Over the past few days whole sectors of the U.S. economy have come to a standstill. Closing our shopping centers, restaurants, and recreational facilities will end up leaving millions jobless. Various relief measures are being discussed or are working their way through Congress.
But this slowdown is nothing like an ordinary recession, where a slowdown in demand can simply be offset by putting cash into people’s pockets. Instead, much of the slowdown is the inevitable side effect of an intentional effort to slow the spread of the novel coronavirus. By slowing the spread of the virus, the logic goes, we buy ourselves time. This allows us to treat a greater share of those who fall ill, add much-needed health care resources, and develop treatment capability.
While we fight the contagion, many otherwise perfectly viable businesses and non-profits have no choice but to shut down. Social distancing requires that we consume less of the goods and services produced by a staggeringly wide array of industries, so even businesses that aren’t shuttered entirely are experiencing less demand. And this has knock-on effects on other businesses. Without an aggressive policy response, this will result in the permanent destruction of hundreds of thousands of firms and the loss of millions of jobs.
This is not the Schumpeterian process of creative destruction, where once-valuable firms go under, freeing up resources that can be better employed elsewhere. The workers whose jobs vanish will not be matched with new firms that allow them to add more value. Instead, firm-specific human capital disappears, debt starts building up, and the resources that are idle are idle only in order to slow the pandemic.