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The Economic Fallout of COVID-19

COVID-19 and its economic fallout represent a simultaneous supply-side and demand-side shock, with each shock itself of historic proportions. It is absolutely unprecedented in the modern economic era, and the solutions will themselves be just as unprecedented.

By Todd Yarbrough, PhD
Clinical Assistant Professor of Economics, Pace University

100 dollar bill with benjamin franklin wearing a medical mask
100 dollar bill with benjamin franklin wearing a medical mask

COVID-19 and its economic fallout represent a simultaneous supply-side and demand-side shock, with each shock itself of historic proportions. It is absolutely unprecedented in the modern economic era, and the solutions will themselves be just as unprecedented. First and foremost, any policy undertaken by governments should first seek to keep as many people from contracting COVID-19 as possible. Every contraction and death frays our social fabric and runs the risk of making our economic system moot. And reducing contraction is the ONLY way to truly prevent and mitigate the economic fall-out.

On the fiscal policy side, congress needs to act immediately to ensure that those who have lost their jobs will be able to pay for the basic needs of life, rent, food, childcare, and healthcare. Without this immediate basic support, we run the risk of triggering an even larger economic fall-out than we already face. Every day without a greater than $2 trillion fiscal stimulus — which should directly seek to keep businesses open and basic needs of individuals covered who may happen to lose their job — is an increased potential for a longer recession. Without unprecedented fiscal policy, the demand-side of the economy will suffer.

On the monetary policy side, the Federal Reserve has admirably dropped interest rates to zero and continues to inject needed liquidity into financial markets, which will help to blunt the sharp drop-off on the supply side. This will allow large companies to have access to financing even as the financial markets get hit with rising risk. Also, the Fed will need to intervene in municipal and state-bond markets to ensure that city and state governments have the financing available to keep basic services going during the oncoming contraction.

There is tremendous risk even with appropriate fiscal and monetary policy. COVID-19 has thus far represented an existential challenge to society, and will continue to do so for some time.

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Since 1906, Pace University has educated thinking professionals by providing high quality education for the professions.

Since 1906, Pace University has educated thinking professionals by providing high quality education for the professions.

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