Managing US economy in case of large scale Coronavirus Outbreak
Coronavirus has already wrecked the economy of China where a large scale factory closure has happened and manufacturing has plummeted to all time low, even lower than 2008 great recession. As Coronavirus spreads worldwide, many other countries are facing economic slowdown and trying to implement various stabilizing measures.
In US, the Central Bank has cut interest rates by 50 basis points to support the economy. Similar measures are also taken by other central banks. But there is a fundamental problem with these usual monetary stimulus decisions. Many countries see economy from single dimensional point of view - its like a scenario where you have a hammer and see every problem as a nail. Whenever there is a slowdown, the countries run towards lowering of interest rates. Donald Trump in US, in last several days asked Federal Reserve to cut interest rates which Fed obliged. But it looks like that Trump did not even understand the underlying crisis of economy. Similar conclusion can be made regarding leadership of other countries.
Lets look at underlying basic situation. In case of large scale coronavirus outbreak (this is yet to happen, but experts predict that is a possibility), economy will face supply chain disruptions. People will get sick and miss work. People will miss work as a precautionary measures. There will be shortage of essential goods and services in economy and this may create a panic situation where people start hoardings. Basically, there will be a large scale withdrawal of labor force participation from the economy. On the other hand, the Govt will face disruptions in operations and its continuity. Govt officials, Politicians & other officers would avoid meetings and gatherings to avoid spread of infection. Govt functioning will be restricted in many ways. Specific sectors in country will face the most stress. Healthcare sector will be massively overloaded as they deal with large number of infectious patients.
Also globalization supply chain will face significant disruption as imports from China will fall. Medical supplies, protective gears, masks, medical instruments & machines which are manufactured in China will be in short supply. China is already facing closure of factories and remaining factories will prioritize their production to serve Chinese Govt fight in tackling domestic spread of Coronavirus within China.
The basic premise to promote economic growth during slowdown due to Coronavirus is wrong to begin with. Coronavirus is a public health emergency and first priority should be deal with this rather than dealing with slowdown. In fact, economic activity will have to be slowed down intentionally in certain ways to stop the transmission of virus. Precautionary measures like closing of Schools, Universities, offices & work places, community functions, conventions, business meetings, factories etc may need to be taken when need arises.
I personally think that Fed rate cuts as an economic stimulus is over hyped. Some experts say that Fed rate cut leads to more business activity and ultimately creation of more jobs. I don't believe this theory (reasons not worth getting into right now). But even from view point of those experts who always ask Fed to support economy & reduce unemployment by rate cuts, US doesn't actually need to boost employment right now in a conventional sense.
Some of the things US need to consider to prepare for Coronavirus emergency.
1. Don't let American healthcare system collapse. Federal Govt should take all measures to support its healthcare system. That means all necessary spending should be approved for various needs of CDC, Medicare, Medicaid, HHS programs etc. Also US Govt should give emergency funding support to hospitals specially in rural areas & depressed cities which do not have resources to fight Coronavirus situation. US should procure more testing kits (1 million testing kits urgently to get the testing started across communities), Protective suits, Masks etc. Temporary hospitals & quarantine should be built to treat large number of critical patients. All medical equipment like Ventilators etc should be made available to all hospitals.
Govt should directly fund anti virus drug discovery and vaccine development. CDC should get the funding specially for this task. Any private pharmaceutical company that needs funding for Coronavirus research & Drug discovery can avail funding from federal Govt. US Govt should also make sure that anti virus drugs do not get tangled in patent monopolies of private pharmaceutical companies. These drugs should be priced at a minimal level for mass distribution.
2. A lot of medical equipment & instruments including protective masks etc are imported from China & other countries. Since Chinese imports won't be coming for some time, all the medical equipment etc need to be manufactured domestically. China right now is on war footing to manufacture medical supplies for its own domestic consumption. China is manufacturing 100 millions masks, protective suits etc. Similarly its producing all kind of goods - from disinfectants to ventilators. from toilet paper to bed sheets. from furniture to ambulances. China is producing all in its factories. And its building new coronavirus hospitals on pre fabricated construction technology to create quarantine zones.
US will need to do all of this and plus more. Powers like Defense production act and war powers act or other national emergency acts need to be used to do all necessary things.
3. Saving people should be a Key priority. To put it in simple words - ALL Flu treatment & testing should be made FREE regardless of insurance plans. Those who have insurance plans will get it from their companies without any additional payment. Those who don't have insurance or have some limited coverage plan will also get it & Govt will subsidize all treatment.
