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The Financial Express

Death vs dollar -- the dilemma for America

Abdullah A Dewan | Published: March 27, 2020 20:47:07


Death vs dollar -- the dilemma for America

In my last  article (Economic fallouts of coronavirus and supply chain, March 22), I argued that coronavirus "has created a disease pandemic, a fear contagion, decimating the stock market everywhere, creating what I call "an economic pandemic". To deescalate the spread of the disease, self-imposed and government enforced extraordinary regimes were undertaken - never seen before. While the spread of the virus is continuing unabated, policy makers everywhere are working wee hours, trying to craft what they call economic stimulus package - a mix of fiscal and monetary actions - which I call "economic resuscitation package." Why so?

Well, you must resuscitate the patient to breathing before stimulating with elixir. Because of all kinds of business closures and travel restrictions and so on, the US economy is predicted by pessimists to potentially slide into a depression with 20 per cent or so unemployment rate -reminiscent of the Great Depression of the 1930s when unemployment dipped nearly 25 per cent. 

In my last  article, I underscored that the US economy and people's confidence in the economy in general are centred around the performance of the Wall Street - the US stock market. "The recent disorderly market action has left scars on most money managers," said Sean Darby, global equity strategist, in a note. "Bear markets are brutal and they typically presage a recession." Therefore, to save the economy from massive unemployment from coronavirus-driven widespread layoffs, the US congress has passed a $2.0 trillion stimulus package - and the Federal Reserve (Fed) will inject $4.0 trillion liquidity distress assistance to ease credit market - total package of $6.0 trillion - the largest ever in US history. Yes, the package is that massive - which is nearly 3.6 times the GDP (gross domestic product) of Russia and nearly 45 per cent of the GDP of China. A summary of the $2.0 trillion package passed by the US Congress includes:

* Direct payments to individuals of $1,500 and up to $7,500 for a family of five.

* No cost-sharing for coronavirus vaccines and treatments, including for the uninsured.

* Expanded access to paid family and medical leave.

* $500 billion in grants and interest-free loans to small businesses.

* Strengthened unemployment insurance, with $600 per week for people affected by coronavirus and eligible for unemployment benefits.

* $150 billion in funding for hospitals, community health centers and government health programs.

* $60 billion in funding for schools and universities along with student debt relief.

* More funding for the Supplemental Nutrition Assistance Program and other food assistance programs.

* $4.0 billion in state election grants and a national requirement for 15 days of early voting and no-excuse absentee voting as fears grow about coronavirus spreading at crowded polling sites.

The Congress has passed into law the economic relief package as the pandemic overwhelmed the country's health-care resources, inflicts havoc on the economy, and accelerates widespread layoffs. The urgency has compounded as two House of representatives and one senator have tested positive for coronavirus infection, forcing other lawmakers exposed to their colleagues to self-quarantine.

The economy and in particular the markets are also getting all-out support from the Federal Reserve, which announced on Monday (March 23) that it would embark on an open-ended asset purchase programme. The central bank assured that the programme will run in the "amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy."

The approval of the $2.0 trillion stimulus package, the Fed's open-ended credit market easing ($4.0 trillion), and President Trump's hinting about the reopening the economy soon have generated stunning market exuberance on Tuesday's (March 24) with DOW gaining all time high points ever (2112.8 points or 11.37 per cent).

While the spread of the coronavirus is continuing dangerously, President Trump signalling that he would like to scale back on social distancing and reopen the economy by Easter holiday (Sunday, April 12) has sent shock waves among the people scared from fear of being contacted by coronavirus and face death.  He is weighing as to how many lives are worth the loss of economic activities (dollars). Here I quote his message - all-caps as appeared in his tweet on Sunday (March 22): "WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF. AT THE END OF THE 15 DAY PERIOD, WE WILL MAKE A DECISION AS TO WHICH WAY WE WANT TO GO!"

People are wondering how could the President tweet such a view when a "coronavirus pandemic raging out of control that directly threatens mass death among a percentage of the population -- as well as the prospect of an overwhelmed health care system, putting even those who never get Covid-19 but who need other care at risk" (Zachary Wolf, CNN, March 23).

There are some who accuse the President of being concerned that unless the economy reopens and become vibrant with stock market rebounding to its pre-virus driven crash, his reelection in November would be bleak. Besides, his corporate billionaire friends who are losing millions of dollars each day, if the economy remains closed, are persuading him to reopen the economy while risking deaths of unknown number of American lives to coronavirus.

The President argues that a self-imposed shutdown of the economy could trigger a catastrophe more severe than the Great Depression of the 1930s. The regime of  stay-at-home or shelter-in-place implementation to slow the spread of killer virus and thus allow enough time to develop a vaccine, have already caused widespread layoffs, threatening the prospect of mass unemployment. Trump guesses that many more people will die from unemployment-driven suicides than those to be killed by Coronavirus. "We have to open our country because that causes problems that could be far bigger," he said. Doctors, he said, would like to shut down the whole world. "We can't let that happen to our country, we have the greatest country in the world, I'm not going to let that happen," he added.

Supporting Trump's position, The Wall Street Journal has become increasingly critical of the economic clampdown: "... no society can safeguard public health for long at the cost of its overall economic health," the Journal wrote in an editorial last week. "Even America's resources to fight a viral plague aren't limitless-and they will become more limited by the day as individuals lose jobs, businesses close, and American prosperity gives way to poverty."

State governors are making their choice, coming down on the side of shutting things down. Responding to Trump's "death vs. dollar" choice, New York Mayor Bill de Blasio said that easing up on social distancing will kill people. "How many members of our family, especially our older relatives, who are very vulnerable here, are we simply saying as a nation, we're going to turn away and ignore the challenges facing them? I don't think that's right," he said, warning that the health care system could become literally unable to function and overrun by this outbreak. It may be noted that New York city has become the epicentre of the outbreak of the virus in the US

The agonising dilemma is: the choice between many people dying and many more losing jobs far beyond what the Federal Reserve and the Congress can realistically mitigate. The $6.0 trillion monetary and fiscal package are crafted to stimulate aggregate demand through protecting both the employer from going out of business and the employees from losing jobs. Direct cash handouts to nonworking, low-income household members will add additional elixir to aggregate demand through generating additional consumer spending. It must be understood that nearly 30 per cent of the US economy directly and indirectly involves international trade (exports and imports combined. Therefore, if this $21 trillion economy falters, it will take the rest of the global economy with it.  

 

Dr Abdullah A Dewan, formerly a physicist and a nuclear engineer at Bangladesh Atomic Energy Commission (BAEC), is Professor of Economics at Eastern Michigan University, USA.

adewan@emich.edu

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