learning Curve

If central bankers and governments can keep financial markets working and prevent mass bankruptcies during the COVID-19 pandemic, then the now unavoidable global recession could be followed by a vigorous recovery once the virus has been contained. But protecting public health requires Western societies to learn and adapt quickly.

BERKELEY – Politicians sometimes belittle military leaders with the charge that they always fight the last war. But that potted wisdom applies equally to policymakers – and it’s not always a bad thing.

For example, because the memory of the 2008 global financial crisis (GFC) remains fresh, governments and central banks have a keen sense that financial markets might collapse at any time. Faced with the COVID-19 pandemic, they are using every lever at their disposal to avoid a repeat of the financial-market freeze that proved so damaging a decade ago.

The policy reaction to the GFC was somewhat delayed and initially confused, especially in Europe, because policymakers and the public had not experienced a financial crisis or government defaults. But governments and central banks in Europe and the United States learned their lessons, and are now applying them on a vast scale in an effort to mitigate the pandemic’s economic impact.