Quick Note on Stimulus and the Economy

March 20, 2020

Those of us at CEPR have been putting out a lot of material on what the appropriate response by Congress to the coronavirus crisis should be. We have said the immediate focus has to be containing the virus and finding the necessary resources (health care workers and equipment) to treat people. However, we also recognize the economy is taking an enormous hit and tens of millions of people will lose their jobs.

In this context, economists would usually think of ways to increase demand to boost employment. This doesn’t make sense here. The problem is not a lack of demand in the economy, the problem is that people are literally unable to work. Restaurants, theaters, hotels and other businesses are being forced to close. In some areas, people cannot leave their homes. Increased consumer demand will not change this story.

The economic problem is ensuring that these people can sustain themselves through the crisis. This means making sure that they have enough money to pay their rent or mortgage, utilities, food, and other necessities. If we define full employment as a situation where everyone who wants to and is able to work has a job, we could well be in this situation with 40 million fewer people employed.

We want to make sure that businesses are in a situation to be up and running quickly once the crisis has passed, which is why some of us have advocated work-sharing type programs. We may need some additional stimulus at that point, but for now, the goal of economic policy is keeping people in their homes and as comfortable as possible, under the circumstances.

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