In March 2020, COVID-19 pressed on the brakes of the American economy. In this three part series we will be investigating the macroeconomic impact of COVID-19. In this first part, we will be exploring the sources behind the economic deterioration that matured into a national crisis.
If you opened up your LinkedIn app, you would find hundreds of thousands of profile pictures framed with the phrase #OpenToWork. The pandemic has been the source of 20.6 million jobs lost since mid-March 2020, causing the country to experience a level of unemployment not seen since the Great Depression. The United States is in crisis mode, and the government holds the needle and thread prepared to stitch the economy back together.
What separates the COVID-19 crisis and the Great Recession is that the latter was brought on by our own institutions and the former was brought on by a virus that has snuck its way into reality and transformed us into a masked society. As individuals receive the vaccine, and the country comes closer to reaching herd immunity, Americans are staring down the barrel of unemployment, resorting to LinkedIn profile filters to hopefully find a job, to hopefully make a living wage, and to hopefully put food on the table. Twelve years after the Great Recession, Americans are in the same unstable place, and the U.S. government faces the same fork on the path of crisis policy.
The COVID-19 crisis revealed many of what Stephanie Kelton, author of The Deficit Myth, refers to as the “real deficits” that threaten to tear the country apart. Americans have been privy to the dramatic effect of the virus on low-income populations and minority groups, revealing that there is an inequality in the United States that more than just a stimulus check can heal. Thus, in order to deal with the unemployment and production shortfall caused by COVID-19, the U.S. government needs to implement policies that ebb and flow with the natural booms and busts of the economy.
When the threat of COVID-19 forced individuals to stay home, businesses met a decreasing demand for their products. With a decrease in demand comes a decrease in production. No longer did restaurants need so many waitresses because there was no one in the dining rooms. No longer did the private sector need so many workers because there were no customers.
As a result of this decrease in production, hundreds of thousands of workers were furloughed and/or laid off while consumers hunkered down in their homes to avoid getting infected. The lack of spending from the original shutdown was exacerbated by the rise in unemployment because with no income, those cut off from their paying wages had no money left to spend on what were not on basic necessities (or frantic toilet paper purchases). The economy came to a screeching halt, arriving at where we are today with investors scared of giving loans to an ailing private sector.
The U.S. government has two routes to choose from: monetary policy or fiscal policy.
Stay tuned for Part 2, where we will be navigating each policy route in order to recommend an action plan.
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