There’s a lot of confusion about the economic response to coronavirus. This won’t be a normal Keynesian-style recession. The normal policy levers are impotent. Putting money into consumers’ pockets will not pump up the economy because consumers can’t spend. They’re staying home.
But obviously that doesn’t mean we should do nothing. In addition to boosting health services and slowing the contagion, we need to plug the income gap for vulnerable consumers and businesses caused by coronavirus. We should do that any way we can. Including mandated sick leave.
For all businesses, we need to support liquidity to help them push forward into better times the loss of income over the months ahead. But for many businesses, particularly small businesses with low margins, this won’t be enough. A few months of lost revenues could ruin them.
Many people say “let them fail”, but this is a large systemic shock to the economy. It’s not obvious this calamity was readily insurable. And, regardless, a large number of firm closures has knock-on effects to other firms and destroys a lot of firm-specific capital. That’s bad.
Many people simply hate businesses and reject any kind of support for them. We absolutely need to help vulnerable consumers bridge the gap, but we also need to make sure they have jobs to go back to when the crisis abates. Talk to any restaurant owner today—they are worried sick.
For small businesses, an employer-side payroll tax cut would give them immediate relief. But there are many other ways. The Australian government has announced they are covering half the wages until September of every Australian apprentice at a small business. That’s a good idea.
We need to stop thinking about this like a normal recession. We can’t stop a large fall in activity over the next few months. It’s a pandemic. But if we help vulnerable consumers and businesses to bridge the gap in income, we have a good chance of snapping back on the other side.
Aussies know how to do it:
