We Need to Stop Calling it Stimulus
Government will be focused on basic maintenance for months and that’s going to produce profound change.
Stimulus, by definition, is intended to get an economy going again. It puts money in the pockets of people not just to allow them to survive but to spark the consumption that has been central to the growth of the modern global economy for over a century.
It should go without saying that during a crisis on the scale of the coronavirus (COVID-19) pandemic the old rules don’t apply. Even assuming governments were able to completely replace paychecks with aid delivered through benefits like unemployment insurance payments and tax credits, the ability to spend this money at the local mall or use our discretionary income to take a trip is impossible if people are being told to stay home. Even buying more things online only gets you so far when production has been largely halted by a disease.
Of course, our income can’t simply be replaced in its entirety with a regular government check. Furthermore, unlike with past economic recessions and depressions, what we are facing is for all practical purposes an economic shutdown as opposed to a slowdown or prolonged decline in growth. That this shutdown is occurring over weeks as opposed to years and without the benefit of adequate planning makes the word stimulus an utterly inappropriate and deceptive description of the emergency support measures being rolled out by governments.
While governments, at least in the most developed countries, have been quick to pour money into the markets and put together aid packages for workers and businesses most affected by the COVID-19 pandemic, the rhetoric some leaders are using indicates they are still treating the current crisis like a black swan that will fly away in a few months without leaving a trace. The United States, as usual, stands out as a particularly stark example of this sort of magical thinking.
Initially, it was the virus itself that President Trump stated would simply “disappear”. Now, it seems, the Trump administration is advancing the idea that it is the economic consequences of the pandemic that will magically vanish when all is said and done. Treasury Secretary Steven Mnuchin is predicting a “gigantic fourth quarter” generated by “pent up demand”.
This optimism is based upon the assumption that economies and the societies they serve are simple linear systems following predictable rules, even when responding to unprecedented events. President Trump, Secretary Mnuchin, and many others like them clearly see national economies like a light switch that can be turned off and then turned back on again.
People, like economies, are complex systems in their own right. If they are largely confined to their homes for weeks or months on end watching the death toll rise each night on the news and relying upon minimal government payments to enable them to buy food, medicine, and other necessities, their first reaction to the lifting of these restrictions is at least as likely to be quite subdued as a sudden enthusiastic shopping spree at the local mall. Indeed, it would say an awful lot about our species — none of it good — if after suffering through a severe economic downturn that was accompanied by a high body count we quickly returned to “normalcy” as though we had just gone through a long staycation that inflicted no more trauma upon us than a severe case of cabin fever.
After three very long years with Donald Trump as president, it should come as no surprise that he as well as the men and women he has surrounded himself with lack any real understanding of either the psychological or economic toll COVID-19 is just beginning to inflict upon us. Regardless, the experience will (hopefully) dramatically provide us all with a much deeper appreciation for meaningful human relationships. We’ve become so caught up in the rush of modern life that many of us don’t even know the names of our next-door neighbors. That’s likely to change if we are confined to home for long periods of time and those within a safe talking (or shouting) distance are the only human contacts available that don’t involve services like Skype and Facetime.
Likewise, our appreciation for government is about to undergo a transformation not seen since the Great Depression, if ever. It is only government that has the capacity in situations such as these to print money, regulate prices, mandate the production and flow of needed goods and services, preserve public safety and restore public health.
By this time next year the citizens of the world’s social democracies may very well have seen their faith in government reaffirmed while millions of Americans could be looking back astonished by the blind faith in the market they had embraced for so long. Maybe then the Steve Mnuchins of the world will realize the new normal will look nothing like the old. Regardless, the experience humanity is now embarking on isn’t likely to stimulate the kind of economic, cultural and political response they are hoping for.