The Atlanta Journal-Constitution
How U.S. needs to restart its economy
The U.S. economy has stopped working.
We’re going to try turning it off and back on again.
With confirmed cases of the coronavirus escalating rapidly, government officials have almost overnight switched off activity in large sectors of the United States. They want as few people as possible in close contact with one another in order to slow the pandemic, which may be even more widespread than official statistics suggest.
Just as there is a public health strategy driving the government orders closing businesses and limiting daily activity outside the home, there is also an economic strategy for putting large parts of the economy on ice. It requires aggressive action by the federal government, funded by what would be the most expansive borrowing the country has seen since World War II.
Here’s what economists say needs to happen.
What is a ‘V-shaped recovery?’
At some point — possibly when a vaccine for the virus comes to market, or possibly as soon as the rate of infection starts declining and widespread testing allows for more confidence that another surge is not imminent — governments will lift their restrictions and activity will start to thaw.
Ideally, it would thaw quickly, with shops and restaurants reopening, workers rehired, factory production lines restarted and people spending money on things they didn’t need or couldn’t buy during the freeze. In that situation, the economy would grow much faster for a while than it normally does, as consumers unleash their pent-up demand.
Economists call that a “V-shaped” recovery, because growth plunges and then shoots up. It’s what they’re aiming for now, but it could be hard to pull off.
“What a recession from something like this should look like is a sudden stop and recovery,” said R. Glenn Hubbard, a Columbia University economist who was a top White House economist for President George W. Bush. “What could happen, though, is a doom loop.”
Why companies should get very large lifeline
The “doom loop” that Hubbard and many other economists fear describes a situation in which an even moderately protracted shutdown of economic activity permanently kills waves of small businesses — and possibly entire industries, like airlines — that cannot survive very long without customers.
A typical small business in the United States does not have enough cash on hand to cover even a month of expenses if its revenues are completely disrupted, according to research by the JPMorgan Chase Institute.
Economists say that means Congress needs to act boldly, and fast, to keep money flowing to business owners to ensure they can reopen after the crisis.
There are several possible ways to try to do that.
Steven Hamilton, an economist at George Washington University who has been one of the loudest public voices calling for aggressive assistance to small businesses, and Stan Veuger of the American
Enterprise Institute, want banks to offer loans to cover lost revenues for small businesses — and for the federal government to forgive the loans if the companies don’t lay off workers. Hubbard and Michael R. Strain of the American Enterprise Institute have a similar proposal.
Why big relief should be provided for workers
Companies are only half the equation. For the shutdown/restart strategy to work, economists say, lawmakers must also keep money flowing to workers affected by the economic chill so they can continue to buy groceries, pay mortgage or rent and seek medical care if they are injured or sick.
One way to do that is by helping businesses — and hopefully keeping as many people as possible on payrolls. But workers who lose jobs or hours will need more direct help.
Many economists, including Claudia Sahm of the Washington Center for Equitable Growth and N. Gregory Mankiw and Jason Furman of Harvard University, have called on lawmakers to send checks of $1,000 or more to all Americans as quickly as possible. Both Trump and Steven Mnuchin, the Treasury secretary, have voiced support for such payments. At least a scaled-back version of that plan is likely to be included in the stimulus bill being negotiated in Congress, with payments headed to low- and middle-income families. But those payments will not be sufficient to cover costs of necessities for people who have suddenly seen their incomes shrink or vanish.
That could mean increased unemployment benefits and more generous paid sick leave fully funded by the government. It could also mean something like what the British government announced Friday: a plan to encourage businesses to keep paying workers by assuming up to 80% of their wage costs.
Why it’s not a ‘normal’ rescue
Americans also need to start thinking of this crisis as different from almost any economic shock before it.
Concerns that have guided economists in the past, like whether policies discourage people from working, do not apply in the same way now: It is hard to discourage work in sectors that the government has ordered to shut down. The same may hold for restrictions that some lawmakers want to place on spending any government aid to business, like limiting grants to businesses that keep all their workers on salary, Lettieri and others say.