Collective Effervescence and the COVID-19 Response
With the arrival of COVID-19, the world governments collectively responded in likeminded manner, with lockdowns, shutdowns, and 24/7 non-stop media coverage fueling panic and fear among the populace. The result of this collective approach was a rapid squelching of the global economy and another collective responsethis time from central banks, which altogether injected trillions of new liquidity into the global financial system. The US launched its Paycheck Protection Programs (PPP) and soon small business owners were flush with cash that could be dropped directly into markets to take advantage of a soaring stock market or a booming real estate market (Cachanosky et al., 2021; Mosser, 2020; Tetz & Herthel, 2020). One way to explain this collective action is through what Emile Durkheim described as collective effervescence, the phenomenon of a diverse community coming together as one to express the same thought and take part in the same action or ritual. In this case, COVID-19 acted as the totemthe sign that stimulated the central banks and governments of the world, the media, and the peopleto engage in the enormous liquidity-infusion that was destined to help fuel inflation.
Collective effervescence was a term defined by the sociologist Durkheim to explain the sociological aspects of religious ritualspecifically, how a community of diverse people and classes could all at once come together to show similarity or likeness of thought and action, centered around a religious totem or symbol of the event that had prompted them into this likeminded action. For instance, a Christmas tree could be a totem of an event (Christmas) that moves diverse people within a community to celebrate the yuletide season, go to church, put up lights, buy presents, and hold feasts for family members. This is an example of collective effervescence at the sociological level. At the economic level, the same idea can be applied to central banks response to COVID-19 and to government lockdowns, which necessitated some type of action from central economic plannersi.e., liquidity injections in the form of REPO purchases or supporting credit markets (Cachanosky et al., 2021; Coroneo & Ozkan, 2021).
In the COVID-19 response, there were many totemscollapsing markets, media panic, government lockdowns, school shutdowns, overrun hospitalsand there was also a precedent established for global central bank intervention set by the 2008 great financial crisis in which the US Federal Reserve launched its unconventional monetary policy in the form of quantitative easing (QE). The precedent or ritual was renewed twice more after that, and everyone expected a fourth round of QE or even what some called QE infinity to be brought back around. It was just like when a religious custom becomes part of the culture and tradition of the peopleit might have started on a lark, but it continued because people liked it. It was the same with QE: markets came to depend on it the same way sugar junkies depend on sugar to get them through the day, or the way alcoholics depend on alcohol to get them through the weektake it away and the world crumbles for them for they have other support system or structure in place. That is what QE became for markets after 2008: and that is why the Federal Reserve has added trillions to its balance sheet in response to the COVID-19 totem. It has done so in a state of collective effervescence with the other central banks of the world, all of which took part in the liquidity pump that pushed markets to all-time record highsmarkets, which are now falling into bear territory (like the Nasdaq) after the central bank has given all to understand that it will be draining liquidity and entering into a phase of quantitative tightening. Another panic will ensue, and another round of collective effervescence will likely resultbut for now the world has a new totem to replace the old one: Ukraine/Russia is the new COVID-19.
Responses to COVID-19
The first manifestation of collective effervescence in response to COVID-19 was the collective cutting of interest rates across the board to zero (Wade, 2021). This was coupled with $700 billion in QE in March 2020; however, markets were not satisfied, and selling continued. The central banks of the world worked on another response, which was the coordinated international action to lower pricing on U.S. dollar liquidity swap arrangements (Wade, 2021). This agreement was followed by the creation of a commercial paper funding facility, with the authority to buy corporate paper from issuers who might otherwise have difficulty selling the paper on the market, at acostof the three-month overnight index swap rate plus 200 basis points (Wade, 2021). Other new creations included a creation of a primary dealer credit facilityand the creation of a money market mutual fund liquidity facility. Days later, U.S. dollar liquidity swap arrangements were extended to more international central banks (Wade, 2021). And then in co-ordination with the Federal Reserve Bank of Boston, the Money Market Mutual Fund Liquidity Facility expanded the list of acceptable collateral required for a loan, allowing high-quality municipal debt to join the list (Wade, 2021).
Finally, by March 23, 2020, in its most sweeping and dramatic intervention in the economy to date, the Fed announced a series of measures employing a wide range of the monetary policy authorities available to it, all with the aim to support smooth market functioning (Wade, 2021). That very same day marked the low of the S&P 500 trading at 2191.86. The central banks finally got the message across to markets that they would do whatever it took to calm them, provide the necessary backstop, and inspire buyingand thus buying commenced as markets more than doubled from March 23, 2020 to the end of 2021. Collective effervescence and the COVID-19 totem helped inspire the belief that the markets could be saved by central bank and governmental intervention (the combined strategies of loose monetary and fiscal policy) and that the public should buy stocks with their stimulus checks.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act along with eviction and foreclosure moratoriums helped give the public the sense that the central banks and the governments of the world were not going to leave the public in the lurch while at the same time letting the wind out of the sails of the economy through global lockdowns (Alpert, 2022). COVID-19 provided the totem for the collective effervescence; the media helped to paint the picture of a world in severe crisis from a new deadly flu virus that would quickly destroy all human life on the planet if drastic actions were not taken. The only thing missing was the guarantee that banks would backstop the marketsand that guarantee was assured on March 23, 2020, and markets lifted off from that point onward.
