Boring but possibly useful thread on economics of Trumpvirus. Econ 101 tells us that there are two kinds of macro shocks: demand shocks like 2008 financial crisis and supply shocks like 1979 oil crisis. Policy implications differ 1/
Demand shock calls unambiguously for stimulus: interest rate cuts, fiscal stimulus if not enough room for monetary policy. Supply shock less clear, bc it raises inflation. Fed temporarily *raised* rates after 79 shock 2/
Virus is both supply and demand shock. Supply chains disrupted, but also people stop traveling, businesses cancel investments, etc. Markets are reacting as if demand side trumps — Trumps? — supply side, hence plunging rates 3/
And fwiw expected inflation is down, not up. And markets are probably right, although we've never seen this kind of supply shock before 4/ 
If it is mainly a big demand shock, we are very much not ready. Fed cuts rates 500 basis points in typical recession; it only has 150 points to cut this time, and ECB is already negative 5/
Smart fiscal policy could be an answer, but it's really hard to put "smart fiscal policy" and "Larry Kudlow" in the same sentence (even though I just did.) Also, Germany is as German as ever 6/
Gotta say I really didn't see this coming. I thought the next slump would be a smorgasbord recession — a bunch of smaller things, not one big thing. But as the bumper stickers don't quite say, stuff happens 7/ nytimes.com/2018/09/19/opi…
