Thoughts on the Pandemic

Several reporters have emailed me, asking my thoughts about the current economic situation in light of the ongoing pandemic. Here they are, in abbreviated form:

• A recession is likely and perhaps optimal (not in the sense of desirable but in the sense of the best we can do under the circumstances).
• Mitigating the health crisis is the first priority. Give Dr. Fauci anything he asks for.
• Fiscal policymakers should focus not on aggregate demand but on social insurance. Financial planners tell people to have six months of living expenses in an emergency fund. Sadly, many people do not. Considering the difficulty of identifying the truly needy and the problems inherent in trying to do so, sending every American a $1000 check asap would be a good start. A payroll tax cut makes little sense in this circumstance, because it does nothing for those who can't work.
• There are times to worry about the growing government debt. This is not one of them.
• Externalities abound. Helping people over their current economic difficulties may keep more people at home, reducing the spread of the virus. In other words, there are efficiency as well as equity arguments for social insurance.
• Monetary policy should focus on maintaining liquidity. The Fed's role in setting interest rates is less important than its role as the lender of last resort. If the Fed thinks that its hands are excessively tied in this regard by Dodd-Frank rules, Congress should untie them quickly.
• President Trump should shut-the-hell-up. He should defer to those who know what they are talking about. Sadly, this is unlikely to occur.