Corona Blogging

There are debates about what the policy response should be to the COVID-19 threat to the United States. I think there are three important steps that need to be taken, beyond what the Federal Reserve is already doing to support the banking system.

One, rather than spraying $1000 checks around like confetti, the Federal government needs to re-insure and augment state unemployment insurance programs. Yesterday's report showed that we had a jump in initial UI claims, from 211,000 in the week ending March 7 to 281,000 in the week ending March 14. Expect that to go much higher for this week (released next Thursday) and next. In my view, Federal support for state unemployment insurance programs is the best way to inject cash into the economy. Top off replacement rates at higher levels, since these claims are due to factors beyond the control of workers and their employers, and extend them for longer than the current claiming period. Make the funds available to states in proportion to their working-age population, to avoid explicitly bailing out states that were not properly funding their systems. What's important here is the Federal government's announcement. It is the announcement that sets people's expectations about their resources and these expectations that drive consumer behavior.

Two, we need to recognize the manpower cost of successfully addressing the COVID-19 threat and mobilize accordingly. I encountered two useful accounts that shaped my thinking about this. The first was a Ted Talk by Bill Gates from 2015 that resurfaced recently. We should have taken his advice then (in the wake of the Ebola outbreak). We should start the mobilization now. If the government is going to spend, it should use this occasion to buy what it needs. In bulk. (Sound familiar?) The second was a first-person account from an economics colleague who flew from London to Beijing, posted to Twitter. What struck me about his account was how labor-intensive the testing and quarantining process is in the places where that process is being applied rigorously enough to actually contain the virus. And now we have a whole bunch of service-sector employees looking for temporary work. State and particularly local governments should be hiring and training, with funding provided by the Federal government, legions of people to facilitate this process. When the immediate threat has been contained, that corps of people can be shifted to address long-term preparedness along the lines that Gates was describing.

Three, for any publicly traded company that needs short-term funding to remain liquid and solvent, like airlines and hotels, the Federal government can provide it. However, it needs to take warrants as part of the deal, similar to the arrangements for banks in TARP, so that it more fully shares in the eventual recovery (and signals its belief that there will be a recovery). This is not an appropriate time to advance clearly partisan objectives when the business disruption is due to an external factor like the virus.