March 23, 2020

LAURENCE KOTLIKOFF: A Coronavirus End Game That Avoids A Depression.

GM, Ford, and other automakers define the problem. They just announced a two-week production suspension. But in two weeks, all the horrific infections and death numbers will be worse. It will be virtually impossible for the automakers to order their employees back to work. The optics would be terrible, not to speak of potential legal liability. Furthermore, no amount of “fiscal stimulus” will stimulate these companies to rehire once the two-week periods has passed and their layoffs begin.

The story for all larger employers is the same. None will want to be first to order their employees to risk their lives. Instead, they will be laying their workers off and waiting for others to make the first move to rehire. Hence, unless the president is willing to take the heat and vigorously urge everyone to go back to work, when it’s safe to do so, it won’t happen.

To get to that point of safety, we need a coordinated federal plan that applies to all states. What we’re now doing — leaving 50 states plus DC to make their own disorganized, differentiated, and collectively self-defeating decisions — is no answer.

Even if rehiring were politically correct, there’s a major economic roadblock involving expectations. Why rehire to produce until you’re sure you’ll have customers? But if no one rehires, there will be no customers, i.e. no one with the salary to purchase what you’re selling. This chicken and egg problem, which economists call a coordination failure, largely explains why the Great Depression lasted so long. It took WWII for businesses to realize they had a customer for sure, namely the federal government.

Well, we don’t want that particular cure.

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