By: Jim Tankersley
Whole sectors of the United States economy have gone dark to slow the spread of the coronavirus. Here’s what comes next. A trader on the floor of the New York Stock Exchange. The ability to restart economic activity will depend on the size and scope of the government’s relief plan. A trader on the floor of the New York Stock Exchange. The ability to restart economic activity will depend on the size and scope of the government’s relief plan. Credit…Bryan R. Smith for The New York Times
With confirmed cases of the coronavirus escalating rapidly, government officials have almost overnight switched off activity in large sectors of the United States. They want as few people as possible in close contact with one another in order to slow the pandemic, which may be even more widespread than official statistics suggest.
The federal government has discouraged gatherings of 10 or more people. California told 40 million residents to leave the house only for absolute necessities. Bars, shopping malls, dine-in restaurants and a host of other businesses are closing across the country. Millions of people have been laid off, or are about to be.
Just as there is a public health strategy driving the government orders closing businesses and limiting daily activity outside the home, there is also an economic strategy for putting large parts of the economy on ice. It requires aggressive action by the federal government, funded by what would be the most expansive borrowing the country has seen since World War II.
Whether the United States looks back at those job cuts as a quick blip of prevention or a devastating spiral into an economic depression depends a lot on what Congress and President Trump do in the next few days. Here’s what economists say needs to happen.
Aim to put the ‘v’ in ‘recovery.’
The United States is already falling into a sharp economic contraction: It is producing far fewer goods and services now than it did a month or a quarter ago. That contraction will persist as long as businesses are unable to open and people are not able to work. This is not happening because of any choices those workers or businesses made; it’s a mandate from the government that has frozen a lot of economic activity.
At some point possibly when a vaccine for the virus comes to market, or possibly as soon as the rate of infection starts declining and widespread testing allows for more confidence that another surge is not imminent governments will lift their restrictions and activity will start to thaw.
Ideally, it would thaw quickly, with shops and restaurants reopening, workers rehired, factory production lines restarted and people spending money on things they didn’t need or couldn’t buy during the freeze. In that situation, the economy would grow much faster for a while than it normally does, as consumers unleash their pent-up demand.
Economists call that a “V-shaped” recovery, because growth plunges and then shoots up. It’s what they’re aiming for now, but it could be hard to pull off. “What a recession from something like this should look like is a sudden stop and recovery,” said R. Glenn Hubbard, a Columbia University economist who was a top White House economist for President George W. Bush. “What could happen, though, is a doom loop.”
Extend companies a very large lifeline.
The “doom loop” that Mr. Hubbard and many other economists fear describes a situation in which an even moderately protracted shutdown of economic activity permanently kills waves of small businesses and possibly entire industries, like airlines that cannot survive very long without customers.
A typical small business in the United States does not have enough cash on hand to cover even a month of expenses if its revenues are completely disrupted, according to research by the JPMorgan Chase Institute. In minority communities, where profit margins are often narrower, the typical cash reserve is even smaller.
