‘More Severe Than the Great Recession’

Shortly after the 9/11 attacks, with a deep economic downturn looking possible, President George W. Bush asked Americans to do their part to help the airline industry. “Get down to Disney World in Florida,” Bush said. “Take your families and enjoy life, the way we want it to be enjoyed.”

That kind of advice obviously wouldn’t work today. The only way to reduce the spread of the coronavirus is for people to stop going to restaurants, schools, offices and, yes, Disney World. (If anything, Disney damaged public health by hosting a packed farewell party at the Magic Kingdom on Sunday night.)

Yet the federal government clearly needs to take some action to help the economy. A recession has already begun, in all likelihood, and it could be a deep one. Initial forecasts suggest the economy could shrink at an annual rate of 5 percent or even 10 percent in the second quarter of this year, which starts in about two weeks. By comparison, the decline during the worst quarter of the 2008 financial crisis was 8.4 percent.

“Coronavirus will cause a recession deeper and more severe than the Great Recession,” Noah Smith, a Bloomberg Opinion economics writer, predicted. “The question is how fast we bounce back from it. Hopefully we will bounce back faster.”

I realize that some people, and especially anyone rooting against President Trump’s re-election, may be tempted to be happy about a recession. But refusing to help people during the coming downturn would be deeply irresponsible. It would lead to additional misery — job loss, evictions, bankruptcies and so on — and could even worsen the spread of the virus, if people took unwise risks in order to earn a living.

So what should a stimulus program look like?

Some parts of it can look similar to stimulus during other downturns — checks mailed directly to families; additional aid targeted at people who need the most help (like paid leave and expanded jobless benefits, both included in the House-passed bill); and federal aid to states, which are generally forbidden to run deficits even in hard times.

But it’s also worth thinking about policies that would be designed to deal with the specific nature of this downturn and its unprecedented restrictions on daily life.

Three ideas

Here are three possibilities:

1) “The most important thing of all is how do you slow the spread of the virus,” Austan Goolsbee, a University of Chicago economist who worked in the Obama administration, told me yesterday. “Anything that slows the rate of the virus is the best thing you can do for the economy, even if by conventional measures it’s bad for the economy.”


Goolsbee’s point is that human activity, and thus economic activity, will be severely constrained until the virus is under control and people no longer fear for their lives. Getting the virus under control isn’t only the best thing for humanity; it’s also the best thing for restarting the economy.

There is one example of a health care policy that’s also a stimulus program, Goolsbee said: The federal government could announce it would pay a large premium to any company that is able to manufacture ventilators quickly. The country is at risk of a terrible ventilator shortage in coming weeks.

2) The severe drop in consumer spending will cause many businesses to consider laying off workers, which in turn could aggravate the downturn. To avoid this, Tim Bartik of the W.E. Upjohn Institute has suggested a policy to encourage “labor hoarding”: Any employer that maintains its payroll — that is, its total budget for salaries and wages — next quarter at 90 percent or more of its payroll from a year ago would receive a significant tax credit. The same credit would apply for the third and fourth quarters of this year, too.

“We are trying to set [a] norm for employers: let’s all maintain payrolls & labor hoard,” Bartik wrote. “This is much cheaper per job created than most fiscal stimulus, which costs generally over $100K per job created.”

As Jared Bernstein of the Center on Budget and Policy Priorities described the idea to me: “If you’re willing to help your workers, we’re willing to help you.”

3) This is the hardest, newest area, but I think policymakers should look for creative ways to encourage people to spend money while they’re at home.

In a typical economic crisis, the government does a version of what Bush was trying to do in 2001: Persuade people to go shopping. But many normal forms of shopping — at the mall, in an urban neighborhood or on a vacation — are out of the question. As a result, people may save large portions of any government check they receive.

I’m curious whether any economists or other experts can come up with clever ideas to encourage new kinds of economic activity. Maybe there should be no-interest loan programs or subsidies specifically for new delivery services. Or maybe there should be subsidies that help existing businesses ramp up their own delivery programs.

In the meantime, Betsey Stevenson of the University of Michigan suggests that individuals help businesses that are going to suffer in coming weeks: “If you can, consider buying gift certificates or prepaying for services to the restaurants, bars, and other physical businesses you normally frequent. It’s like a no-interest loan to them and can help stem the revenue loss.”



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