People have asked if the distinction between a standard "Keynesian" demand-driven recession and a labor-supply-driven coronavirus recession, which will be paired with a fall in the marginal propensity to consume, is simply semantics. The distinction is critical for 2 reasons: 1/4
First, pumping up the economy with cash stimulus payments will be impossible because the spending response will be strongly impaired. So the goal of cash payments should not be to target those most likely to spend, but rather those who will be hit hardest by the downturn. 2/4
Second, in a normal recession, cash stimulus is spent by consumers, serving to support businesses through the recession. But that won't happen this time. This calls for substantial support for businesses that will have trouble weathering the unavoidable contraction in demand. 3/4
That's why I think the focus should be on targeting substantial financial support at those households and businesses most likely to have difficulty bridging the gap in their incomes over the next few months. People need to eat and they need to have jobs to go back to. 4/4
