As COVID-19 presents a public health crisis, the U.S. economy has reacted in kind.
Economics Professor Bill Rieber says the nation’s economy is enduring hardships it last experienced during the 2008–2009 recession. But instead of the recession starting in the economy and real estate sector, this downturn is the side effect of a global health pandemic.
“This is so different,” he says. “In 2009, we wanted people to go out and spend, spurred by government fiscal and monetary measures. Here, we don’t want people to go out. We want them to stay at home and be safe.”
In times when there is no health crisis or recession, Rieber says the nation relies on a market economy that combines cooperation—industries producing products—and competition—consideration of price, product, place, and promotion—along with some aspects of a sharing economy, such as welfare, Medicaid, and social programs.
Now, borders are closing, businesses are on hold, and some workers are laid off. The longer the COVID-19 crisis extends, the longer it will take for the economy to return to normal. Until then, Rieber says, the United States will strive to ensure its citizens are taken care of.
Question: What steps are being made to keep the economy afloat?
Bill Rieber: Banks will be sensitive to businesses, allowing them to miss some payments. There are also many people and organizations sharing their wealth with those hurt most by the pandemic. We can do that, in my view, because of the mix of a free enterprise economy, democracy, and cooperation and competition that has led to some Americans having high incomes that they can now share.
Q: What about smaller businesses? What will happen to them during the COVID-19 crisis?
BR: The central bank—the Federal Reserve—can inject reserves within the commercial banking system. Most of our businesses were quite healthy. The economy was strong, but businesses don’t have the funds in a liquid sense—the revenues and the cash to keep going in some cases. That’s where the central bank could put more reserves with local commercial banks, who then will have more reserves and funds to help local business.
Q: How is the federal government helping?
BR: At the federal level, we can deficit spend, which means spending in excess of revenue. That is fine. There’s nothing wrong with deficit spending during emergencies. That’s always been the case during economic downturns. But how do we do that here, and how do we get the funds to the people who need them the most?
Since the Great Depression, Americans have agreed that deficit spending during recessions is warranted, but exactly what that looks like is more open for debate. That’s always difficult. That’s what Congress and the president are negotiating now.
Q: When will we rise out of this sharing economy status?
BR: Fundamentally, it’s our health that’s most important. That’s what we have to be concerned about first. So, if it’s not healthy to go out and spend, we should stay at home and stay healthy. When the public’s health improves, things like the economy will improve, too. That’s the real connection here.
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