I can already see the coming tragic stories of people's bankruptcies if US Govt doesn't take the necessary steps. Denial of coverage, exorbitant treatment costs, out of pocket payments & medical bankruptcies will surge if US Govt doesn't intervene. A large scale Coronavirus situation will decimate middle class & lower class of America wiping out their life savings pushing them into poverty. When inequality is already at all time high, this simply cannot be allowed to happen.
4. In case of large scale outbreak, economy will remain depressed for a while. Fed Rate cuts are not the required measures to stabilize economy. Here is a Better approach - A Debt Moratorium. A moratorium on Personal loans, Home loans, student loans, Auto loans etc which obviously makes sense in a depressed economy. There may also be Moratorium on Business & Corporate loans as various business projects may get halted for a while. Such moratorium should last until the coronavirus emergency is over and until economy starts getting back to normalcy.
5. Supply chain of essential goods and services has to be preserved in case of large scale virus outbreak. There should not be any disruption in essential services like Electricity, water distribution, Communications, Internet etc across communities. Similarly, food products & essential commodities should be be in adequate supply in all areas. A lot of goods need to be manufactured locally.
Allocation of resources would be critical. Goods & services in market economy are not under any restrictions but in case of national emergency, they may have to be rationed, allocated & distributed under tight state control and regulations. Primary responsibility will be allocation of protective gear like respirator masks and suits. The first priority of allocation of these critical equipment should be Doctors, Nurses and healthcare professionals, followed by Police & military, and then other Government officials & employees in important departments, specially those working in contaminated areas. Similarly, foods products, medicines, sanitizers, essential commodities etc need to be rationed among general public.
6. Continuity of Government needs to be preserved. I don't think Coronavirus will turn into a large outbreak that could threaten the continuity of government but it can cause major disruptions in cities. In case of large outbreak, non essential Govt employees need to be furloughed. Police and Military need to be given greater responsibilities and work in relief and rescue efforts.
7. Most of the above mentioned measures are Micromanagement of economy. Micromanagement has never been a strong suit of government but this has to be done in national emergency.
8. After Coronavirus outbreak is over, US economy will need various policy measures to revive the economy. This will include things like fiscal stimulus, Job creation plans, job guarantee programs, tax breaks for middle and lower classes and most importantly to structurally overhaul the healthcare system to be better prepared for national healthcare emergencies. US needs single payer or universal healthcare. Present system of private health insurance is inefficient & ineffective to deliver quality healthcare.
In US, the Central Bank has cut interest rates by 50 basis points to support the economy. Similar measures are also taken by other central banks. But there is a fundamental problem with these usual monetary stimulus decisions. Many countries see economy from single dimensional point of view - its like a scenario where you have a hammer and see every problem as a nail. Whenever there is a slowdown, the countries run towards lowering of interest rates. Donald Trump in US, in last several days asked Federal Reserve to cut interest rates which Fed obliged. But it looks like that Trump did not even understand the underlying crisis of economy. Similar conclusion can be made regarding leadership of other countries.
Lets look at underlying basic situation. In case of large scale coronavirus outbreak (this is yet to happen, but experts predict that is a possibility), economy will face supply chain disruptions. People will get sick and miss work. People will miss work as a precautionary measures. There will be shortage of essential goods and services in economy and this may create a panic situation where people start hoardings. Basically, there will be a large scale withdrawal of labor force participation from the economy. On the other hand, the Govt will face disruptions in operations and its continuity. Govt officials, Politicians & other officers would avoid meetings and gatherings to avoid spread of infection. Govt functioning will be restricted in many ways. Specific sectors in country will face the most stress. Healthcare sector will be massively overloaded as they deal with large number of infectious patients.
Also globalization supply chain will face significant disruption as imports from China will fall. Medical supplies, protective gears, masks, medical instruments & machines which are manufactured in China will be in short supply. China is already facing closure of factories and remaining factories will prioritize their production to serve Chinese Govt fight in tackling domestic spread of Coronavirus within China.
The basic premise to promote economic growth during slowdown due to Coronavirus is wrong to begin with. Coronavirus is a public health emergency and first priority should be deal with this rather than dealing with slowdown. In fact, economic activity will have to be slowed down intentionally in certain ways to stop the transmission of virus. Precautionary measures like closing of Schools, Universities, offices & work places, community functions, conventions, business meetings, factories etc may need to be taken when need arises.
I personally think that Fed rate cuts as an economic stimulus is over hyped. Some experts say that Fed rate cut leads to more business activity and ultimately creation of more jobs. I don't believe this theory (reasons not worth getting into right now). But even from view point of those experts who always ask Fed to support economy & reduce unemployment by rate cuts, US doesn't actually need to boost employment right now in a conventional sense.
