A number of you have been asking me this question, and unfortunately I still do not know. Here is why:
1. I still am not sure how much we want to keep people on the job, as opposed to keeping them away from the workplace (but still being paid?).
2. I am not sure if this will be a rapid, bounce-back recovery, or a tortuous supply-bottlenecked, high risk premium non-recovery. It matters a good deal for our policy choices and also for their timing.
3. Will aggregate supply or aggregate demand end up being the binding constraint, after the two have interacted for a while? Or is that the wrong framework altogether?
3b. Can you build tunnels and bridges with quarantined workers?
4. I see a good chance that the coronavirus will affect regions of the country differently, with climate, temperature, humidity, and population density being possible factors. (Where are the overloaded hospitals in Jakarta? Surely at this point it is not just a data collection issue.) So where exactly should the aid and the fiscal stimulus go? And for what exactly? It seems we will know much more soon, but we don’t know it yet.
5. Do you want to give people cash if they will just go out and spend it on entertainment or in large, crowded stores? Is that what you are hoping they will do? To what extent do we want the “transmitting sectors” to be contracting right now? Does it do much good to send consumers money they will spend on Amazon or pizza deliveries, two sectors that may do fine or even prosper during the tough times?
I do not think we should bail out shale oil producers or cruise lines. Presumably we wish to support businesses with an income gap for coronavirus reasons, but what exactly should we do? I am puzzled by the degree of certainty people seem to exhibit about this issue. I am not arguing we should do nothing, but simply noting I am not yet sure what to recommend. My intuition is to opt for well-targeted federal aid for the most heavily affected regions — Washington state, the Bay Area, and parts of New York — and then take another bite at the apple soon as the numbers develop.
In the meantime, let’s do everything we can on the public health front. Much of that will end up being fiscal policy as well.