Bill Gates is wrong about coronavirus having the same economic impact as one of the world wars

Bill Gates can see light at the end of the tunnel. In an interview this weekend in Wired, he reckons that thanks to the wave of innovation in treating Covid-19, and the resources going into developing a vaccine, “for the rich world, we should largely be able to end this thing by the end of 2021, and for the world at large by the end of 2022”.

However, even if that is right, he thinks that the blow to the global economy is such that it will take several years to get back to the position at the beginning of this year. In particular he is worried about progress in combating other diseases such as malaria and polio, and he is worried about global indebtedness: “It’s not World War I or World War II, but it is in that order of magnitude as a negative shock to the system.”

But at least he is confident about a vaccine working: “It’s because of innovation that you don’t have to contemplate an even sadder statement, which is this thing will be raging for five years until natural immunity is our only hope.”

Bill Gates is worth taking seriously for all the obvious reasons, but perhaps particularly as he has been warning about the dangers of a global pandemic for at least five years. He has also played a massive role through the Bill and Melinda Gates Foundation in funding research into combating global diseases. But he is not an economist, and while it might seem presumptuous to question his judgement about the damage to the fight against malaria and polio, his call on the economy that what is happening is of a similar magnitude to a world war is surely wrong.

It is wrong in at least three ways. The numbers are much smaller in relative terms. There is no physical destruction or massive loss of life. And the innovation stimulated by the crisis will bring big positives, including for public health worldwide.

The numbers point is easy to make. Take the UK national debt. On round numbers, at the end of the First World War it had risen to 175 per cent of GDP. At the end of the Second World War, it was 250 per cent of GDP. Last year it was 80 per cent of GDP and is projected by the Office for Budget Responsibility to climb above 100 per cent of GDP as a result of the crisis. But even on its most pessimistic forecasts, the debt to GDP ratio does not climb above 150 per cent of GDP until the middle 2030s and that is largely because of the ageing population and on the assumption of no significant tax rises, not the coronavirus.

As for the impact on output, the loss projected by organisations such as the IMF and the Bank of England suggests something akin to the last recession of 2008-09. Though it will be deeper, we will recover much faster.

The physical disruption from the virus is also utterly different from that from a world war. The ability to rebuild the economy has not been damaged in the way that it would have been had cities been flattened and factories destroyed by bombing. There will be lasting shifts in spending patterns – for example, more online purchases and less high-street ones – and that will lead to changes in land use. But what is happening is a long-term established shift crammed into a few months.

That leads to the third difference. Much of what is happening is a speeding up of trends that were already in place. Aside from online retail, these already include the shift to working at home and the use of video communication instead of physical travel. But there are also things that have been forced on us that will bring benefits at every level, from all of us washing our hands more often, to the oil companies switching their investment to renewable energy.

The big point here is that while the innovation brought about by the Second World War had some plusses for civilian society – jet aircraft, more widespread development of antibiotics, maybe nuclear power – those plusses were very much a by-product, and there were unbelievably huge minuses involved.

By contrast the innovation now is almost entirely devoted to finding plusses. Because there is disruption, there are many costs. This is particularly disturbing because it is so unfair. In economic terms it is the young and the less advantaged who are taking the biggest hit. There will be a bigger debt load and that is a worry. But in two or three years’ time we will emerge with a more efficient, more productive economy and everyone will benefit from that.

More important still, assuming Bill Gates is right, we do not have to face five years of a raging virus until natural immunity kicks in and protects us.