It was an appealing idea. But now it is July, and a V-shaped recovery is probably a fantasy. The post-pandemic economy is likely to be anemic, not just in countries that have failed to manage the pandemic (namely, the United States), but even in those that have acquitted themselves well. The International Monetary Fund projects that by the end of 2021, the global economy will be barely larger than it was at the end of 2019, and that the US and European economies will still be about 4% smaller.

The current economic outlook can be viewed on two levels. Macroeconomics tells us that spending will fall, owing to households’ and firms’ weakened balance sheets, a rash of bankruptcies that will destroy organizational and informational capital, and strong precautionary behavior induced by uncertainty about the course of the pandemic and the policy responses to it. At the same time, microeconomics tells us that the virus acts like a tax on activities involving close human contact. As such, it will continue to drive large changes in consumption and production patterns, which in turn will bring about a broader structural transformation.

We know from both economic theory and history that markets alone are ill suited to manage such a transition, especially considering how sudden it has been. There’s no easy way to convert airline employees into Zoom technicians. And even if we could, the sectors that are now expanding are much less labor-intensive and more skill-intensive than the ones they are supplanting.

We also know that broad structural transformations tend to create a traditional Keynesian problem, owing to what economists call the income and substitution effects. Even if non-human-contact sectors are expanding, reflecting improvements in their relative attractiveness, the associated spending increase will be outweighed by the decrease in spending that results from declining incomes in the shrinking sectors.

Moreover, in the case of the pandemic, there will be a third effect: rising inequality. Because machines cannot be infected by the virus, they will look relatively more attractive to employers, particularly in the contracting sectors that use relatively more unskilled labor. And, because low-income people must spend a larger share of their income on basic goods than those at the top, any automation-driven increase in inequality will be contractionary.

On top of these problems, there are two additional reasons for pessimism. First, while monetary policy can help some firms deal with temporary liquidity constraints – as happened during the 2008-09 Great Recession – it cannot fix solvency problems, nor can it stimulate the economy when interest rates are already near zero.

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