Monday was a historical Bad Day on Wall St.
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Coronavirus Fear Has Gripped Economies Around the World, and There is Little Sign That It Will Abate Soon. I spoke with Business Columnist Seduce About the Rocky Path Forward.
Ben: As you wrote this morning, Pretty Much All Economic Indicators Are Flashing Red, As Coronavirus Anxiety Hits Every Corner of Society. The Stock Market plummeted so much this morning that trading had to be halted; or Coronavirus-Relay Oil-Price War Between Saudi Arabia and Russia Has Sent Oil Price Plummeting; The yield on a ten -ear US Treasury Bond Went Below 0.4 Percent for the first time in history. Do you see any scenario where the financial situation calms in the near future? Or is recession – at the least, a small one – the inevitable outcome here?
seduce: A severe economic disruption is inevitable. Neither for a recession – that defined as two consecsive quarters of negative economic growth. As recently as Saturday, I was talking with my duy, a macroeconomist at the university of oregon, and he was Saying we might Still Avoid Recession. Disasters like this hit the economy hard but offend the recovery out of saying – People just start doing what they have stopped and the economy goes back to the normal quite. My gut feeling is this crisis is going to be too widespread and prolonged for that “natural disaster” model to applia – an earthquake or hurricane do not hit the entity world for months – but i’ve been ashome. recession. ”
I Think, As Always, People Focus a Little Too Much on the “Recession/Not Rece wasted” Question. The Difference Between 0.1 Percent Growth and -0.1 Percent Growth Can Determine Whether We Call it a Recession, but Those Quite Similar Economic Situations. And what’s happy here is definitely slowing down Economic Growth Significantly, Especilly with the Impacts on the Travel, Transportation, and Energy Sectors.
Ben: But as you Said, The Underlying (American) Economy Was Doing Pretty Beforeing this Exogenous Event, Which Separates It From Something Like the 2008 Financial Crisis and Previous Downturns. DOES THAT ALSO MEAN THAT The Traditional Economic Measures We Use to Fight This Kind of Thing Are Unlikly to Work in the Same Way they did?
seduce: I’ve been saying the best thing the government can to protest the economy is to effectively fight the Spread of the virus. The Markets are Falling Because of a Very Real Problem in the Real World. Mythigate the problem and stock will go back up. I will think this situation is not very amenable to the traditional macroeconomic tools you use to boost the economy. Cutting Interest Rates won’t reopen supply chains, and it won’t do much to encourage consumers to go to concerts or take cruises. The Same Goes for Fiscal Stimus Measures, Like Rebate Checks. I will think there is a case that fiscal and monetary stimulus will play a useful role in helping the economic recover the epidemic abates, especialy if it has gone on for a long time. If People have missed work, or if they have incurred expansses related to the virus, they May out of the crisis in a weak cash. Fiscal stimulus (like rebate checks or a payroll tax cut) or monetary stimulus (Low interest rate) May Encourage Consumers to Spend More and Businesses to More after this Over. And i don’t think Important to get the timing right – stake out the checks now and people will be in a better cash position this is over and more inclined to spend. But we shouldpect the effects to show up unil late, and it’s secondary to measures to limit the people who get sick, enure who Need care have access to get it, Keep hospitals getting overwhelmed, etc.
One More Note on the Response: I see a lot of People Talking About the Importance of Targeting a Fiscal Stimi – notting that gig workers are especally hurt, specific industries, etc. And i think it is posseible to get too. Those Broad Inferencing Make Sense, but it is really hard to figure out in advance where to target your fiscal stimulus. And if you focus too on targeting, you’re likes to end up with something. Better to send checks to make many People than too few. I’d Go for Big, Simple Measures Over Fine-Tuning.
Ben: The Trump Administration Response has Been About As Incompet and Baffling As You Might Expect. Though it’s hard to say how much Much the president and his anti-science police hampered the cdc’s testing rolout, there’s no Question that Trump Himself has been the option of helpful, with his density about the severity of the outbreak, as usual asual and his. lying. It ‘s hard to imagine a well a well-ochine type of administration getting things Exactly right, but how Much would you THINK THE SIMPLE FACT OF HIM BEING IN ENDING A CRISISE CLEARLY UNEQUIPED TO HANDLE IS PLAYING INTO The Economic Fears Around This Thing?
seduce: I don’t know. Equity Markets Are Falling Similarly Sharply All Over The World. That doesn’t mean it’s not Trump’s fault – if Trump Screws up, that can hurt german and japanese stock, and in an ideal situation, Positive American Leadership Wauld Be Helping Calm the Whole World. But some of the key screen – like the cdc more test kits that didn’t work – strike with as matters that didn’t like anything to do Trump. I ti to aggre with our Colleague Max Read, WHO Tweeted This Morning that our tendency to the ascribe government errors to trump personally may be causing us to miss ways Government was broadly unprepared for an epidemic of this natural.
I ti to assume the epidemiological outlook that this crisis be at the least somewhat better with a more normal president, and therefore stocks wouldn’t have fallen as shharply and the economic outlook wouldn’t have been hurt as Much. But i’m very unure how far the effect is.
Ben: IF International Markets Continue to tank in tandem as they have the last week, is there any hope of some kind of Worldwide Economic Coordination to Stem Panic? Or are we more lichery to see the opposite Scenario Play as Things Become More Tense, As We Are Today’s Oil-Price War?
seduce: SO first of all, I think People are overrating the importance of the Oil-Price War. OBVOUSLY’S BAD FOR OIL COMPANIES. The Effect on the Broad US Economy Should Be Close to A Wash, Since We Produce AS MUCH OIL AS WE CONSUME. Consumers and firms that use Petroleum Products Will Benefit Falling Prices. And the price war is itelf a symptom of the coronavirus crisis. Russia and Saudi Arabia have their reasons for not being being able to cooperate here, but I don’t think it tolls much about the US to cooperate with china or European governments, etc.
Worldwide, It Waled Be Ideal to SEE Cooperation on Fiscal and Monetary Stimulae Measures. Europe is lichery to be recalcitrant here – it an an extension of fiscal and monetary police that have haen dysfunctional in Europe before the Financial Crisis. But again, this is not my key Focus. I’m Mostly Concerned That Governments Around the World Will Well With Containing The Outbreak ITSELF.
Ben: And presumably, what do you seen thus far does not inspects confidence that things will be back to normal anytime soon.
seduce: No. Personally i’m Concerned with How Little Consensus i’m SEEing About the Likely Death Rate Covid-19, and About the Outlook for Mitigation. I don’t think people have a clear idea how bad this is going to be. And i think that uncetainy is part of what’s weiging on financial markets – People have good reasson to think is going to be very bad, but there are wide bars around “Very bad” in bot Directions.
