We’ve found a treatment for recessions, but not for COVID-19

With Prime Minister Justin Trudeau’s announcement of the extension of the Canada Emergency Response Benefit (CERB), we have an opportune moment to think about what CERB could mean to our post-pandemic economy. It asks the question: should CERB become a permanent tool that we deploy to fight future recessions?

In our pre-pandemic society, recessions were thought of as part of the economic cycle, albeit a painful one. We tried solutions like industry bailouts and cutting interest rates. While those are still effective tools to combat a recession, this time the majority of our industries came to a grinding halt and our interest rates were already quite low prior to the Bank of Canada’s March cuts.

What did this lead us to realize? It brought us back to the basic economic fundamental that the economy is built on consumer demand and consumer spending. In this case, consumer spending meant the ability to pay rent, mortgages, and put food on the table. That’s where Canada’s federal government unveiled CERB, one of the greatest support levers that any government has used to support its citizens. The success of CERB has changed the discussion from one of a prolonged recession to one of a U-shaped recovery. CERB provided a minimum level of stability to our economy in our most vulnerable situation by, quite literally, providing money directly into the bank accounts of those who need it so they can spend it.

Now imagine that CERB was available during ordinary recessions, not the kind brought about by a global pandemic. In a regular recession, if CERB was available to Canadians who were to suffer a material decline in income, it would help keep consumer spending up, and in turn, possibly dramatically speed up an economic recovery. Just knowing that CERB has your back would allow Canadians to continue to spend prior to the economy hitting the point of a recession, and could even ward off a recession.

Since the introduction of CERB, there has been more conversation about a basic income. Critics argue this could be too costly or result in an unwilling workforce. Though I disagree with this notion, I believe introducing CERB as a temporary basic income during tough times provides a cost-effective alternative. In fact, if we were to truly consider the costs of implementing CERB as an antidote for recessions, the amount could be adjusted by jurisdiction based on the cost of living.

We also know economic sentiment is partially a self-fulfilling prophecy. Pessimistic attitudes can lead to decline, whereas an optimistic mindset among consumers and investors can contribute toward stability and growth. The public confidence that a permanent CERB would instill has the potential to support the economy tremendously, and should be heralded as a groundbreaking treatment for all future recessions.