The terrorist attacks of September 11, 2001, were widely seen as the effective end to the 20th century, but at the time many analysts argued that the long-term geopolitical impact would be limited. For instance, Michael Howard, the distinguished war historian at the University of Oxford, said that while the terrorist threat “will never entirely go away, I suspect that once we have hunted down the present lot of conspirators the world will return to business as usual.” Many others did forecast dramatic changes, of course, but few believed that the United States would be still fighting in the Middle East almost two decades later and that drones would revolutionize warfare.
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American policy makers also underestimated the financial crisis of 2007–09, when they opted to let Lehman Brothers fail in September 2008 on the mistaken assumption that the decision would not trigger the collapse of other companies. European officials thought that the crisis had been made in the United States and would not affect global financial markets, and dismissed any concern that the euro zone may have its own vulnerabilities. The cooperation among G20 states, especially the United States and China, in responding to the crisis blinded many to the era of great-power competition that was about to unfold, as well as the nationalistic tendencies that would take hold in many governments. As the historian Adam Tooze has argued, in 2012, the populist wave had ebbed, but the biggest shocks—Brexit and Donald Trump’s election—lay in the future.
Now the COVID-19 pandemic has severe public-health, economic, and geopolitical ramifications, and many of those outcomes depend on how long the world will be in this suspended state. If the crisis lasts for a few months, the economy might well bounce back quickly, as aggregate demand returns.
However, in a long crisis, countries will emerge profoundly changed. No one knows how exactly, but educated guesses are possible. A collection of massive domestic crises will collide, as health systems collapse or come close to it and governments struggle with double-digit unemployment, a severe recession or depression, plummeting revenue, increased expenditure, and mounting debt. Intermittent shutdowns, returns to work followed by retreats, and the continued suppression of demand are likely. The recession will look more like an L or W shape than a V. Companies and governments will run out of cash. They may default on debts, which will have ripple effects for other companies and could destabilize financial institutions.
Those countries that can afford to will be forced to turn to a stimulus package multiple times. Voters appear to be understanding of their leaders now, but the mood in six months or a year will be very different. As Warren Buffett once remarked of the markets, you see who is swimming naked when the tide goes out. A long crisis exposes which countries are truly competent. Which states can undertake the extensive, massive testing needed to have broad public-health surveillance and tailored isolation? Which will allow for the least restrictive economic measures? And which states can scale up industrial production to maintain resilient health-care systems and personnel all at the same time?