[ Question ]

How can we protect economies during massive public health crises?

by kithpendragon1 min read18th Mar 20203 comments



Without the economic knock-on effects, telling people to all close up shop and stay home during a massive health crisis would be a no-brainer. Unfortunately, the risk of a nasty economic shock seems to be weighing heavily in the decisions of our leadership here in the USA at every level of government.

We already have certain economic safeties installed from previous shocks, like the safeguards that stop trade in the stock market under certain conditions so we don't easily get a repeat of the crash of 1929. Or the foundations and laws that are designed to swoop into action after a hurricane. Seems like the COVID-19 crisis is providing us with information that could help us build new safeties.

Health crises are different from (other) natural disasters because infrastructure is generally not affected. The two are similar because each can cause people become unable or less able to participate in driving the economy. In both, economy can resume once the crisis is over, but a natural disaster tends to have a much smaller footprint and longer economic reboot time than a health crisis might.

The U.S. federal government is too slow (by design) and apparently quite unprepared to react effectively to a disaster on the scale of COVID-19. Even if they were faster, handing over control of large portions of the economy to the federal government always leaves a bad taste and could easily have consequences just as dire as doing nothing.

I tend to think of the economy as an information entity driven by the movement of value among various actors like individuals, companies and corporations, states and so on up to world-scale organizations. Since actors on all levels are affected in a health crisis, it makes sense for actors on all levels to have access to safety mechanisms that protect various interests.

What kinds of systems could we put in place on each of these levels to allow the relevant slices of economy to go on hold for at least a few weeks as needed? To put it another way: What would we need to do to install economic pause buttons at various scales, and to minimize the effects of any given entity actually using those buttons?



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Here's the squeeze. Jobs slow down, people are told to quarantine, people who are paycheck to paycheck fail to make rent. People renting to them have mortgages, they don't get rent, they miss their mortgage payment.

That happens enough, bank is now a landlord, bank does not want to be a landlord, house rots, tenant is booted.

Same for a business, business operates on margin, customers stop paying, margin debts not paid, bank now owns failing business. Bank does firesale, functioning business is now a pile of auctioned off crap.

Monetary policy tools (zero interest rate overnight loans, no reserve requirement) don't trickle down to the masses. I can't get a zero interest loan, neither can anyone who is paycheck to paycheck, but I sure can get extortionate rates from a payday lender or a credit card! I also can't negotiate my existing rates to zero interest.

If someone wants a new loan for a new venture, now is a great time, maybe.

If you are the Fed and want to intervene to protect banks margins, do what you're doing. The banks now own a bunch of small businesses and houses. If you want to help small business owners and homeowners, maybe buy soon to be delinquent debt from the banks at a deep discount, forgive portions of it, sell it back to the banks at a profit later. Is this quantitative easing?

If you want to protect everyone...I have this idea and need to be told why it is dumb (seriously, not an economist, pretty sure this sucks just don't see why)

Use IRS estimates of income from the previous year, create 'universal economic manipulation fund'. Every month, everyone, based on tax bracket gets either a check or a bill, the amount is unknown prior to the end of the month. In fat years, everyone pays, in bad times when the Fed needs to "drop $100s from helicopters" the check is big, biggest at the bottom. Nobody can rely on it as a source of living expenses and become 'welfare or UBI dependent', but a sudden windfall gets spent instantly by people at the bottom and lets people do things like make rent, pay utility bills, and go grocery shopping.

Again, I'm sure this is stupid, I just don't see why. If it isn't stupid, please call someone wth access to Mnuchin and tell him.

The individual's ability to support themselves is a problem. The answer to that, both in personal or societal crisis in the short term is personal savings and stockpiling of emergency supplies. These are both measures that are currently elective and either ignored or scorned by the majority.

If you say to people "You need 3 months of wages in an emergency account" then most will baulk at that, cite financial incapacity, and go straight back to wasting their money on shit. If you talk about prepping, even right now in the middle of a pandemic, people treat you like you're literally insane. Clearly there are attitudinal issues that are discouraging prudent behaviour.

People's ability to work, shop, etc. remotely is clearly important here. If you can do what you need to do without stepping out of your house for a month then executing a full and compulsory quarantine becomes a non-issue.

Protocols for rationing clearly need to be put in place. Everyone has to be guaranteed a minimum survival ration, and if the state isn't prepared/or shouldn't (economic rationales) stockpile for that then they will have to ensure that private enterprise picks up the slack.

If an activity is critical and cannot be performed remotely then it must be segmented, physically and/or by labour force. Sites and shifts must limit or preclude interaction.

Another serious problem is supply lines and Just In Time business practices. Supply and JIT issues mean you either have to keep your borders open for goods, or you have to sit on a significant stockpile of them. Panic buying and JIT have caused utter chaos here.

At the level of government it has become starkly apparent that domestic manufacturing and stockpiling of essential supplies has been neglected. Chinese supply has been demonstrated to be both an economic and strategic risk. Every country will have to significantly diversity supply and to ensure domestic production and stockpiling after this.

I would argue that at the very least protocols and best practices are something that could be formulated for individuals, businesses, and government. It is clear that many have never considered this particular situation, and had no idea what to do, when to do it, etc. IME, when it comes to dealing with people being able to say "Do this" is superior for 80-90% of them in preference to expecting them to show any independent thought or initiative (even in a situation like this, which has the potential for ruin for themselves and their families on a number fronts. People just stand there like deer in the headlights).

Ultimately the solution here is inculcating personal responsibility and capability. The best armour against any crisis would be to inculcate a responsible and capable mindset in as many of the population as possible. Frankly, this entire situation is beginning to scream instructional game to me. Make a fun game and you won't need to coerce people into learning how to take prudent action off their own bat.

I think Robin Hanson's idea about being able to sue people who get you infected ought to do a lot to help prevent the spread of disease in general. It might have even prevented this entire disaster if it was instilled enough on a cultural level.