cone said:
i'd like the explanation on how the economic damage is going to be managed
Give livable unemployment benefits up until a few months after this virus has been solved, Provide (potentially forgiveable) bridge loans and lines of credit to businesses so that their infrastructure and business can survive the hit and come out on the other side, keep credit markets from being dislocated, provide ample liquidity through the crisis, etc. Basically what we have been doing. It's not going to be perfect, and there will be issues created and large deficit spending for another year or two, but all of that can be managed and is not as immediate of a concern either way - I'd rather spread out the problem into many manageable problems over the decade than have go all in today. Interest rates are exceptionally low providing the perfect opportunity for deficit spending. Inflation getting too hot, which we may be very far away from structurally, can always be addressed by unwinding the fed balance sheet, decreasing government spending, and raising interest rates in the future. We don't have an issue with lack of demand for treasury bonds even at basically 1% interest rates on the 10-yr (so basically nobody thinks inflation is a real threat).
The economic damage is going to happen. We will not stop some really bad economic outcomes from happening no matter what we do. We can make it less bad however, and keeping businesses alive is a big part of that. The economic damage will be and always has been a function of the spread of the virus. It's why I cautioned everybody in the "let's get back to work" crowd. Great populust rallying cry, but completely useless when it comes to crafting meaningful policy. It's arguably going to be a lot worse because we let the virus spread too much already. We either will likely have to start shutting things down again in the near future or the virus will forcibly shut things down - which absolutely is worse by every conceivable metric. Furthermore, many businesses are more profitable (i.e. lose less) shut down than operating at reduced capacities anyways. The key to economic mitigation in recovery is the virus. Everything else is a false promise (like basically the last month) before the brutal reality that things beyond our control are too powerful to ignore.
I've always advocated for getting case count down to controllable levels, testing extensively, and contract tracing. That was the narrow window we had if we were patient and focused enough to do it (like all of Europe which has restarted their sports leagues and has case new case counts approaching that of Texas alone). And the result was we had **** all as a strategy, and the economic damage is going to be worse because of it.
I've posted many times the Fed's case study on the Spanish Flu. Cities that focused on controlling the spread of the virus (where more "shut down") not only experienced less economic damage, but also recovered much quicker than cities that did not. I know it keeps falling on deaf ears, but maybe the fact that I'm backing my statements with research instead of slogans will eventually gain some traction.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561560While this paper was written after the start of the pandemic, the Fed also has papers written in 2007 that basically come to the same conclusions.
We need a structured, calculated, and rational approach to dealing with this problem. We don't need empty platitudes that encourage ignorance. Trying to encourage everyone to pretend the virus isn't real or that there is nothing better that can be done does not address the problem. The damage is real, it's awful, but their is also a range of outcomes. If you've paid attention the Fed they have made it clear, we will not truly recover economically until we get past this virus. Maybe we should pay attention to them in addition to the nation's leading epidemiologists when crafting policy and forming opinions.
