Recovery from the COVID-19 pandemic might seem far off, but be we have to start thinking about it now. The pandemic has upended every facet of life for people around the world and in the US. The US government passed a $2.2 trillion CARES Act to help individuals and businesses weather the immediate impacts of the coronavirus. The Federal Reserve has slashed the federal funds target interest rate and pumped more than $4.5 trillion into the economy through various measures to ensure liquidity, price stability, and all out economic collapse. To say all of this is extraordinary is an understatement.
The trillions being pushed out by the Fed and Congress are not really stimulus. What we are looking at is relief. This money is for maintenance until people can start working again and economic activity can resume. Arguably, additional relief will be needed until the pandemic is under control and the strictest social distances measures can be lifted. Both businesses (who are not responsible for the current economic crisis) and individuals will need direct support.
The Near Future
The question then will be, what will the recovery look like? Many economist thought a V-shaped recovery looked like a strong possibility just a month ago. The idea was that people would stay home for a couple weeks, long enough to stop the coronavirus spread, and then they would head back out and start spending again. That is not looking like an overly unrealistic scenario. The US, to put it mildly, bungled its response to coronavirus and is now paying the price.
A V-shape recovery seems highly unlikely. People are isolating for 2-3 months. There is just some economic activity that will never be made up. Individuals cannot eat meals two months of meals at restaurants once the pandemic cools. This is true across multiple sectors of the economy. That economic activity is forever gone and will not be made up.
The America predilection for laying people off immediately in an economic crisis means that ramping back up will take time. Around 10 million people have filed for unemployment in the last two weeks. Those numbers are likely to increase in the coming weeks. Massive layoffs will ripple across the economy an impact a variety of businesses and jobs.
Some of those jobs will never return. Mom and pop shops, small businesses, restaurants, and others will simply go bankrupt and never recover. New business formation will take new investment that will not be readily available. Industries will automate or find other efficiencies to survive the economic crisis. They will have little reason to bring workers back. While globalism won’t come to an end, the pandemic will alter society and leader to a slower recovery.
A Slow Recovery
When the pandemic comes to an end, people are unlikely to rush out and start spending. Aside from not having much money, they will be cautious. We are looking a future that likely incorporates some type of distances and behavior changes that will impact business, society, and people’s lives for a long time to come.
If we will not have a V-shaped recovery, we must aim for a U-shaped recovery instead of a longer depressed L-shaped recovery. Stimulus will be needed by summer, if not sooner, and of a magnitude previously considered impossible just a few months ago. We have the chance to get the stimulus right this time around.
In my book, Experience & Evidence, I talked about different stimulus approaches for recovering from the Great Recession. What would that stimulus look like for recovering from COVID-19? Tax cuts will not accomplish much. They simply so not stimulate economic activity sufficiently, producing about fifty cents of activity for every dollar where as direct stimulus produces several dollars for every dollar spent. Direct spending is the key.
The pandemic is so disruptive and so different from past economic crisis that a full restructuring of the economic system looks necessary. The world changed overnight, but we can still address multiple challenges while increasing economic activity if we target the stimulus correctly.
The banking system in the US is antiquated, unfair, and inefficient. Getting money to people has been a challenge. The CARES Act allocated $1200 to individuals who make less than $100,00 a year, yet getting that money to people is taking at least three weeks, and in some instances will take much longer. That is simply too long for people who need money now and can’t wait, never mind the people who don’t even have bank accounts.
Representative Tlaib has a proposal that would making banking services available to everyone through the Post Office or the Federal Reserve. This is actually a common approach in many countries and was even used by the US in the past. This would make checking accounts available to everyone, and give the government direct access to fund these accounts when needed. The current system adds an unnecessary layer, while increasing costs and reduces access to basic financial services.
Healthcare & Medical Research
Healthcare spending has to increase. A comprehensive healthcare solution that ensure improved medical coverage for the entire population is a must in a post-pandemic world. Greater investments in research, disease prevention, vaccines, and, of course, avoiding the next pandemic are table stakes at this point. When huge segments of the population lack healthcare the risks extend to our entire society. Expanding community health centers and properly funding hospitals and clinics is critical to improving access and reducing costs. This solution could be Medicare For All, similar to what England has, or a public-private partnership similar to Germany. Whatever the choice, full healthcare coverage is needed.
Increased funding for the Centers for Disease Control (CDC) and the National Institutes of Health (NIH) would drive new research and improve treatment options. Focused financing for cures for specific diseases could result in cancer cures. Development of new vaccines could end the seasonal flu. New treatments for debilitating diseases like Alzheimer’s can reduce cost and improve lives. A mechanism already exists for funneling money to worthwhile research projects, Congress need only allocate the funds.
A Green New Deal
Addressing climate change has always revolved around the jobs that would be lost, usually in the oil and gas industries. The estimates of job loss have always been suspect. Oil companies claim jobs that include gay station clerks. If we swap our gas stations for charging stations, that job doesn’t go away. Regardless, now seems the perfect time to tackle this issue. With collapsing oil prices, these jobs were going to be lost even without a pandemic. This means the oil industry will no longer receive government subsidies while other sectors like renewables get more.
Addressing climate change is arguably an immediate existential need. However, doing so would be one of the biggest job creation drivers and innovation sparkers of all time. Think of it as as several Apollo programs combined with multiple New Deal-type programs in one. Converting entire industries to use clean energy, retrofitting buildings and homes to be energy efficient, creating a smart electrical grid, and many other programs would create far more jobs than are lost. Investments in battery technology, power generation, pollution controls, and a myriad of other technological innovations would result in an economic renaissance over the next several decades.
An infrastructure plan is very much needed, but it will not provide immediate stimulus. Any infrastructure plan is a long-term stimulus that will help sustain growth over the longer term. Spinning up large capital projects will take time. Nonetheless, the US desperately needs a modern infrastructure. Any plan should include a national high speed rail system—Hyperloop is an obvious choice. Airlines have fought hard to prevent high speed rail in the US. Now is a chance to overcome that.
Highways and bridge repairs are an obvious need, along with mass transit improvements, tunneling, and alternative fueling and electrical charging stations. Utilities need a major upgrade, from new municipal water pipes to waste water management. Electrical lines should be modernized and buried in cities where they are above ground. This improves safety and protects against storm damage. Of course, improving internet service through high speed fiber, 5G, and even satellite coverage make sense. There is no shortage of desperately needed infrastructure repairs and improvements that would improve quality of life, help businesses, and grow the economy.
Many people think we should be focused on problems at home rather than looking to the stars. I argue we should do both. Just as a Green New Deal would unleash new technologies and innovations, a space program would do the same and perhaps even more so. Keep in mind, the government already knows this. There are efforts underway to return to the moon and there is even a new Space Force branch of the military. We should increase funding and develop a far more robust and coordinated program and target investments in exploration, science, and reaching other worlds. There are direct benefits in creating new technologies to reach to stars, but the secondary benefits that result might be even a greater boost to our long term economic success.
These are just a few big suggestion for stimulus, and by no means the only ones. If we are to come out of this economic crisis intact and avoid a prolonged slump, we need to start thinking about stimulating the economy now. Why not consider what we want our future to look like while we are at it? We have the choice to fund programs and projects will improve our quality of life and drive our economy into the modern era. For some perspective, all of the programs listed total around $2-3 trillion depending on how generous we want to be with funding, but could easily be less and still be impactful. The US can be a leader in new technologies and create entire new sectors of jobs that grow our economy today and in the future.