Fighting the coronavirus pandemic: The economic front

The government should announce that it’s targeting the total dollar income size of the economy, which could help focus the efforts around an explicit goal.

Fighting the coronavirus pandemic: The economic front

The novel coronavirus (COVID-19) pandemic has shut down entire portions of the U.S. economy and is crushing financial markets. Most forecasters expect this crisis to surpass the depths of the 2007-09 recession and, as a result, policymakers scrambled to respond. The White House and Congress recently passed a $2 trillion relief package, while the Federal Reserve is planning to invest up to $4 trillion in the economy.

These responses are extraordinarily large in dollar terms and understandably leave some observers aghast. This level of support, however, is not unprecedented when viewed from the right perspective and is arguably warranted given that the U.S. economy has been effectively put into an induced coma.

The proposed government outlays can be best thought of as part of a mass mobilization for war, just like the country did for World War II. Back then, the war was against foreign powers, and we mobilized factories, machines and troops to fight a physical foe.

Today, the war is against a virus or an “invisible enemy,” as President Donald Trump has described. We’re mobilizing our health care industry and the ability for people to stay home in order to fight.

Government outlays exceeded a whopping 40% of the economy during World War II. This time, the projected government expenditures could reach over 30%. This is far larger than the normal 20% but not unprecedented compared with the last great war.

Economic front line

This fight against the novel coronavirus, like World War II, is also a two-front war. The first front is the public health battle against the virus. The second front is saving the economy from a debilitating wave of bankruptcies and liquidations as businesses are shut down and workers are sent home. This lockdown amounts to an economically induced coma, and most of new government funding is a form of life support to make it through this ordeal.

This economic life support package includes direct cash transfers and unemployment insurance sent to households, grants and loans given to businesses, backstops and investments directed to credit markets, and more. These programs, though far from perfect, are driven by an overarching framework to maintain household and business income so that they can make their preexisting financial obligations, such as mortgages and payroll.

After pandemic ends:U.S. needs Recovery Authority to speed economic rebound

Even though new goods and services will be scarcer and more expensive over the next few months, maintaining the expected dollar incomes is important to avoid any spillover effect that could ripple through the economy such as insolvency or bankruptcy. Proposals for mass debt forbearance during the crisis also would help to avoid such secondary effects. All of these approaches are warranted for an economy put into lockdown so that it can quickly recover once the public health battle is over.

How can we fight

A powerful way to make these efforts more effective is for the government to announce that it’s targeting the total dollar income size of the economy. That is, the government would state that all of its endeavors are to keep the $23 trillion economy on its trend growth path. This target would help focus the efforts of the White House, Congress and the Fed around an explicit goal. It would also provide a powerful signal to the public.

President Donald Trump signs a $2 trillion rescue package to provide economic relief on March 27, 2020.

Normally, the Fed is the institution that announces such targets and should do so here. It is nimbler than other government agencies in applying pressure to the economy and can use the total dollar income target to help avoid a depression now, but also an inflationary boom later. The Fed’s abilities, however, are limited by law: It can’t make direct cash payments to the public. Congress could consider giving this ability to the Fed in limited circumstances so that it can more effectively implement the total dollar income target in times of crisis like the present one.

The Editorial Board:The right way forward on coronavirus

We are in the fight of our lives in the war against COVID-19. As St. Louis Federal Reserve President James Bullard recently said, the new government expenditures directed toward this fight should not be viewed as a stimulus package drawn up for an ordinary recession. Rather, they should be viewed as life support for an economy put into an induced coma in the midst of war. This framing better prepares us for the journey ahead and makes clear what is at stake.

Let’s hope all Americans rise to this occasion just as the previous generation did in World War II.

David Beckworth, a senior research fellow with the Program on Monetary Policy at the Mercatus Center at George Mason University, is a former international economist at the U.S. Department of the Treasury. Follow him on Twitter: @DavidBeckworth

Source: https://www.usatoday.com/story/opinion/2020/03/31/fighting-coronavirus-pandemic-economic-front-column/5088011002/

News Related

ORTHER NEWS

Trump’s ‘mission accomplished’ moment is premature and deadly. We have not defeated COVID.

Desperate for crowds and adoration, Trump has put his most fervent supporters at risk of getting a deadly disease. Future historians will be astonished. Read more »

NFLPA president JC Tretter says NFL is putting season, players at risk with its coronavirus approach

NFL Players Association president JC Tretter said Tuesday the NFL is putting the 2020 season at risk with its coronavirus approach, calling on the league to better “prioritize player safety.” “Like many other... Read more »

Brazilian President Jair Bolsonaro says he tested positive for the coronavirus

RIO DE JANEIRO (AP) — Brazil’s President Jair Bolsonaro says he has tested positive for COVID-19 after months of downplaying the virus’ severity. Bolsonaro confirmed the test results while wearing a mask and... Read more »

Venice Film Festival forges ahead amid COVID-19 pandemic with reduced lineup

The show will go on for the Venice Film Festival in September, but with a few modifications due to the COVID-19 pandemic. Organizers said Tuesday that they are pushing forward with plans for... Read more »

Amtrak offers buy-one, get-one promotion on its sleeper trains amid COVID-19 — with a catch

Amtrak wants you to have sweet dreams the next time you travel — so much so that it’s sweetening the deal on its sleeper “roomettes.” The rail service is offering a buy-one-get-one-free discount... Read more »

Florida teen treated with hydroxychloroquine at home before dying of COVID-19, report says

FORT MEYERS, Fla. – The family of a 17-year-old Florida girl who died last month from COVID-19 treated her symptoms at home for nearly a week before taking her to a hospital, a... Read more »

Mookie Betts worried MLB coronavirus testing woes could prevent him from ever playing for Dodgers

During nearly four months away from the game, Mookie Betts said he “stayed away from baseball to keep myself sane.” It’s not hard to understand why. The 2018 American League Most Valuable Player... Read more »

Tom Hanks doesn’t get ‘how common sense has somehow been put into question’ with coronavirus

Read more »

Can Gov. DeSantis force Florida schools to reopen amid the coronavirus pandemic? Some school leaders seem doubtful.

PALM BEACH, Fla. — As concern about the state order spread online, some school leaders said: Not so fast. As Florida educators puzzle over how to start the new academic year, Gov. Ron... Read more »

Texas surpasses 200,000 coronavirus cases after 4th of July holiday weekend

AUSTIN, Texas – Texas reached 200,000 total COVID-19 cases Monday, just 17 days after crossing the 100,000 threshold, a figure that took the state nearly four months to hit. The grim milestone came... Read more »