It’s also different from what anyone alive has ever experienced.
Here, we are purposefully freezing economic activity in order to slow a public health crisis. Early data suggests the economic crisis is going to far exceed any single week or quarter of the financial crisis.
I’m married to Annie Lowrey. I can give you the bio — staff writer at the Atlantic, author of Give People Money (which is proving particularly prophetic and influential right now) — but suffice to say she’s one of the clearest and most brilliant economic thinkers I know.
Her viral piece on the affordability crisis is crucial for understanding what the economy really looked like before Covid-19, and she’s been doing some of the best work on the way Covid-19 will worsen the economic problems we had and create a slew of new ones.
It’s also a conversation about how to respond. I wouldn’t call it hopeful — we’re not there yet.
Let’s say we were recording this a month ago and I asked you about what was happening in the economy. At that time, the headline numbers looked good, unemployment was pretty low, and Donald Trump was saying it’s the greatest economy ever.
The economy never really caught fire, but it did keep on growing steadily for a decade. What that left us with was an economy that looked good in terms of headline numbers but with a lot of weakness underneath.
And we also had a lot of financial strain among families. And a main reason for that is that the costs of health care, education, childcare, and housing grew faster than wages did for a really long time.
If you look at housing, the cost of housing outpaced wage gains even in places like San Francisco where wages were going up really fast. So it became unaffordable for people to live in those cities.
And we actually saw the cost of housing outpacing wage gains in rural areas, too. So the share of Americans who are “rent burdened” [paying more than 30 percent of their income on rent] is really high.
You also saw increases in the cost of families’ health care plans, deductibles, and out-of-pocket costs grow faster than both GDP growth and wage growth. The share of private health plans that have deductibles has gone up to something like 80 percent.
You’re going to pay a tremendous amount for your health care, and you’re not going to really get much actual insurance out of it. We’ve made higher education extremely expensive, which leaves people with a really heavy debt burden and a collapsing wealth premium.
The reason I want to have this part of the conversation first is because the affordability crisis sets the stage for where we are going now. I think most people understand coronavirus as a public health problem.
It’s like a two-month-long hurricane everywhere. And right now, it’s looking like in the second quarter of 2020, the economy is going to contract 10 percent in the United States [In the days between recording this conversation and releasing it, the estimate of the Q2 drop rose to -24 percent, which is horrifying — Ezra].
It’s really different.
So most recessions happen endogenously: something within the economy — a correction of an asset price bubble or some other kind of imbalance — triggers a recession. This is exogenous: It’s coming from totally outside the economy, and it’s just hitting the economy like a comet.
So there is no “correction” — there’s just seizure.
So let’s say that you are a small business, like a restaurant or a startup.
During a normal recession, you might have this seizure of economic activity, and you end up as collateral damage. But maybe that’s because there was no actually no good market for what you were selling, and so when the recession comes, you die.
A lot of businesses without help are just going to die.
As far as I can tell, they are actually two sides of the same coin. If you’re telling people to socially distance — for instance, telling people to close restaurants or operate at half-capacity — the question is whether or not it is economically possible for people to follow it.
For social distancing to work, you need a very high level of social solidarity. But social solidarity can’t just go in one direction.
If you’re a restaurant or bar owner or a physical therapist and nobody’s coming in anymore because of social distancing, your business closes. That’s going to change the entire course of your life.
So, we have to make it economically possible for people to social distance. I was just talking to Tom Inglesby at Johns Hopkins, and he said something that has stuck with me: “It’s not just that it’s not right to ask people to sacrifice if we’re not going to make it economical possible for them — it won’t work.
I think that that’s right. And I think that when you’re thinking about the scope of the possible, you have to remember that we know a tremendous amount about fighting recessions.
Speaking of what we can do, you wrote a book called Give People Money.
So the idea with this cash policy is to get people cash as quickly as possible. Just send it and people will spend it on whatever it is that they need to spend it on.
Households can pull that money together. They’re going to make sure that their mortgage or rent gets paid, that they have groceries, that they keep their lights on, that they can buy broadband, that they can obey the quarantine measures that might come in place.
It’s the same case with SNAP. There are qualification standards for SNAP, and if you don’t meet those standards, you don’t get SNAP.
And you can only spend SNAP money on food with pretty tight restrictions even on what food you can buy. My favorite example is in a lot of states you can only buy domestically produced cheese.
You can’t use it on diapers. You can’t use it to keep your lights on.
So, you just trust them to do the right thing with the money. And we know what they do with the money: By and large, they just buy more of what they were buying before — more groceries, more gas for their car, more stuff for their kids, more clothes.
We’ve shown again and again that when you give people cash in all sorts of different contexts and all sorts of different ways, they don’t misuse the money.