economics
coronavirus
Should the Economy Be Placed into “Hibernation” Until the Lockdowns End?
Israeli Knesset (2010-2013)
Economist
0
0
Genesis
Response
Penultimate
Finale
April 4th, 2020
I agree with Ms. Wilf that this is a new economic challenge which requires innovative thinking. I am very unhappy that in the United States, Congress and the Federal Reserve are reaching for the same playbook that was used to address the Financial Crisis of 2008, which was very different.
Where I disagree with Ms. Wilf is on her particular approach. She writes, for example,
"Contractual commitments to suppliers, rent, mortgages, loans, and taxes would be frozen."
This is easier said than done. Are utility bills to be left unpaid? When I fill my car with gas, does it come for free? When I run up a grocery bill on my credit card, do I not have to pay it?
It sounds as though Ms. Wilf is proposing that to the extent that whatever economic activity is still necessary and feasible during this crisis should continue to take place, but with at least a temporary suspension of obligations to exchange money for goods and services. I do not believe that this is workable in practice.
Even if were workable, I do not think that a "freeze" is the right economic approach. In fact, we need for the economy to be very dynamic. It's not just that we need less of some activities, such as serving good in restaurants. We need more of other activities, including manufacturing masks, delivering food, and making sure that electricity and Internet service are available and even ramped up, if necessary.
The best way to get these resource reallocations is to let the market price system do its work. That means that we cannot suspend the need for monetary payment.
An alternative that I have proposed is for banks to give every individual and business a credit line (I believe in Israel this is called "living in minus") equal to two months of deposits, backed by the government. So if a small business deposited $200,000 in the bank over the course of January and February, it would have a $200,000 line of credit.
This would enable people to pay bills, solving most of the problems that Ms. Wilf's "freeze" is intended to address, without having to break any contracts. People and businesses who did not need the credit line would not have to use it. And people and businesses who find new opportunities would not be discouraged from pursuing them.
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