No, Stimulus Spending Wouldn't Be an Economic Vaccine Against the Coronavirus

If it works at all (and it usually doesn't), a fiscal stimulus is meant to boost demand. The biggest potential economic problem from coronavirus has to do with supply.


With markets tumbling and confirmed cases of coronavirus rising, President Donald Trump is reportedly considering a fiscal stimulus plan. Already the president has urged Congress to pass a payroll tax cut and said the Federal Reserve should cut interest rates beyond what it already has done.

Others are pushing for even more aggressive actions. In an op-ed published Thursday in The Wall Street Journal, Jason Furman argues that Congress should "swiftly" pass a $350 billion stimulus to counter the "mounting economic risks posed by the spread of the novel coronavirus." While Trump has considered a temporary payroll tax cut to boost the economy, Furman, a former economic advisor to President Barack Obama, prefers straight cash. "Congress should pass a simple one-time payment of $1,000 to every adult who is a U.S. citizen or a taxpaying U.S. resident, and $500 to every child," he argues—an amount that would be even more generous than the 2008 stimulus passed during the Bush administration.

There are at least three good reasons to question whether any economic stimulus would be a wise response to the coronavirus—over and above the obvious questions about the federal government's ability to finance a big stimulus while already running a $1 trillion annual budget deficit.

First, the severity of any economic shock caused by the coronavirus is still unknown.

Keep in mind that—despite the president's obsession with it—the stock market is not a gauge of the economy itself. It's a gauge of how people think the economy will be in the future. This week's sell-off reflects pessimism, but that's not the same as an actual economic shock. If the virus' impact ends up being less bad than expected, the stock market will recover the lost value.

So far, that unknown seems to be keeping the White House from doing anything too aggressive. In an interview with CNBC on Friday morning, the president's top economic advisor, Larry Kudlow, said the preference is for a "targeted approach" aimed at "individuals who might lose paychecks" and "small businesses that might get hurt" by the economic disruption expected to be caused by the outbreak. Of course, big businesses like airlines can be expected to have their hands out too if there is any talk of a coronavirus bailout.

Second, there's the time it would take for any economic stimulus to have an effect.

As Furman conceded, studies show that it takes as much as a full year for monetary policy stimulus—for example, the Fed lowering interest rates—to have a measurable effect on the economy. That's because lower interest rates encourage people and businesses to borrow money for big purchases (homes, new plants, etc.) but those decisions aren't made overnight.

If the timing of the crisis rules out monetary stimulus, then what about fiscal stimulus—sending a thousand bucks to every American? That may not work either, partly because of the nature of the disruption that's expected from the coronavirus and partly because of how fiscal stimulus works.

Most economists are worried about a supply-side shock—that is, a disruption in getting enough goods to market to meet demand. If China's factories are closed for a substantial period of time or ships are unable to travel from port to port for fear of spreading the disease, global supply chains will be disrupted. The economic effects of the virus are fundamentally different from those of, say, the 2008 recession. Most of the long-term effects of the recession were demand-side problems—not enough people buying houses, for example, or the general slackening in demand that comes when millions of people suddenly lose their jobs. In short, there were too many sellers and not enough buyers.

This is a different problem. If global supply chains are seriously disrupted, there will not be enough goods to sell and too many people wanting to buy. That's why you can't find hand sanitizer on Amazon right now.

That's the third problem with the stimulus idea. Putting more money in the pockets of every American, either by cutting payroll taxes or by mailing checks, would tend to juice the economy faster than cutting interest rates. But that assumes there are goods and services available for them to buy.

"You cannot buy stuff that does not exist," writes economist Tony Lima. And as he warns, dumping more cash into an economy experiencing a supply-side shock is likely to trigger inflation.

The good news is that history suggests supply-side disruptions tend to pass pretty quickly. Demand usually bounces back quickly too. "You get a V[-shaped recovery] because people now do the spending they didn't do the last quarter," Doug Holtz-Eakin, president of the conservative American Action Forum and former economic advisor to George W. Bush, tells New York.

In arguing for a stimulus, Furman compares it to the coronavirus vaccine that scientists are working to develop. "It would be nice if there existed a comparably targeted medicine for economic policymakers to administer," he writes.

Indeed it would. But as doctors will tell you, administering vaccines to patients with weakened immune systems can be disastrous. Given the United States' already perilous national debt and rising deficit, the White House and Congress should be cautious about spending additional money to avoid a coronavirus-caused recession—especially since the "vaccine" doesn't seem like a sure bet.

NEXT: DNC Changes Debate Qualifications, Excluding Tulsi Gabbard

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  1. “Congress should pass a simple one-time payment of $1,000 to every adult who is a U.S. citizen or a taxpaying U.S. resident, and $500 to every child,”

    “and $250 to every potential animal vector, like bats and snakes.”

