The current economic crisis doesn't have to be existential.
The bad news about the economy is very bad: 17 million unemployment claims in three weeks, an economy expected to contract at an annualized rate of 35 percent — or more — with businesses small and large struggling or already gone under.
The good news is, this is exactly the kind of problem you can just throw money at and expect pretty good results.
An epidemic is not a meteor or a war. We are not going to have to rebuild big chunks of Manhattan and Washington, as we did after 9/11 — or have to help rebuild Europe, as we did at the end of World War II. The factories, shops, houses, trucks, office buildings, machinery, inventory, etc., are still there, ready to go. There is more to the economy than physical capital, but the physical capital is simply on ice, not gone up in flames, and that is important.
What does this mean?
For one thing, it means that cash is king — as cash usually is. For service-oriented businesses (and for millions of workers) income lost today is income lost forever — it is not as though Hilton can stockpile all those vacancies at its hotels for future use. But the story is different for durable goods, real estate, and much else. If you are a car dealership, then there is still a pretty good chance that you are going to sell a lot of that inventory that you would have sold in past weeks but haven’t and currently are sitting on.
But it will be a buyer’s market. Everything is going to be on sale, which means that there will be a wealth transfer from pressured sellers to buyers who have cash on hand. There’s nothing wrong with that. It’s always a good time to buy a house or a car if you’re rich — if you’re not, the timing matters more. When the real-estate markets crashed during the financial crisis, investors with ready money made billions of dollars buying up perfectly good properties temporarily marked down because of factors that had nothing to do with the quality of the asset itself or its likely long-term prospects. The same thing will, barring some deeper and broader economic calamity, happen in this recovery.
But that dynamic does not benefit only the fat cats with deep pockets. Businesses that have lost revenue to the epidemic but are otherwise healthy are going to have great opportunities to renegotiate leases, acquire new space and equipment, and invest in future growth. If you’ve always wanted to start your own business, now may be — counterintuitive as it may seem — exactly the right time to make a move. Washington can help by making it easy to access certain kinds of commercial financing, and municipalities can do themselves a favor by taking a much more flexible approach to planning and zoning, loosening up unnecessarily cumbrous business regulations, and perhaps offering tax holidays for certain kinds of investments made during the early recovery period.
More immediately, government can continue to mitigate the damage being wrought by this unexpected suspension of economic activity through the most direct means: sending people checks, especially in the form of extended unemployment benefits. Cash is king in the household economy, too. Of all the schemes that government has and will come up with in response to the economic devastation of the epidemic, simply sending people money will be, in most cases, the best and most effective measure.
There are going to be disruptions and disturbances that cannot be repaired. These already are well under way, with employers having to make difficult decisions to dismiss employees, firms unable to pay vendors and honor contracts, etc. And, of course, some workers are not coming back, because they will be among the thousands and thousands of dead. But the damage we are going to experience is going to be mainly organizational damage — most of the people and the capital will be there when the sun comes up again, but the firms and relationships that organized these resources into productive enterprises will, in many cases, fail entirely or become so damaged that they are unable to make a full recovery. That is the kind of damage that the “stimulus” measures and employee-maintenance programs are really intended to soften. This is really the aim — and the wisdom — of efforts such as Denmark’s attempt to “freeze” its economy, which is to say, to provide enough short-term support in the form of cash that people and businesses are actually able to go back to normal when the time comes.
What we want is to minimize the disruption that will stand between these assets and the people who can make the most of them, bringing them back online in the most effective way. That should be the guiding principle of the entire recovery effort.
Americans have not forgotten how to make, do, or sell things. We are going to be okay. We are sidelined for reasons that are more than economic — but economic, too: A more severe medical outcome would inflict much more severe economic damage, and it would inflict it for longer. We are not helpless. We are taking a hit right now because we are doing, for the most part, the right thing and the smart thing.
We are going to be ready to go when it is time to go.
And our business leaders already have been doing some very important things: Those rent holidays many commercial landlords are offering are partly done in a spirit of generosity, but there is a strong element of self-interest there, too: It is difficult and expensive to recruit good new tenants, and demand right now is pretty low, so it doesn’t make much sense to chase out a formerly reliable business whose operation is mothballed by the epidemic. From auto-insurance companies rebating premiums (claims are radically down, because nobody is driving) to utilities and telecoms waiving late fees, there has been a surprising level of enlightened self-interest on the part of businesses that understand that it is more important to maintain those customers and relationships for tomorrow than to nickel-and-dime them today.
Of course, we have to think about those who are suffering in the here and now. But our economic prospects are, strange as it may sound to say it, pretty good — this is a catastrophe, but it is not one that is economic in origin. There is still much that is in need of reform, and we eventually are going to have to get our national finances in order. And that means, among other things, resisting the inevitable push to convert present emergency measures into permanent entitlements. We probably are going to need to have an unpleasant conversation about revenue in the near future. Those are real challenges.
But this does not have to be the Great Depression. It doesn’t have to be an existential economic crisis, and we should be careful not to make it into one.