The level of intervention was vast nonethelessfrom lowering interest rates to zero and ensuring that zombie companies could continue to leverage their (uncertain) future without cost to providing business owners with funding through PPP to keep operations going, the Federal Reserve and the US government acted as conductors in the now time-honored ritual of market bailouts that had been in place for the better part of a decade: there would be no permanent wealth destructionwealth transfer, okaybut permanent wealth destruction would not be permitted. The public clapped and applauded, and thanked the government for its stimulus checks all through the year, and welcomed the idea of universal basic income (UBI) already put forward by the Yang Gang in the 2020 Democratic primaries, prepping the public for things to come, no doubtjust as in a religious ritual there is a pre-ritual ceremony that prepares the assembly for the main event.
In 2020, the main event was the staving off of utter destruction and desolation thanks to cntral bank largesse, government stimulus checks, and coordinated action and policy the world over by the banks of the world. It was collective effervescence at its finest hour, as the world partook in a dance macabre of COVID-19 fear and paranoia while accepting succor and solace from the financial institutions. The end result, however, was that people began splurgingbuying anything they could get their hands on (from land to homes to cars to equities to crypto and even precious metals) causing prices to surge, supply to dwindle, and already stricken supply chains to be struck still further. The outcome of this exodus from cash (raining down like manna from heaven thanks to the printing presses of the central banks) was a totally predictable surge in inflation (which the Federal Reserve at first pretended would not occur, then acted as though it would be only temporary, then finally admitted it was here to stay). The act played out like a religious experience: hints of inflation being spoken of in private, like stories of the boogeyman or the devil appearing at night to snatch ones children away; then the hints began being supported by evidence; then the evidence grew, and finally the religious (bank) leaders had to face the facts and admit that the devil (inflation) had crept into the equation somehowthe same way Paul VI famously admitted the smoke of Satan had penetrated the Church after Vatican II. The banks and governments were playing the same role in a scene of collective effervescence in which the ending could be seen coming from a mile away: an outbreak of warthe only possible relief from a soul-crushing totem that could not be removed from the collective consciousness any other way; it would have to be replaced by a new totemPutin, the new Hitler.
Thus, one sees how central banking and government response to the COVID-19 pandemic can be explained by the sociological phenomenon of collective effervescence, described by Durkheim originally in the context of a religious ritual. Today, the religious ritual is an economic and financial ritualsalvation does not come from the Cross but rather from central bank backstopping of markets and the provision of liquidity. Loose monetary and fiscal policy combine on the parts of government and central banks to give the manna markets desire; the only problem is that there are economic consequences for this kind of largesse, and they are now being seen. The totem of COVID-19 has overstayed its welcome (protesting truckers around the world have a way of convincing governments that it is time to move on), but to keep the market denizens in a posture of obeisance, a new totem is always neededand the new one hails from Russia: the Russian aggressor, sweeping down upon the poor unsuspecting victims of the Ukraine, threatening nuclear war upon the world. Fear, anxiety, concern now dominate the headlines, and the media plays its part of whipping the public into a frenzy as markets fall, and investors along with main street cry out for government and central banks to save them once more in another round of ritualistic collective effervescence.
Alpert, G. (2022). US COVID-19 stimulus and relief. Retrieved from
Cachanosky, N., Cutsinger, B. P., Hogan, T. L., Luther, W. J., & Salter, A. W. (2021).
The Federal Reserve’s response to the COVID?19 contraction: an initial appraisal.Southern Economic Journal,87(4), 1152-1174.
Coroneo, L. & Ozkan, G. (2021). How has the Fed responded to the Covid-19 recession?
Retrieved from https://www.economicsobservatory.com/how-has-the-fed-responded-to-the-covid-19-recession
Mosser, P. C. (2020). Central bank responses to COVID-19.Business Economics,55(4),
Tetz, K. & Herthel, C. (2020). How the US Federal Reserves Response to COVID-19
Impacts Commercial Real Estate. Retrieved from https://www.mossadams.com/articles/2020/05/covid-19-impact-on-commercial-real-estate
Wade, T. (2021). Timeline: The Federal Reserve Responds to the Threat of Coronavirus.
Retrieved from https://www.americanactionforum.org/insight/timeline-the-federal-reserve-responds-to-the-threat-of-coronavirus/
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