(^34) Best columns: Business
The policies needed to fight the coronavirus—social
distancing, separation, and isolation—run directly
“counter to what drives economic growth, prosper-
ity, and financial stability,” said Mohamed El-Erian.
That’s what makes the shock of the virus so different
from other economic crises of recent history, and
so dangerous. The sudden stops caused by the virus
and quarantines are unfamiliar to modern economies
outside of “failed states and communities hit by
big natural disasters.” Economic activity is shutting
down in an unprecedented way, “turbocharging the
type of uncertainty, fear, and feeling of powerlessness
that results in either total paralysis or massive over-
reactions.” The “economic disruptions immediately
ahead will be more severe and widespread than the
ones experienced by the bulk of the population in
advanced countries”—more akin to what I have seen
in developing countries than to what we are used to
seeing in global economic centers. Governments need
to acknowledge that there will be further economic
damage “before the bottom is reached,” while at the
same time assuring citizens that there will be a turn-
around. When that comes, “the economic snapback
will be sharp.” But getting there requires that policy-
makers navigate “the economics of fear” to make
difficult decisions “under ‘fog of war’ conditions.”
“Don’t feel sorry for the airlines,” said Tim Wu. The
coronavirus outbreak is wreaking havoc on the travel
industry, and Treasury Secretary Steven Mnuchin
said last week that “airlines would be on the top of
the list” for federal assistance. We can all agree that
“the United States economy needs an airline industry
to function.” But between 2014 and 2020, Ameri-
can Airlines earned billions in profit annually. And
instead of shoring up its rainy-day reserves, it “spent
more than $15 billion buying back its own stock”
to increase earnings-per-share for investors. At the
same time, it raised change fees to $200 for domes-
tic flights, hiked baggage fees to $30, and added a
“Basic Economy” class that banned carry-on luggage.
Never did it do anything to “improve its on-time ar-
rivals, reduce tarmac delays, or prevent involuntary
bumping.” We can’t allow American and the other
airlines to request a bailout “and then return to busi-
ness as usual.” We have to demand upgrades in how
they treat their customers and employees. Change
fees should be capped at $50, seats shouldn’t keep
getting “smaller and smaller,” and large shareholders
shouldn’t be allowed an ownership stake in each of
the major carriers, which only creates incentives for
collusion. Before we do anything for the airlines, “we
should ask, ‘Just what have they done for us?’” Getty
Our economy
is trapped in
the fog of war
Mohamed El-Erian
Bloomberg.com
Don’t rush
to bail out
the airlines
Tim Wu
The New York Times
Throw out the playbook, said Dennis
Kelleher in MarketWatch.com. Saving the
economy from ruin will require more than
the tools used in the 2008 financial crisis.
It’s time to think about the coronavirus
pandemic as “a CAT 5 hurricane” that may
cause “nationwide destruction and cripple
the financial system and the U.S. economy.”
Economists say that the epidemic could make
3 million jobs disappear by June. The crisis
will require $1 trillion in spending to cover
supply-chain shortages, health-care expendi-
tures, and “the basic necessities for everyone
who loses their job or income.” The Federal
Reserve is already doing “whatever it takes,” said Neil Irwin
in The New York Times. The central bank has slashed rates to
zero, offered more generous terms at the “discount window” for
banks to borrow, and pledged $700 billion in bond purchases. It’s
applying almost all “extraordinary policies used to combat the
global financial crisis” in 2008. Instead of rolling them out over
16 months, “it announced versions of them in a single weekend.”
Yet the stock market continued to plummet early this week.
“The Fed is officially spent,” said Greg Ip in The Wall Street
Journal. It has ruled out cutting interest rates to below zero, and
giving banks cheap loans doesn’t allay their worry “that their
customers may go out of business.” Putting out the fire is now
“up to someone else.” That someone may have to be a hitherto
unlikely candidate, said Gina Chon in BreakingViews.com: the
Treasury Secretary, Steven Mnuchin. Mnuchin doesn’t have the
stature of Hank Paulson, who “led the response to the 2008
financial meltdown,” but he has been “an unexpectedly steady
hand in a chaotic White House.” It was
Mnuchin who advanced the idea of a
stimulus check that would “send at least
$1,000 each to average Americans.” The
Treasury secretary has survived in the
White House by “defending the president
at every turn.” That has bought him in-
fluence that he can right now use to pilot
the economy through the crisis.
In the financial markets, “confidence is
already on the floor,” said John Authers
in Bloomberg.com, and it’s worth consid-
ering whether we should close the stock
market. “Any attempt to put a price on stocks right now is pure
guesswork,” and investors are panicking. Circuit breakers that
halt trading have already been tripped four times in two weeks.
The market paused for four days after 9/11, “by which time the
scale of the damage and the government’s response was much
clearer.” By Oct. 11, the S&P 500 was back at its preattack level.
The Fed can still do more to restore confidence, said Kevin
Warsh in The Wall Street Journal. After the last financial crisis,
policymakers should have thought of how an event like this
could affect the economy. They didn’t, and now they need to
come up with tools to “respond to a new kind of economic
shock.” The most powerful weapon the Fed can bring to bear is
“an emergency lending program” that will keep businesses from
going under and households from going broke “as long as the
virus is affecting the economy.” The economy “was fundamen-
tally strong” before the pandemic, and it can bounce back if the
Fed doesn’t let this “turn into a solvency crisis.”
Finance: Who can save the economy?
Does Powell have any more ammunition?
dana p.
(Dana P.)
#1