Until recently, terms like social distancing and even the coronavirus were nonexistent. Now these terms could come to define the beginning of a pending global recession the likes of which have yet to test modern economic markets.
As parts of California shelter in place and millions engage in the largest mandatory remote work experiment in modern history, everyone is looking to national stock markets as policymakers try to balance volatility.
Where will all this leave the economy after things calm down? We don’t know, yet.
JPMorgan thinks the United States and European economies could shrink between 2 and 3.3 percent in 2020. Those forecasts change widely from week to week. Moody’s says up to 80 million jobs, more than half of the American economy, could be impacted.
At the federal level, money will start flowing soon. The White House is working on an economic stimulus package in excess of $1 trillion. Under the latest plan, the White House is proposing $500 billion be sent to all Americans in two waves of checks starting in April and May.
The Federal Reserve has cut interest rates between zero and 0.25 percent for the first time since 2008 and is buying nearly $700 billion U.S. treasury bonds.
Corporate bonds will also benefit from the Federal Reserve reviving the Commercial Paper Funding Facility to ensure short-term credit remains available for companies. Former Federal Reserve chairs Janet Yellen and Ben Bernanke recently wrote that the Federal Reserve should also take the unprecedented step of buying corporate bonds to ease debt.
Federal regulators are essentially activating their “nuclear” monetary policies to protect the economy.
Moving to the state level, most states are embracing some or all forms of the policies: no-interest loans, halting business and homeowner evictions, and deferral of tax and licensing fee payments. Pew Trusts has written about the day-to-day changes in state legislation, including new allocations for emergency funding, and the closing of schools, government agencies, and public gatherings.
Research from the Brookings Institute lists several provisions being considered by state and local governments including actions already undertaken in California cities like no-interest loans for small business, deferrals of tax and licensing fees, and even unemployment insurance for workers impacted by COVID-19.
California is reacting much like the rest of the nation for dealing with the economic fallout. The strategy is sacrificing short-term commerce to slow the spread of the coronavirus. Governments will then use the above-mentioned policies to help bridge the financial fallout.
California’s capitol city, Sacramento, is offering a $1 million economic relief package for small businesses like restaurants, retail, and day care providers. City leaders are also looking to keep restaurants open with free afternoon downtown parking and promoting residents to use food delivery and order takeout.
San Francisco stopped small business evictions for the next month and is launching a relief fund with deferrals on tax and licensing fees.
Earlier this month, the San Francisco Chamber of Commerce shared a list of measures to help ease the impacts from the coronavirus. High on the list was direct financial support, tax relief, fee waivers, and tourism marketing once things have returned to normal. In classic San Francisco fashion, one of the measures asked for temporary relief from the plastic straw and lid bans.
Most of the San Francisco area is under a shelter in place with limited social contact until the beginning of April. Sacramento County released a similar shelter in place recommendation shortly after San Francisco.
Los Angeles is pushing similar relief measures and plans to provide $11 million in no-fee microloans to help small businesses make payroll, bills, and rent. As of this writing, the city has not adopted a shelter in place mandate.
The California State Legislature passed $1 billion in emergency funding for Governor Gavin Newsom to use to fight the coronavirus and then suspended work until April 13, 2020. The Associated Press noted it was the first time the California Legislature has instituted such a suspension in 158 years.
Lumping all these actions together, one theme becomes apparent. Regulators and governments are deploying expensive economic “lifeboats” to try and outlast the impact of the coronavirus.
It’s estimated that travel, tourism, and entertainment make up 7 percent of the U.S. gross domestic product, or GDP, so even a slight dip or stop in those categories for a couple months mean a big hit for the economy.
While there’s no strict economic theory that applies to running an economy during a global viral pandemic, some research has been done.
A 2014 World Development Report paper, “Pandemic Risk,” by Olga Jonas of the World Bank, analyzed the financial impact of pandemics. Jonas noted that impact of a similar pandemic like the 1918 Spanish Influenza could cost today’s global economy up to $3 trillion.
Many of the papers recommendations are unattainable now as Jones recommended proactive policies like investment in medical equipment to prepare for a pandemic, increased international communication and defenses during an initial response, and international standards are meant to be built up years before a pandemic.
A recent paper by the Imperial College of London has been gaining momentum for its dismal modeling of how the coronavirus could play out. If the findings are even accurate by half, global economies could be headed for a long recession where the recovery will be measured in years, not months.
The paper, “Impact of non-pharmaceutical interventions (NPIs) to reduce COVID19 mortality and healthcare demand,” used infection and death rates to determine how countries like the United States and United Kingdom could manage COVID-19 until a vaccine is developed.
A combination of isolation, quarantine, and limiting public contact provided the best results. But modeling was estimated between five months and two years, not the four to eight weeks most states and the U.S. Center for Disease Control have in place currently.
The paper’s conclusions say the best scenario is for countries to adopt combinations of isolation and quarantine measures to slow the spread of the coronavirus until a vaccine can be adopted and safely administered at scale, which is an estimated 18 months away.
The economy and Americans can’t continue like this until the fall of 2021.
The Imperial College of London’s findings are a statistical analysis on the coronavirus, not economic theory, but they set the foundation for what the national and global economies will contend with over the next year and a half. Let’s hope federal, state, and local actions are enough to keep the economy afloat and that the impact of the coronavirus washes away quickly.
Evan Harris is the media relations and outreach coordinator for PRI.
