Economic Effects of the Coronavirus Pandemic

With much of the world taking dramatic measures (lockdowns, travel restrictions, social distancing etc.) to prevent or temper spread of the virus, there is no doubt that the economic impact will be significant.  Obvious victims will be the travel industry (air travel, hotels, cruise lines, tourism businesses, etc.), restaurants, bars, sports events, gyms, entertainment venues – pretty much any activity where people gather.

Many businesses will ask or insist that their employees work remotely.  But most businesses do not have that flexibility.  It is difficult to do a construction job remotely, or landscape work.  Most blue collar or service jobs will either continue to be done as before with whatever risk that entails, or the work will be suspended with the consequent layoffs and loss of income.

Initially, the worst damage will occur in the businesses mentioned in the first paragraph.  If the restrictions stay in place long, this will cause many of these businesses to at least temporarily lay off personnel.  Additionally, there will be many small business owners whose businesses have had their revenue dramatically curtailed.  All of this will have a negative feedback effect of causing less spending in general.  Once consumption rates start to fall, all businesses will feel the effects, as consumer spending is what drives the economy. 

It is difficult to predict how far all of this will go.  It will depend primarily on the length of time that extreme measures are in place.  However, what is clear is that the first negative effects will not be felt uniformly across the populace.  Those who have guaranteed salaries, and especially those who can continue to work remotely, will essentially be untouched initially (other than having their stock portfolios temporarily reduced!).  But people who work an hourly job or whose small business depends on the normal circulation of people, will be hit hard.

It would be wise for congress to target any aid packages to the people who are hit early and hardest, and not to institute a general stimulus like a payroll tax.  Unemployment pay, sick leave and outright tax reductions to those who are either laid off or those whose businesses lose money should be the first priority. 

Bailing out industries like the airlines, cruise lines, and other major industries with political clout should be done very carefully as they are in a position to recover better and more quickly than individuals or small businesses.  They will pass their woes onto their employees through layoffs with little hesitation, and their losses will typically only temporarily inconvenience their shareholders and lower their stock price.

The fair way to manage this crisis would be for those of us who are not impacted financially to share our good fortune with those who suffer significant effects.  Ideally, this would happen through generous, non-governmental transfer, however, there is no good way to accomplish this and it is unlikely to happen.  The next best way would be for the government to institute a higher tax on high incomes for a short duration and find a way to identify those who have legitimate claims (perhaps by comparing taxable income year over year or employment status) and make the funds available to them.