    1. This is merely a vote buying stunt. The consequence will be a feel good snort of meth but eventually inflation as demand outpaces supply even more. Give cash to suppliers with performance goals. Less cash more supply. Econ 101 and 102. Oh that’s right, Econ not required for a journalism degree.

  2. Stimulus spending is as much a drag on an economy as all government spending, because (a) government taxation and redistribution is notoriously inefficient, enriching bureaucrats and cronies more than anything else; and (b) whatever projects are financed are, by definition, something less efficient, valuable, and rewarding than whatever free markets would have financed if the taxes hadn’t been stolen from them.

    If markets won’t finance it, it’s not as good an investment as what does get financed.

    1. Yeah but:

      the stocks prices are going down! They should only go up!

      1. Yeah, they’re way way down to where they were in October.

    2. If only all of modern economics didn’t contradict these articles of faith you possess.

      1. They don’t. Just dumbass Keynesians do.

  3. The only way to fix this abysmal economy is to implement the Koch / Reason agenda: (a) unlimited, unrestricted immigration, and (b) no minimum wage. Unfortunately no progress will be made as long as alt-right white nationalist Republicans control the Presidency.


    1. I knew you’d chime in. Perhaps the virus will wipe out a few hundred thousand people in the USA – and prop up support for more immigrants, once the virus is contained.

    2. Are you being serious or sarcastic? I’m having a hard time pegging you down.

  4. Stimulus spending won’t shield you from the plague, but at least it could let you throw one last Masque of the Red Death style party.

  5. >>Keep in mind that—despite the president’s obsession with it—the stock market is not a gauge of the economy itself.

    every news network tied the Market to Coronavirus to T all last week.

    >>It’s a gauge of how people think the economy will be in the future.

    would wager majority of peeps do not think on these terms.

    1. Majority of peeps are not market movers, even in aggregate.

      Institutional investors (and their HFT and other strategy bots) and market makers move markets now. Individual traders barely count.

      1. Oh they count. Their purpose is to be the main source of wealth to be transferred to said institutions.

        1. I would suggest staying at home and spending time with online ficken klagenfurt hot girls

  6. Stay At Home  Mom From New York Shared Her Secret On How She Was Able To Rake In $1500 Weekly From Online Work Just 3 Weeks After Losing Her Old Job…….. Read more  

    1. Stay at home citizens from ALL OVER the USA Rake in $1000’s Weekly from unsuspected workers over a national emergency consisting of 0.00001% of the population.

  7. Alright, As said already ‘stimulus spending is as much a drag on an economy as all government spending, definitely we need to fight the virus, of course a real man will be honest no matter how painful the truth is. A coward hides behind lies and deceit.

    1. …. Hey, I know; lets pay people to catch and spread the disease!!!

      The federal government will just make this worse. The people of infected locations are the ONLY one’s who will “fight the virus”.

  8. This is a good article and should be remembered. President Trump has few things to show for his three plus years in office, except a good market and economy. I suspect he will do all he can to maintain the market. Sadly he has captured the Republican party and they are likely to do as he wishes. It will be interesting to see if spending hardliners fall in line with the President. What will Rand Paul do now?

    1. I’m sorry he couldn’t wreck the economy, get us into some new wars, introduce more communism, and generally oppress Americans. This must be a huge disappointment to you.

      1. Shitlord Do you like some of his socialist solutions to the possible recession, like small business loans and paid leave? Lol.

    2. Except he can’t control the market any more than he can control the virus. He doesn’t even control the fed.

      All the president has done so far is make dumb statements, summon people to meetings and generally acted like Donald Trump. Really there is little he should be doing.

      If he wants to do something good how about ending daylight savings time. He might actually be able to accomplish that.

      1. I like the late sunsets in summer. DST is fine by me.

        1. Yea I have no idea why people are obsessed with ending DST. Like its so important to have it become dark earlier in the day, just so you don’t have to adjust your clocks, which you don’t really have to do much either in today’s world when everything connects to the Internet.

      2. “All the president has done so far is make dumb statements”
        Oh horseh*t..
        – 2 for 1 regulation cutting
        – Finally enforcing Immigration Control
        – Finally addressing the foreigner subsidizing packages
        – Tax reduction
        – End of Obamacare

        1. Hey RJJ200, to continue on that
          – Get the USMCA passed
          – Force China into a beneficial trade agreement
          – Reduce troops overseas

  9. I know why I don’t support this ridiculous idea from a libertarian perspective, but it will be fucking hilarious to see Tony, shriek and the rest of our erstwhile progressive morons try and contort themselves into not supporting stimulus and government spending.

