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How should economic policy respond to the coronavirus shutdown?

Last Monday, Governor Tim Walz ordered all Minnesota bars and restaurants to close for dine-in service staring Tuesday, the 17th, in an effort to curb the spread of the Coronavirus. Yesterday, he put in place a ‘shelter in place’ order which limits non-essential travel until April 10th.

Assuming that these measures are necessary to slow the spread of the disease to a rate which doesn’t exceed the capacity of the health system to cope, which seems to be the aim, how should economic policy respond?

Let’s restate the economic problem: the government is shutting down large swathes of the economy, putting it into ‘sleep mode’ until the Coronavirus subsides. As a result, businesses are losing revenues, but they will still have outgoings to cover, such as rent. Workers are being laid off: in a conference call on Tuesday state officials said that 149,443 unemployment insurance applications were logged between March 16th and 23rd.

Given that government is inflicting this damage upon these businesses and workers to combat the Coronavirus, government has a responsibility to help these businesses and workers through it. This isn’t about ‘stimulus’, but ensuring that there is an economy left to turn back on when we have the all clear.

In practice, this means cash for businesses directly effected by the shutdown, preferably in the form of grants rather than loans. These viable, even thriving enterprises do not deserve to be burdened with further debt for no fault of their own. For workers – including the self-employed – it means an unemployment payment that enables them to keep themselves together during this shutdown. We need not be too concerned about disincentive effects for the time being, these are folks who were working for a living until the government put them out of a job.

This will be expensive. Obviously, it would be better if the federal government was approaching this without a trillion dollar deficit and $18 trillion of debt. But that just highlights the necessity of fixing federal finances so that we are well placed to cope with unanticipated calamities like the Coronavirus. It also makes it even more important that the bill is not loaded with expensive, irrelevant political pork, like $25 million for the Kennedy Center.

Aren’t these ‘Big Government’ policies? Yes, and I don’t advocate them with enthusiasm. But we already have a government big enough to shut down large chunks of the economy so, for now, that boat has sailed. And, as a believer in responsibility – ‘You break it, you pay for it’ – the body which is responsible for this shutdown is responsible for ameliorating its effects. Indeed, if you want to track responsibility back, there is a strong argument for the rest of the world claiming damages from China’s communist government, which, as Marc A. Thiessen put it in the Washington Post recently, “cared more about suppressing information than suppressing a virus”, an attitude which is now largely responsible for tens of thousands of deaths worldwide.

But these necessary policies shouldn’t be used as a Trojan Horse to sneak in a wish list of other policies such as student debt write off, minimum wage hikes, and token representation on company boards. Not only are they irrelevant to the problem immediately at hand – how does a minimum wage hike help a newly unemployed worker? – but they are bad in themselves and drastically increase the possibility that the whole package goes down in flames taking the necessary bits with it.

It is very hard to find a precedent for the current situation, where government deliberately puts much of the economy into ‘sleep mode’. If there is going to be an economy to switch back on when the Coronavirus is beaten, our policy responses will likewise be hard to find precedent for.

John Phelan is an economist at the Center of the American Experiment. 

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