"It makes far more sense to ensure that small businesses and their employees will still be around when the COVID-19 crisis is over."
When the negative impact of the coronavirus (COVID-19) started to be felt by their countries, central bank governors and treasury secretaries/finance ministers thought that they could cope with the incipient downturn—manifested by business closures, travel bans and employee layoffs. This they did by deploying their operational tools in the usual prudential way, with central banks easing up on the money supply and finance ministers/treasury secretaries tinkering with the amounts and directions of budgetary releases.
But with the passage of the weeks, as the rising tide of closures and layoffs began to tell them that their countries were facing a very serious economic problem, the central bank governors and finance ministers changed their attitude and the reality of the situation. They remembered the old Spanish saying “Grandes males, grandes remedios.” The usual regimens for containing downturns were unlikely to do the job this time around.
The first major economic policymaker to react to the COVID-19 pandemic in massive fashion was the head of the world’s most powerful central bank, Dr. Jerome Powell of the US Fed (Federal Reserve Board). Three weeks ago, Dr. Powell announced that America’s monetary authority was prepared to do everything—deploy all the policy tools at its disposal—to stave off a deep US recession. Dr. Powell’s declaration went a long way to calm the US business community, especially the stock market, which had moved into bear territory for the first time since the 2008-2009 financial crisis. Two or three other major central bank governors subsequently made announcements similar to the Fed chief’s.
But what the US economy and all the other coronavirus-hit economies needed most to arrest this increasingly rapid downturns, far more than assurances of greater banking-system liquidity, was the stoppage of the hemorrhage of revenues and incomes resulting from the lockdowns, the stay-at-home owners, the social-distancing orders and the travel bans. Economies were moving closer to recession with every new business closure and every new reduction of staff. Clearly, something had to be done to sustain the hundreds of thousand of small businesses—service establishments of all kinds, restaurants, small traders and the like—and their millions of employees through the duration of the pandemic.
From both a humanitarian and an economic standpoint, it makes little sense for governments to be more concerned with observing fiscal prudence than with sustaining families—especially food and home security—and keeping businesses from going out of existence. It makes far more sense to incur fiscal deficits in order that small business establishments and their employees will still be around when the COVID-19 crisis is over. No one knows how many more weeks or months the pandemic will last; what is certain is that it will be gone one of these days.
The US government and many other major governments have already taken or announced legislative action intended to provide billions of dollars in grants and benefit payments to small businesses and their workers, with the condition that the assistance-receiving establishments not lay off their employees. This is a perfectly rational condition, for what good would the assistance do if the assistance-receiving establishment no longer had employees when the COVID-19 is declared over?
Another point in favor of conditioning government assistance to business establishments on their retention of their employees in the obviation of need to give workers unemployment insurance fund. The $2 trillion CARES Act approved by the US Congress recently provides for both direct payments to workers and unemployment insurance benefits.
Undoubtedly, finance ministers and treasury secretaries around the world will be inclined to worry about the coming rise in their budget-deficit totals. But under the circumstances, they should stop worrying too much about their countries’ debt-to-GDP (gross domestic product) ratios—this is one of the macro-economic fundamentals—and worry more about sustaining all the closed and closing small businesses so that these will not need to throw their workers out into the streets. For—to paraphrase Jesus Christ—what does it profit a government if it is able to maintain strong financial ratios but suffers the loss of its economies?