I disagree with this characterization by Megan McArdle in her latest Washington Post column:
One way to think about normal recessions is that they happen when everyone realizes they’re not as rich as they thought they were going to be. The resulting uncertainty is heightened because some people will have made risky bets on that brighter future and now can’t pay them off. In the aftermath, it’s normal to focus on disciplining excess risk-taking and other forms of moral hazard either by the market or government regulation, so that the government’s efforts to mitigate the damage don’t end up encouraging future folly.
None of which is relevant in a virus-induced downturn. We’re not trying to hasten our adjustment to a more stable economic equilibrium; the best we can do is spread enough money around for everyone to muddle through until we reach a vaccine, or herd immunity.
There are presently three relief plans being discussed: President Trump’s, the Congressional Democrats’, and the Congressional Republicans’. President Trump’s plan does little for the unemployed. The most charitable interpretation of the Democrats’ plan is that it’s intended to help people who don’t have jobs conjoined with a futile attempt to stimulate the economy. If the objective were to “spread enough money around for everyone to muddle through”, we would adopt the Congressional Republicans’ plan. The smaller stipend they’re willing to offer is plenty to keep people from starving. Any notion that we can prop up the economy while locking it down is facile.
But I don’t agree with the “muddle through” objective. I think that we should have four objectives:
- Return the economy to normal to the greatest degree possible without being reckless. As long as health care resources are not being strained, increasing numbers of cases of COVID-19 are a reality we need to learn to deal with.
- Take whatever additional actions are necessary to keep the unemployed from desperation.
- Resolve the supply chain problems impeding the production of PPE, materials for testing, etc. by executive order if necessary.
- Focus our attention on mitigating the risks of death for blacks and Hispanics due to COVID-19. Find things more actionable than “systemic racism”.
Holding up any other objectives is just picking winners and losers.