Black swan. These were the two words that came to my mind when the first case of coronavirus was detected in Spain less than two months ago.
Of course, I’m not saying I saw it coming. Not even last week could I have anticipated that the coronavirus would force Spain’s government to declare a state of emergency throughout the country.
Yet, as bestselling author Nassim Nicholas Taleb warned us more than a decade ago, large-impact unexpected events occur more often than we think, and from its beginning the coronavirus outbreak was the perfect candidate to become the largest black swan since the 2008 financial crisis.
Today, I’m working from home in my hometown, Valladolid, a medium-sized city north of Madrid. I look out the window and see empty streets and shuttered shops. We are only allowed to leave the house to buy supplies and go to work if necessary. The army is being deployed all over the country to make sure that restrictions on the free movement of people are being complied with. Spain’s land borders are closed.
How is Spanish society coping with this challenging situation? Well, it depends who you ask. Some (mostly politicians and media pundits) say people are behaving in an exemplary way, demonstrating a high degree of sensibleness in times of economic and social distress. On the other hand, panic buying in supermarkets and grocery stores has skyrocketed over the last days, which suggests that we are not quite as civilized as our politicians would like us to be.
In truth, our reaction to the crisis has been neither exemplary nor barbarous. It has just been what you might expect: human. We are housebound, powerless, witnessing people losing their jobs and lives. In such situations, our irrational self tends to take over our rational self, leading to a free-for-all of panicky people buying up as many supplies as possible for what may yet be months in isolation or quarantine.
In hindsight, it seems obvious that Spain’s government has reacted late to the crisis. In view of what was going on in Italy, measures such as the closing schools and colleges, or cancelling mass demonstrations like the one that took place on International Women’s Day should have been taken earlier to at least slow down the spread of the virus.
As the head of infectious diseases at Madrid’s Ramón y Cajal Hospital has noted, we have erred on the side of overconfidence, especially knowing that the situation was already out of control in other parts of Europe. Contrast Spain’s response to the precautionary approach of the South Korean authorities, who appear to have brought things under control in a relatively short space of time.
It is still early to know the impact this will have on the country’s economy. However, Spain’s economy was already showing signs of fatigue before the health crisis (employment growth was slowing down and economic growth forecasts were being revised downwards), which means that the coronavirus crisis is liable to throw the economy into recession sooner rather than later.
As in other countries, the government here is already working on measures to alleviate the negative effects the coronavirus crisis is having on both businesses and families. Similarly, the ECB announced last Thursday that it would be providing extra liquidity to the banking sector and it is expected to do more in light of the aggressive stance the Federal Reserve has taken.
But let us not fool ourselves. These measures might help mitigate the consequences of the coronavirus crisis, but there is no magical solution. In the same way a black swan is inherently unpredictable, how and when we eventually get out of it is still worryingly unknowable.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.