When I speak about the coronavirus to people who do not relentlessly follow the news or economics Twitter, two questions frequently arise. The first is: The virus does not seem that deadly, so why should I freak out? The second is: How can a virus cause an economic crisis?
Conveniently, the answer to both of these questions are the same. Even if the virus is not a direct threat to your life, you can pass it to someone who is at a greater risk. When sick workers cannot show up to a company in China or Germany that produces supplies Americans or American companies need, that hurts the US economy. The world economy is heavily reliant on the flow of people and goods across diverse geographies. The aggregate impact of our interconnectedness should be a concern for all of us, because public health concerns are economic concerns.
Over the past few months, the coronavirus has quickly spread from a few confirmed cases in Wuhan, China, to nearly every region of the globe. But the origin of the virus is no reason to promote anti-Asian stereotypes. The only reason it matters that the coronavirus spread in China is that China is a hub for international travel and an economic powerhouse. In the year 2000, China made 7 percent of global GDP. Today, it’s nearly 20 percent. For perspective, the United States creates around 15 percent of global GDP. Additionally, over 5 million companies around the world rely on products from businesses in the affected regions in China. If China sneezes, literally or metaphorically, the world gets a cold. The same can be said for the United States.
The economic effects of stifled business supply chains, canceled events and travel plans, and an endangered workforce has not been lost on the financial world. The stock market, a useful but limited measure of investor confidence in the economy, has been incredibly volatile. On Monday, the S&P 500 saw its sharpest one-day decline since the financial crisis in 2008. Macroeconomist Mark Zandi has predicted a prominent slowdown in GDP growth as a result of the pandemic. (Technically, two consecutive quarters of declining GDP is classified as a recession.)
The stock market briefly rebounded after the Federal Reserve slashed interest rates from 1.5 to 1 percent But Fed Chairman Powell expressed a desire to keep the short-term US rate target above zero. Now, the entire US yield curve is below 1 percent for the first time in history, a signal that investors are already planning for a worsening US economic outlook. It remains uncertain if the Fed has enough additional tools to prevent an economic crisis alone.
More importantly, the United States’ continuous failure to support our most vulnerable workers has been laid bare. Without strong labor protections, universal health care and sufficient paid leave for everyone, many working people face a precarious choice: Take care of themselves or lose out on wages, and even their jobs. According Elise Gould, at the Economic Policy Institute articulates, only 30 percent of the lowest-paid workers have access to paid sick days.
So what’s the best way to protect workers and the economy as a whole?
Trump has been trying to cure a cold with a press conference. This lack of presidential leadership has led to the United States having one of the lowest rates of testing per capita among advanced economies. One of the best ways to help the economy right now is to stem the spread of the virus, relieving pressure on the American health care system and, eventually, allowing people, goods, and services to move freely again. Congress, in a rare show of bipartisanship, passed $8 billion in funding for public health measures, the development of treatments and foreign assistance. After much time spent minimizing the magnitude of the coronavirus pandemic, Trump signed the bill last Friday.
Trump has proposed several economic measures, notably a payroll tax cut and aid to the hotel, airline, cruise, and shale industries. While the Republican Party loves to cut taxes, especially for the wealthy, a payroll tax would be less effective than making it easier to access unemployment benefits, social safety programs, and, frankly, directly giving people cash. Payroll tax cuts often go unnoticed, and they do not do as much for those who have had their hours cut. They also are an incentive to work in a climate in which health experts are encouraging “social distancing.”
To understand why bailing out industries is an unwise decision, we need to think about why we care if businesses suffer in a crisis. Companies matter for the long-term health and innovativeness of the US economy. But their profit margins in a downturn matter, because cash-strapped businesses need to cut costs: Wages suffer and jobs are lost. In industries affected by the coronavirus, though, we do not want workers to go to work. We want them to be able to keep their jobs and take paid leave. So, passing paid leave for everyone matters a great deal. Bailing out shale companies does not accomplish that goal.
Moreover, we should be concerned about the ripple effect of job losses in affected industries on people who work in other sectors. Lost jobs lead to pullbacks in spending, putting more jobs at risk. This is why a direct, broad stimulus package has become a popular recommendation in economic circles.
We need to strike a balance between a stimulus to stem the bleeding and the long-run investments necessary to build resilience in the US economy to public health and environmental shocks. Big public investments are slower moving than cash payments. But given the current low interest environment, there is good reason to invest in productive, green infrastructure, à la Green New Deal. Americans also suffer from our lack of universal health care coverage and the profit-driven insurance industry. Many Americans regularly postpone or forgo treatment because of health costs. Yet the United States has yet to make diagnosis and treatment for the coronavirus free.
The United States still has a long way to go to contain the coronavirus and stave off an economic downturn. But one thing is clear: If we treat the economic symptoms only through short-term stimulus without fixing the structural diseases in our economy, we’ll be just as susceptible in the future as we are today.