Mohamed El-Erian compared coronavirus stimulus packages to a poker game, and warned policymakers going 'all in' could backfire

• Global economic stimulus packages have rapidly been used in the fight against the coronavirus pandemic, but an "all in" approach is not sustainable, famed economist Mohamed El-Erian told IFC Insights in an interview.
• El-Erian compared emergency government interventions to a poker game and said an all-in approach works well for one-round, but could massively backfire in a multi-round game.
• The economist called for policymakers to clearly outline metrics of success and course-correct if needed since they are currently prone to "acting in the fog of war."

Governments and central banks have made significant headways with their responses to battle the coronavirus pandemic, but an "all in" approach could backfire, according to Mohamed El-Erian, chief economic adviser at Allianz.

In an interview with IFC Insights, El-Erian equated the case of economic stimulus packages doled out by governments around the world to an all-in situation in a poker game, when a player at the table goes in with all the money they have.

The economist, who in 2009 warned against the onset of a "new normal" involving sluggish growth, went on to say that in case an all-in effort succeeds in a one-round poker game, the player gets to walk away from the table in triumph.

On the other hand, if the effort is lost, the player is left with nothing for another game. An all-in, therefore, would function well for a one-round game, not a multi-round game.

He seemed to indicate that global government interventions in resisting the pandemic is a multi-round game.

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A key suggestion he made is that policymakers must understand countries will undergo different phases — relief, tentative opening, and community immunity — for which they will require immense help, and each phase must be recognized accordingly.

El-Erian also recommended outlining clear metrics of success since emergency interventions are prone to error when governments are "acting in the fog of war."

"You don't have sufficient clarity. And you rightly believe that the best can be the enemy of the good. Under all these conditions, there is an inevitably high probability of mistakes. The important thing is to spot them quickly, and course correct as needed," he said.

Anticipating the arrival of a third era of deglobalization, he predicted developing countries would find it trickier to pull through the coronavirus pandemic.

The first era, he said, was brought on by the household sector's struggle against globalization's capacity to isolate certain segments of the population. The second was propelled by a government-led shock from US-China's trade war in 2017-2018.

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