The case for shuttering the economy to battle coronavirus
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The Federal Reserve has fired its bazooka, cutting short-term interest rates almost to zero and enacting other stimulus measures first adopted during the Great Recession in 2008 as the new coronavirus rattles the economy. It’s probably not enough.
The medical and economic shock caused by the coronavirus has led to a cascading series of school closures, travel disruptions, event cancellations, and office closures. Apple (AAPL), Nike (NKE), Under Armour (UA), and other retailers are closing most or all of their stores, with others sure to follow. School districts are shutting down everywhere. Airports are a disaster, with overseas arrivals huddled for hours in snaking lines that could be models for how to spread disease. And the Centers for Disease Control recommends a ban on all gatherings of 50 or more until mid-May. to Why not just shut the whole country down?
The argument against this might seem to make sense. Coronavirus hasn’t popped up everywhere, so why should smaller towns somewhat inoculated from the global economy freak out like Seattle and New York City? Can’t we just shut down the places most susceptible to the disease and leave everyplace else alone? Why impose economic harm on businesses that could end up untouched by the virus?
The best way to ‘flatten the curve’
But the argument in favor of shutting down the whole U.S. economy for perhaps two weeks, or more, if necessary, is probably stronger. The federal government could take steps to close nonessential businesses while testing to determine whether the virus is dramatically intensifying. Washington couldn’t literally prevent all Americans from leaving their homes, but most business owners would comply. People would mingle far less, reducing the rate of infection for a virus that spreads exponentially without any barriers in place. It might be the best way to “flatten the curve” and get the upper hand against the malevolent bug.
Analyst Ed Mills of Raymond James posits four scenarios for where we’re headed from here, including a “stop everything” situation in which all businesses that can shut down for two weeks do so. If that happens, Mills sees the total number of U.S. infections staying below 500,000, with a turnaround coming by late April. The economic harm would be substantial, but this measure could be an overwhelming force that defeats the virus relatively quickly. Congress would be able to repair some of the economic damage through fiscal stimulus programs.
Under the other three Raymond James scenarios, Washington continues to take an incremental approach. There are more infections and deaths, persisting through the spring, summer or fall, depending on the aggressiveness of government action. Consumers remain confused and many people don’t take the virus all that seriously, since the government doesn’t seem to be making that big a deal out of it.