Despite the continuing spread of the coronavirus here in the U.S. and abroad, there's still a strong debate raging over whether the federal, state, and city governments are overreacting to this health challenge or not doing enough.
This is mostly an important question on the health care side. Doctors, hospitals, and first responders need to constantly be reassessing their strategies and tools to combat the outbreak.
But for the economy, the debate is moot in many ways. If the public and the government are overreacting, then the economic effects are being felt no matter how bad the health situation will ever become. If we're all underreacting, then the economic effects will be just as bad or worse when the extent of the human cost becomes fully known.
So what's the best way to respond?
The U.S. economy needs a timeout.
Consider what we would gain nationally from an economic hiatus of two weeks, shutting down non-essential businesses, all schools, and any large gatherings. Like in past emergency situations, the NYSE and the Nasdaq would only be closed for a day or two, but trading floors should be closed to human traders.
First, medical experts agree that any period of Americans working from home, avoiding large gatherings, and practicing better hygiene will go a long way toward flattening the steep curve of increasing COVID-19 cases.
Once the shutdown is over, the virus will likely not be eradicated. But the nation's health care system will stand a much better chance of dealing with patients. Average Americans should get some relief from daily explosive new case totals that should produce a psychological benefit that helps the economy.
But what about the severe economic effects of essentially hanging a "closed for business" sign over the entire country? Surely there will be a heavy price when it comes to job loss, shrinking GDP, and businesses failing.
Here's the thing, that's happening anyway. But instead of the slow and painful ripple effect we're seeing now, a nationwide shutdown will eliminate some uncertainty and imbalance and should allow many businesses to simply furlough workers without fully laying them off. The businesses that are trying to stay open now are swimming hard against a tide that seems likely to overwhelm them anyway. A "misery loves company" approach, where we rip off the bandage quickly rather than an inch at a time, is a less economically painful option here.
With that in mind, a shutdown should also include federally enforced grace periods for everything from rent to taxes.
Yes, the groceries, pharmacies, and other more essential businesses allowed to stay open during this period will be the "winners" while everyone else is essentially losing. But there isn't much of a good argument for keeping those businesses closed.
But what if after two weeks the virus outbreak curve is still not flattening and we see a spike in deaths?
The answer to that question is that if the medical situation is so bad that a national shutdown doesn't stop it, then the economic pain would be just as bad or worse with or without a shutdown.
Will taking such a pause work for the economy this time?
The answer here is we have some historical precedents to back this thinking up.
When President Franklin Roosevelt declared a one-week bank holiday in March 1933, the hiatus totally reversed the run on the banks that preceded it. In fact, thousands of Americans reacted to the end of the holiday by lining up outside their banks to return much of their hoarded cash. The pause helped ordinary consumers calm down and focus on new federal backstops given to the financial system.
After the September 11 attacks, the U.S. stock markets closed until September 17. By December 11, the S&P 500 was trading 3.8 percent higher than it was the day before the attack. In that case, the timeout gave traders and investors a chance to see the country's overall security was not in as much peril, and thus it was okay to start investing again.
On a more local level, shutdowns are essentially what happens in many cities and states after natural disasters. When Florida gets hit by hurricanes or the Midwest by floods, businesses and schools are shut down and many debts and tax deadlines are postponed. No one debates that those measures help victims of those disasters recover better, even as the debates about how to prevent future calamities rage on.
Similarly, there should be no real debate here. The COVID-19 virus outbreak is here, and the severe economic effects are here, too. Nothing can stop that now. Now that President Trump has declared a national emergency, it should be easier to do this across the entire country.
What America needs right now is a pause that reduces the spread of the illness and at least gives the crucial elements of our economy a chance to stop the bleeding.