Some of the things US need to consider to prepare for Coronavirus emergency.
1. Don't let American healthcare system collapse. Federal Govt should take all measures to support its healthcare system. That means all necessary spending should be approved for various needs of CDC, Medicare, Medicaid, HHS programs etc. Also US Govt should give emergency funding support to hospitals specially in rural areas & depressed cities which do not have resources to fight Coronavirus situation. US should procure more testing kits (1 million testing kits urgently to get the testing started across communities), Protective suits, Masks etc. Temporary hospitals & quarantine should be built to treat large number of critical patients. All medical equipment like Ventilators etc should be made available to all hospitals.
Govt should directly fund anti virus drug discovery and vaccine development. CDC should get the funding specially for this task. Any private pharmaceutical company that needs funding for Coronavirus research & Drug discovery can avail funding from federal Govt. US Govt should also make sure that anti virus drugs do not get tangled in patent monopolies of private pharmaceutical companies. These drugs should be priced at a minimal level for mass distribution.
2. A lot of medical equipment & instruments including protective masks etc are imported from China & other countries. Since Chinese imports won't be coming for some time, all the medical equipment etc need to be manufactured domestically. China right now is on war footing to manufacture medical supplies for its own domestic consumption. China is manufacturing 100 millions masks, protective suits etc. Similarly its producing all kind of goods - from disinfectants to ventilators. from toilet paper to bed sheets. from furniture to ambulances. China is producing all in its factories. And its building new coronavirus hospitals on pre fabricated construction technology to create quarantine zones.
US will need to do all of this and plus more. Powers like Defense production act and war powers act or other national emergency acts need to be used to do all necessary things.
3. Saving people should be a Key priority. To put it in simple words - ALL Flu treatment & testing should be made FREE regardless of insurance plans. Those who have insurance plans will get it from their companies without any additional payment. Those who don't have insurance or have some limited coverage plan will also get it & Govt will subsidize all treatment.
I can already see the coming tragic stories of people's bankruptcies if US Govt doesn't take the necessary steps. Denial of coverage, exorbitant treatment costs, out of pocket payments & medical bankruptcies will surge if US Govt doesn't intervene. A large scale Coronavirus situation will decimate middle class & lower class of America wiping out their life savings pushing them into poverty. When inequality is already at all time high, this simply cannot be allowed to happen.
4. In case of large scale outbreak, economy will remain depressed for a while. Fed Rate cuts are not the required measures to stabilize economy. Here is a Better approach - A Debt Moratorium. A moratorium on Personal loans, Home loans, student loans, Auto loans etc which obviously makes sense in a depressed economy. There may also be Moratorium on Business & Corporate loans as various business projects may get halted for a while. Such moratorium should last until the coronavirus emergency is over and until economy starts getting back to normalcy.
5. Supply chain of essential goods and services has to be preserved in case of large scale virus outbreak. There should not be any disruption in essential services like Electricity, water distribution, Communications, Internet etc across communities. Similarly, food products & essential commodities should be be in adequate supply in all areas. A lot of goods need to be manufactured locally.
Allocation of resources would be critical. Goods & services in market economy are not under any restrictions but in case of national emergency, they may have to be rationed, allocated & distributed under tight state control and regulations. Primary responsibility will be allocation of protective gear like respirator masks and suits. The first priority of allocation of these critical equipment should be Doctors, Nurses and healthcare professionals, followed by Police & military, and then other Government officials & employees in important departments, specially those working in contaminated areas. Similarly, foods products, medicines, sanitizers, essential commodities etc need to be rationed among general public.
6. Continuity of Government needs to be preserved. I don't think Coronavirus will turn into a large outbreak that could threaten the continuity of government but it can cause major disruptions in cities. In case of large outbreak, non essential Govt employees need to be furloughed. Police and Military need to be given greater responsibilities and work in relief and rescue efforts.
7. Most of the above mentioned measures are Micromanagement of economy. Micromanagement has never been a strong suit of government but this has to be done in national emergency.
8. After Coronavirus outbreak is over, US economy will need various policy measures to revive the economy. This will include things like fiscal stimulus, Job creation plans, job guarantee programs, tax breaks for middle and lower classes and most importantly to structurally overhaul the healthcare system to be better prepared for national healthcare emergencies. US needs single payer or universal healthcare. Present system of private health insurance is inefficient & ineffective to deliver quality healthcare.
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