As the coronavirus spreads, the global economy could be on the cusp of another recession…or worse.
Many prominent economists warn that, unless something is done, the US economy could see a contraction larger than the Great Recession of 2008, making it the worst since the end of World War II. Some are even warning of a full-on economic depression. Unemployment could reach 30%, which is higher than the peak unemployment rate of 25% during the Great Depression of the 1930s.
Turns out, when you force businesses to close, they can’t afford to pay workers, and many will be forced to close their doors indefinitely. The intention to protect people from contracting the coronavirus is good, however, at some point, we as a nation are going to have to reckon with the fact that the economy is going to crater unless businesses are allowed to reopen. That’s not to say that, after 15 days, the government should just reopen all facets of society and allow people to interact socially again, but there has to be some discussion on trying to balance public safety with economic protection.
Even if Congress passes a stimulus package to offset the halting of business activity, it won’t be enough. Small businesses—which make up 50% of employers in the United States—simply can’t survive being inactive for more than a month, let alone THREE months. Over half of the country’s small businesses said they would be forced to close permanently if sales stopped completely for three months, according to Womply.
Government and Federal Reserve loans alone won’t be enough to keep small businesses going. They need to earn revenue. Millions of Americans will lose their jobs unless businesses are allowed to reopen.
Individuals who live paycheck-to-paycheck won’t be able to cover their expenses either. According to the University of Chicago, over 50% of workers can’t afford to miss more than one paycheck without having to dip into their savings; and over half of workers making less than $25,000 would be unable to come up with $2,000 dollars if they had to in the next month, according to the TIAA Institute and George Washington University.
These are horrifying numbers. It appears that economic contraction has already begun in the U.S. and around the world. The Wall Street Journal reported, “Data company IHS Markit said Tuesday that its composite purchasing managers index for the U.S., a measure of activity in businesses, dropped to 40.5 in March, down from 49.6 in February, and the steepest decline since October 2009.
In separate surveys released Tuesday, Europe saw a record fall in business activity during March as government measures and behavioral changes designed to contain the novel coronavirus intensified, while Japan saw sharp falls that similarly hit service providers hardest.”
The economy isn’t like a game of street hockey where, when a car is driving down the street, you pick the net up and yell “game off” and then put the net back and yell “game on” when the car drives away. Businesses take years to grow their customer base and establish supply chains. You can’t put Humpty-Dumpty back together again overnight. Severe dislocation will occur in the business and labor market.
Fortunately, President Trump has acknowledged this and is entertaining possible policy responses to get the economy moving again when we are out of the national 15-day window he imposed to prevent the spread of the virus. Public safety should, of course, be the number one priority at the present time. However, we can’t ignore the irreparable damage that the current lockdowns are going to have on our economy. People are going to lose their jobs and will struggle to pay their bills. How to prevent this while simultaneously protecting peoples’ health is a discussion we as a nation need to have—immediately.