Throughout history, societies have grappled with plagues, and one of the darkest periods came in 1349 when the Black Death swept across Europe. As death loomed large and panic spread, an unusual response emerged from the people of the time: they gathered in fervent attempts to confront this dreadful epidemic. The epidemic was merciless, with victims succumbing overnight, leaving communities in despair.
In their desperation, individuals resorted to extreme measures. They engaged in gruesome practices, such as lancing boils and bloodletting, hoping to find a cure. But no remedy existed for this swift killer, which could bring a healthy person to death’s door by morning.
At the height of this chaos, a group known as the flagellants took to the streets. Donning their penitent masks, they marched in public processions, whipping themselves brutally in hopes of divine intervention. The History Channel recounts:
“Some upper-class men joined processions of flagellants that traveled from town to town and engaged in public displays of penance and punishment: They would beat themselves and one another with heavy leather straps studded with sharp pieces of metal while the townspeople looked on.
“For 33 1/2 days, the flagellants repeated this ritual three times a day. Then they would move on to the next town and begin the process over again.”
This may appear bizarre or even insane, yet amid this turmoil, something remarkable occurred. The Black Death gradually began to subside, leading some to believe that the flagellants played a role in this transformation.
Or did they?
Probably Nothing, Possibly Everything
It’s crucial to clarify that the actions of the flagellants were likely irrelevant to the decline of the Black Death. Correlation does not equal causation; the old adage post hoc ergo propter hoc—meaning “after this, therefore because of this”—serves as a reminder that one event following another does not necessarily imply that the first caused the second.
Although the flagellants’ role in halting the plague seems ludicrous, it drives home essential points: (1) Human behavior can be irrational, especially during crises, and (2) Misattributing causation is a frequent error, particularly in modern economic analysis.
Take, for instance, central planners who often boast about economic indicators—such as declining unemployment rates—crediting themselves for the positive shifts. But can flooding the credit markets with artificial money genuinely create jobs? Or stimulate real wealth and prosperity?
When economic downturns occur, central planners often scramble to find a scapegoat. Recently, the trade war with China was blamed for economic slips, only to be replaced by the current global concerns surrounding the coronavirus. Jeffrey P. Snider from Alhambra Investments notes:
“The mainstream needs to blame something, and given how convenient the timing is between ‘protectionism’ and the ‘unexpected’ onset of this globally synchronized downturn, China easily provides the next scapegoat.”
At this juncture, it remains uncertain whether the coronavirus will escalate. Like previous outbreaks of avian flu or SARS, it may turn out to be inconsequential, yet it holds the potential to be immensely significant.
How Xi Jinping will Save the World from Coronavirus
As history shows, every economic bubble ultimately encounters its burst. Could the coronavirus be the catalyst that finally triggers the impending collapse of both the stock and bond markets? If so, it might merely signal a coincidental turning point rather than the root cause of a bear market.
Looking back over the past decade, it seems plausible that the coronavirus may amount to “nothing.” Certainly, if central banks can intervene for issues like climate challenges, they surely can manage the impact of the coronavirus.
Complacency seems to be the order of the day. The central question is not whether the stock market bubble is deflating, but whether investors should buy at the dip.
History teaches us to consider the opportunity to buy during downturns. Despite the yield curve being inverting for the first time since last October, if this signals further intervention by the Fed with more fictitious currency, it might, once again, lead to a bullish sentiment in the S&P 500.
Meanwhile, one fact remains undeniable: China’s lunar new year celebrations have been severely disrupted, and Xi Jinping, the country’s paramount leader, is not pleased. He recently summarized the challenge posed by the coronavirus as a “devil” that cannot be allowed to hide.
If this public health issue escalates to a full-blown pandemic, Xi may find himself leading a modern-day procession of flagellants in Beijing, fervently seeking to rid the world of the virus.
This approach has seen past success. It could very well do so again.
Sincerely,
MN Gordon
for Economic Prism
Return from How Xi Jinping will Save the World from Coronavirus to Economic Prism
