With the stock market plummeting and hysteria around COVID-19 (commonly known as the coronavirus) escalating, it is time to get serious about the economic policy response. Policymakers and the public will need help in distinguishing between smart responses and those that are just ideological opportunism, such as calls for cuts in taxes and regulations, for example.
Simply put, smart responses must be tailored to the type of recession the outbreak could cause if policymakers didn’t act.
The three key elements of a potential COVID-19 recession are: i) If it comes it will come fast; ii) It will hit lower-wage workers first and hardest; and iii) It will impose even faster and larger costs on state and local governments than recessions normally do.
Each one of these should be targeted directly.
Any economic relief package should come online quickly, it should be even more targeted to help lower-wage workers than usual, and it should rapidly boost state and local government capacity on both the public health and economic fronts. Below I sketch out why these characteristics of the COVID-19 slowdown are likely, and what a tailored response to each would be.
First, if the COVID-19 outbreak slows the economy, it could happen very rapidly. This is quite different, for example, than the onset of the Great Recession. That recession was caused by the bursting of the home price bubble, which essentially began in mid-2006. From that point on the recession was near-inevitable, but it took literally years to gather steam. As the Great Recession loomed, the key characteristics policymakers should have demanded of any proposed stimulus package should have been: effective, large and sustained. Fiscal policymakers decisively failed on the last point, and dwindling fiscal support hampered recovery for years.
A COVID-19 driven recession would be quite different in that it would hit quickly. The spread of the disease has been quite rapid in each country it has affected. Further, the public health response to maintain “social distancing” to thwart its spread tends to take effect rapidly as well. Even before the reported cases in the US have reached large numbers the news are full of cascading cancellations of business and entertainment gatherings. We are almost certainly already feeling the economic effects of the COVID-19 slowdown – it just has not appeared in economic statistics yet (since these statistics tend to appear with a small lag).
Second, the sectors that will be first hit by “social distancing” measures disproportionately employ low-wage workers. Traditionally, manufacturing and construction – two comparatively high-paid industries – have been the first to dip in recessions.
Excerpted from: 'With Working People Most Vulnerable, It's Time to Get Serious About
Economic Response to Coronavirus'.
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