Medicine for People, or for The Economy? The coming tradeoffs in a COVID-19 economy

Published on March 24, 2020 by Wojciech Gryc

The start of the week saw volatility on the economic and political front. This was not as bad as the prior week, thankfully, but at what cost?

The US Federal Reserve is committing to buying unlimited amounts of treasuries. It now has the ability to buy corporate debt and securities tied to student, medical, and other debts held by citizens.

What does this mean? The Federal Reserve is directly supporting debts across the entire economy because no one else is able to do so.

In the coming months, our policymakers might be forced to choose between supporting a healthy populace and a sustainable economy.

It’s clear the economic costs of propping up all forms of debt is making politicians uncomfortable:

• President Trump is now talking about re-evaluating social isolation and quarantine policies at the end of March.
• His press conferences include downplaying COVID-19 deaths in relation to car accidents, seasonal flu, and other health issues we, as a society, seem to tolerate.
• Other politicians (e.g., Texas Lt. Gov. Dan Patrick) are following suit.
• The actual debates around what should be done are becoming partisan, with Democrats and Republicans introducing competing plans. Part of the debate is around how to structure specific aspects of the stimulus plans, such as whether to promote broader policies around renewal energy.

Here’s the silver lining: the panic of last week has subsided into a slightly longer discussion around priorities, goals, and tradeoffs. We're not making decisions in hours, but are debating across multiple days. Leaders are slightly less panicked.

Similarly, The Fed acted quickly, and while it’s concerning that its policies didn’t lead to a jump in equity prices (investors would have historically been more happy with its Monday policy announcements), it did prevent a bigger market panic that was brewing on Sunday evening.

The interesting challenge, moving forward, will be how policymakers, economists, and voters balance the needs of the economy with public health.

It's also important to note that these tradeoffs have always existed. Our society constantly balances the costs and benefits of building hospitals, pricing pharmaceuticals, providing social services, and so on. If nothing more, I'm glad these discussions are -- at least for now -- taking place in a more public sphere.