Just a few weeks ago, things looked good for the American economy. Economic growth was modest but steady, the unemployment rate was very low and production and consumption were steady. The Dow Jones Industrial Average was growing steadily and economists and others were predicting that the economy would continue to record modest growth.
Then, some news emanated from China about a virus that had struck some people and caused them to become very ill. Unfortunately, some of the people who became ill with the virus died. That was the beginning of the nightmare that in the past few weeks has been caused by the coronavirus.
That nightmare has many parts: the U.S. stock market has taken massive hits, reflected in the decline in that market that has, on specific days, caused the Dow Jones to decline by almost 3000 points. Various industries have been crippled by the necessity to take certain actions that are necessary to limit the spread of the virus: travel has been discouraged by health experts who are trying to limit contact with other people, hoping that this will help to limit the spread of the virus. Simple activities, such as going out to restaurants with other people, have been discouraged, and going out to the theatre with friends has also been looked upon unfavorably. In the attempts to limit these activities, the decrease in demand for them has produced the bankruptcies that you would expect: restaurants have closed, and hotels have seen a decrease in business that can only mean shrinking profits, more layoffs and more worried entrepreneurs. Of course, less travel has meant that airlines have fewer flights and shrinking profits. All of this adds up to economies that have stopped growing. In other words, these economies are beginning to suffer economic recessions.
In recent times, economists and others have described the economy in various terms, describing it as sluggish or slowly growing. In more recent days, economists and government analysts have endorsed the idea that our steady economic growth is now over, and that we are looking at an economy that is shrinking. How much it shrinks will significantly depend on how much and how fast the federal government will provide help for the economy. So far, some help has been provided.
The Federal Reserve has cut the federal funds interest rate essentially to zero. While that is important, also important is the contribution the U. S. Congress can make by passing legislation that will provide money to bolster the funds available to spend on healthcare expenditures related to fighting the coronavirus. An $8.3 billion package passed by Congress in March was a good start.
Most observers would comment that there is much to do. Particular care should be given to specific industries that are vital to the U.S. economy, such as the airline industry. While demand recedes for various goods and productive services in the U.S., the Congress can pass legislation to bolster that demand, such as giving a certain amount of money to be spent as the adult receiver of those funds would care to spend it.
This idea is not new. It was already tried during the last big recession in 2008 with some success, but the increased desire for cash from the federal government by various industries does underscore the general pessimistic outlook that the coronavirus increases in intensity and continues to spread throughout the world. It is now evident that more and more business owners and investors are conceding that the virus will take longer to fight successfully, and that more of them believe that an economic recession is now inevitable. Examples of Italy and Spain and their difficulties containing the virus there only serve to deepen the pessimism.
There is no doubt that various changes will have to be made by U.S. workers, business owners and others to adjust to the steps required by all of us in order to survive the problems to our medical and economic health that are posed by this killer virus.
Author and educator Dave Kaplan writes from his home in Santa Barbara, Calif.