    1. Do you know anything about anything you’re running your pie hole about?

      Do you seriously think that mainstream economics calls for stimulus spending all the time?

  10. I generally agree with this – but there is one huge exception and it ain’t ‘libertarian’ friendly. We need to start NOW building quarantine capacity and it needs to go through to the states directly not to Wall St and primary dealers and banks (who will just try to jack up the stock market and housing prices per usual – that’s their hammer).

    We no longer do militia so it ain’t gonna be cheap. We don’t crowdsource ideas (like eg let’s convert shipping containers and stack em up temporarily) – so again it ain’t gonna be cheap. We don’t do decentralized anymore (eg the distribution mechanism for federal ‘US dollar’ is only thru NYC/WallSt not through Bank of North Dakota) – so it ain’t gonna be flexible and I doubt any of those levels will be able to figure out how those state/local bonds will be paid back over a shorter-term.

    But it is what it is. We are already at the point where some munis are seeing the point where they will fill local capacity – within a month. And as this spreads everywhere, medical care is gonna turn brutally local. Suburbs ain’t gonna be allowed into the pill hills in the city. Rural already have less capacity than during the Depression. You ain’t a resident? Fuck off and die. Yeah yeah we’ll see you in the SC next decade. Now fuck off and die. Oh – you’re rich? Cool. Entry is $1 million/day – cash – up front.

    OTOH – maybe the DeRps can get in a big finger-pointing argument for the next couple of decades and do exactly the above (at an even higher cost) when it is no longer necessary.

    1. It ain’t Dawn of the Dead quite yet. Still bought some things I would have needed anyway.

      I like zombie stuff. At a certain point it is the healthy who are in quarantine fighting off the infected.

      “Remember a blade never needs reloading”
      The Zombie Survival Handbook
      Max Brooks

      1. Our failure to actually do anything competent at any level of community is what creates the notion that the next step is either the zombie apocalypse or the movie will end and the credits will roll.

        Hey – might as well buy 10,000 rolls of toilet paper. It may be the final act of free will of the American superhero.

        1. I don’t really see it as total incompetence. The medicos are doing all they can. The public health people are doing all they can. The labs are doing all they can.

          You are dealing with a lot of unknowns here. There is no magic bullet. The virus is invisible, it hides while it spreads in the initial stages. You can’t just lock everyone up you will create more problem than you started with.

          Don’t read the news articles they are misleading. Everyone focuses on politics and the stock market. Try and stick with the scientific sources for better information.

          Try and imagine what the situation would be by now if nobody had done anything. The press loves panic. Politicians love panic.

          1. No it is total incompetence. Nothing in my statement blasts front-line staff. They are doing what they do which is to focus on the patient in front of them. Public health however is abysmal.

            We’re not Iran. But from what I can see, we’re not learning as quickly as Italy and we’re only a week or two behind them epidemiologically.

            And thanks for your pretentious advice re the news. I would never have known that. Oh and panic too. It is depressing to be the bearer of ugly scenarios and worst-case calcs – and instead be accused of being panicky.

            OTOH – it does let me be the one who finds actual examples of public health competence. For eg the Vietnamese hand washing song. Excellent advice from what is presumably a trusted source within Vietnam (their public health dept). Which serves to REDUCE panic while effectively delaying outbreak too so their hospitals don’t get overwhelmed. I wouldn’t trust their current reported cases (21 confirmed – 16 recovered – 0 dead) but they will most certainly do better than we do.

            Of course, in America we are apparently now quite prepared for a long-lasting epidemic of explosive diarrhea. Got plenty of TP and ammo to fight back against the zombies who attack us while sitting on the pot.

          2. Trump rejected WHO testing kits.

            1. The WHO also told the world your baby three flights up and around the corner down the block and to the east is going to get killed by that women smoking on the street corner.

              Assuming the political field knows anything short of political banter is one of the biggest mistakes of today’s society.

    2. it needs to go through to the states directly not to Wall St and primary dealers and banks (who will just try to jack up the stock market and housing prices per usual – that’s their hammer).

      So the states can do what, exactly? Send it right to Wall street and primary dealers who will just try to jack up the stock market and housing prices per usual?

      Also, its a little early to start on the FEMA death camps. Its not like a quarantine camp is a BL4 lab – it’ll, literally, be a bunch of tents and porta-johns on a muddy plain, surrounded by a fence topped with barbed wire. With guards. Like every other internment camp in history. They’ll be places those suspected of being infected and anyone who displeases someone powerful will be sent in the hopes that they will die.

    3. Also, unless you’re old or suffering from another disease currently, then Coronavirus really isn’t worse than a bad flu.

