The Viral Recession

“We need a detailed, pandemic-induced financial crisis plan, that forestalls bankruptcies and insolvencies where possible, without causing downstream crises,” writes John Cochrane, an economist at the University of Chicago. “Yes, you heard it here, judiciously targeted bailouts are really the only way I can think of to keep businesses and people from going bankrupt given the absence of pandemic insurance.” He adds that he does not know of any such plan.

That does not mean it is impossible to come up with one: Harvard’s Jason Furman has suggested that Congress send every adult American $1,000 and every child $500, immediately. Claudia Sahm of the Washington Center for Equitable Growth has proposed a series of policies to aid strained families as well. But the Trump administration has never shown much interest in policy leadership. It has failed to attract practiced technocrats—senior Treasury leadership has virtually no experience managing a financial crisis—and spurred the resignation of thousands of experienced nonpartisan civil servants. The country is trying to fight economic and medical contagion without institutional knowledge or technocratic prowess.

Polarization and political stagnation are a problem, too. The country has far too few automatic stabilizers that kick in to help; it takes legislative action to get policy action. But Congress is divided: Democrats control the House and Republicans, the Senate. Getting politicians to agree on quick, powerful, creative stimulus measures during an election year, even as the White House argues that the coronavirus is “contained” and not much of a problem, does not seem easy.   

The risk that the epidemic intensifies abroad, making the United States’ policy job that much harder, is prevalent, too. Congress can pump demand into the American economy, but cannot do much, if anything, overseas. “The coronavirus has been a body blow to the Chinese economy, which now threatens to take out the entire global economy,” argues Mark Zandi of Moody’s Analytics. “The economy was already fragile before the outbreak and vulnerable to anything that did not stick to script. COVID-19 is way off script. COVID-19 came out of nowhere. It may be what economists call a black swan—a rare and inherently unforeseeable event with severe consequences.”

Those consequences have already proved severe, and are becoming more severe around the world. And they will linger even after the virus dissipates.

Annie Lowrey is a staff writer at The Atlantic, where she covers economic policy.