March 26, 2020
What’s needed to prevent economic disaster during the coronavirus pandemic? Quick Intervention
Douglas Holtz-Eakin penned a brief op-ed for The Boston Globe explaining what the government needs to do to prevent an economic disaster. He wrote:
The problem is enormous, but not complicated: The coronavirus has brought large swaths of commerce — notably travel, hospitality, restaurants, and entertainment — to a full stop, either from fear or mandate. Perfectly sound businesses are suddenly without revenue; their only sensible reaction is to shut down and lay off workers. This has suddenly shut off income to families who are now forced to cut back spending on everything from luxuries to essentials.
If the cash flows of the businesses were restored, there would be no need for shutdowns and layoffs. If the jobs of American households were intact, there would be no need for sharp reductions in purchases. If there were a loan to each of the sound businesses to carry them past the pandemic crisis, much of the economic tragedy for families and firms could be averted, or at least minimized. The federal government can do this.
The basic economic task is to use the enormous borrowing power enabled by the US taxpayer to raise $1 trillion or more and then pour this cash into a variety of “funnels” to firms and households. These are not bailouts; unlike the financial crisis, the COVID-19 recession is not the price of poor practices. This is simply bridge financing for otherwise economically sound business and households.
Of course, there has already been a lot of damage that government support for America’s small and large businesses cannot avert. We will need to sustain the aggressive efforts that have already begun to help those who are unemployed, sick, or forced to stay away from work to care for others.
The top priority is addressing the coronavirus itself by aggressively pushing the public health mission. This is the only way to shorten the duration of the pandemic and reduce the scale of the federal intervention. But the intervention is needed, quickly, and should not be a controversial issue.