      Yeah, lots of people will get it. Yeah, lot’s of old people and children will die from it. No, most people won’t.

      1. Yeah. I’m actually quite optimistic about who it kills and who it doesn’t.

        In my city, it’ll likely kill 0.9% of D’s, 1.1% of R’s, 0.3% of L’s, and 0.5% of Indies

        A Libertarian moment. Brought to you by Corona

      2. Oh and BTW – in the US, WW2 killed less than a bad flu too

        1. And probably _most_ of the WWI death toll was from the flu pandemic in 1918, which would not have spread nearly as much without the army camps and troop movements. According to Wikipedia, it killed 17 to 50 million, yet that wasn’t bad enough to persuade the authorities stop all but limited local defensive actions, and quit shuffling the troops about.

          That death toll was out of an estimate of 500 million infected, or 3.4 to 10%. But if the numerator is uncertain by a factor of 3 to 1, the denominator can’t be anything but an educated guess. Lots of cases of colds and noroviruses must have been counted as influenza, while hundreds of millions with mild cases of the flu were staying home and not being counted – unless it worsened to the point that they did seek medical care. The same factors affect estimates of the coronavirus death toll; we can get a rough count of those hospitalized or officially quarantined for it (no doubt including other virus infections), but have no way of estimating how many of those staying home and not becoming very ill have it. But so far it seems to be neither as lethal nor as contagious as the worst varieties of influenza.

  11. Giving each of us a pony is a much more sensible idea.

    Vermin Supreme 2020!

  12. The best idea in this article was said to be the president’s: a payroll tax cut.

    1. Neither party supports it.

    2. A payroll tax cut puts some more money into the hands of those who are receiving a paycheck, not the laid off, who need the help.

      1. Please send me $2000 – I ‘need’ the help. If you refuse can I send over my gangster friends (gov) to steal it from you? It’s only fair that I get my wants, needs and money satisfied by “mobster” rules (i.e. Power) because I’m a special *feelings* *human*!!!

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  14. Wow, is the economy so fragile and the faith in the free market’s self correction so weak that a 10% drop in the stock market triggers not only the fed making a massive decrease in interest rates from an already super low baseline rate to discussing stimulus of 100s of billions of dollars. Imagine if we really will have a 2008 style crash (and we will within the next few years), what do they plan on doing? doubling the 20+ trillion dollar debt in less than a year?

    1. what do they plan on doing? doubling the 20+ trillion dollar debt in less than a year?

      …. over …. lets look at the facts here.
      China (the biggest spread to begin with and to date)
      pop. 1.435B, 80K cases, 3K deaths
      – 1-in-17,938 got it
      – 1-in-478,333 died from it of which 80% were over the age of 70.

      If you live in China and are under the age of 70 you have a 1-in-2.4 Millionth of a change of dying from it. The worse case yet still makes Winning the lottery a better bet.

  15. While Trump has considered a temporary payroll tax cut to boost the economy, Furman, a former economic advisor to President Barack Obama, prefers straight cash. “Congress should pass a simple one-time payment of $1,000 to every adult who is a U.S. citizen or a taxpaying U.S. resident, and $500 to every child,” he argues—an amount that would be even more generous than the 2008 stimulus passed during the Bush administration.

    Obama and his minions keep proving their corruption and incompetence, over and over again.

    1. So cash payment bad, equivalent tax relief good. Nay, the difference between good and evil itself.

      You people are so fucking stupid it’s painful.

      1. If you pay $0 in taxes and the government gives you $1000, that’s not a tax cut. That’s welfare, meaning other people were stolen from to give you that $1000.

      2. Yes — It is EXACTLY that; the difference between good and evil itself for the exact reason Vince tell you.

        There are miles of difference between STEALING and EARNING something “You people are so fucking stupid it’s painful” never can get through your propaganda filled heads.

        The rest of the world (including the animals) seem to get it. So what’s your excuse?

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  18. Trump wants to give loans to small businesses and paid sick leave to workers. Stop calling him a libertarian, morons. He is a SOCIALIST.

    1. …but he cut so much of that in his first term….

  19. Both parties are rightfully scoffing at Trump’s irresponsible payroll tax cut. Borrow and spend Donnie is a joke.

  20. Tax less, spend more. What could possibly go wrong? Lol.

  21. Trump’s tax cut for the rich during a good economy has ballooned the deficit, making it nearly impossible to provide tax relief when it is actually needed.

    I’m sure Trump wants interest rates cut to zero too. Easy money.

    1. Trump is by far the lesser of evils. So unless you have a successful plan worked out you want to share; trashing Trump doesn’t represent a solution at all.

      1. You’re right. We don’t have a great choice to pick from in November.

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