The Coronavirus Pandemic has taken on massive, and even biblical, proportions. The worldwide spread of an illness that has no definitive origin has forced the industrial world to stop due to the idea that physical distance will slow, if not stop, its spread. The American Economy, the world’s largest economy based on physical travel and meeting, has been brought to its knees.
But with that, it’s not clear we completely understand the damage this has done to the American Economy (not to ignore the world economy, but for the purpose of this post, we look at the U.S.A). To do so requires a re-review of something many readers should have learned in Economics 101 – if they took it, at all.
It’s the simple “circular-flow-model” of the American Economy, expressed as: firms hire people from households, which make money to buy products firms make, pay money to the government, which provides services to the people and the firms. https://www.thoughtco.com/the-circular-flow-model-of-the-economy-1147015
Right now, the problem is people, forced to stay in their homes and away from work (for the most part), can’t do the normal tasks that cause money to flow through the population and create an economy.
So, particularly for those parts of the American Economy that depend on, for example, foot-traffic into stores, cafes, and restaurants, and travel to places for meetings, events, and entertainment, flow stops, and with it, the money flow, save those online businesses, slows to a halt.
But even those online businesses will eventually feel the pinch, as total households income is pushed down due to business contraction – and so the cycle begins.
Where we are now, as an American Economy, is that we’re looking at an unemployment rate already said to be at 14.7 percent as of April 11, 2020. And reports constantly repeat that “We are in uncharted waters”, and we don’t know how bad the situation will get. Well, let’s take a stab at that.
Right now, we’re in just the second week of people being laid off from work. Many small businesses are closing due to the economic air-brake that is shelter-in-place policy, now law in many states. The casino and entertainment, and retail and restaurant industries, are hardest hit. But, even now, some firms are paying employees for the next two weeks. Beyond that, the future is uncertain. Many are counting on the Federal Government to help, and that’s where the problem lays.
Money that businesses need primarily comes from households and other firms; normally, government contributes via subsidies, tax refunds, and tax credits, purchases from businesses, and money from expenditures made from its own employees.
The solution, then, would appear to be a simple one: give each U.S. Household and American business, assistance, with a grant pool sized to help large businesses and local governments. Moreover, the help would have to be in the form of monthly payments for the rest of the year, and with the objective of replacing the lost total income flow.
Here’s what such a strategy would look like numerically:
128 million U.S Households gained $89,930 in 2019. Thus, since we will get to June by the time the full weight of the unemployment wave is felt, possibly producing a 30 percent job loss figure, we will replace half of the total households income for the rest of the year. That would be $44,965, paid in monthly installments of $7,494.17, from June to the end of the year. That total program would come to $5,755,520,000,000
The American Small Business program would help the 32 million small businesses, and to the tune of a grant of $5,916.67 per month from June to the end of the year. That would come to $1,136,000,000,000.
The final leg of the triangle is a pool to help large businesses and government (including education). That would be $3,000,000,000,000. Since it’s estimated that the U.S. Restaurant Industry, alone, lost $228 billion, a grant of that size, plus the grants to small businesses and households, would revive the restaurant sector. Local governments would be able to recapture some lost tax revenue via the service funding portion of that pool. For that, we would set aside $500,000,000,000.
The total cost of this would be as follows:
U.S. Households: $5,755,520,000,000
American Small Business: $1,136,000,000,000
Large Business and Government Assistance: $3,000,000,000,000
Total Program Cost: $9,891,520,000,000
The purpose of this program is to make sure the American Economy does not fall into a state of disrepair, where our very standard of living is reduced. Moreover, it’s to make sure our economy is able to have what amounts to an IV hooked up to it – until a vaccine is found that can allow us to return to our normal pattern of life. The consequences of such a future are already being seen in instances of hording and looting. While these examples are not widespread, right now, a sustained several months of job and income loss will negatively effect anyone’s mental condition. America does not need to experience that kind of future.
Tell President Trump and Speaker Pelosi about this Economic Stimulus Package, then make sure they do it.