US unemployment claims have skyrocketed. Is recession needed to fight COVID-19?

Last week, 3.3 million people in the United States applied for unemployment benefits, the highest rate ever recorded by the U.S. Department of Labor since businesses closed and employees were asked to stay home to slow the spread of the COVID-19 pandemic.

This is an unprecedented number of people, but it’s not normal. recessionsays William Dickens, Professor Emeritus at the University of Economics and Social Policy.

“We don’t want people to get back to work – that’s the whole point of“ social distancing, ”trying to bend the curve,” says Dickens. “We want a recession. We want people to stop working. "We want people to stay home until we bring the virus level to a population level where we can sit on top and test and isolate new cases that come together."

According to Dickens, in a typical recession, the government wants to stimulate the economy so that people return to their usual routines, earning and spending money. But if the stores open and people get back to work now, epidemiologists warn that a catastrophic number of deaths could occur in the United States as the virus spreads quickly and hospitals are overloaded.

Instead, the country made a conscious decision to close. The question is, what will the economy look like when we finally gain control of the virus using physical distance, testing and isolation methods or a vaccine? Will the economy come back to?

“Can we do a fairly good job of preserving the existing business and, in particular, preserving financial institutionsthat we can just go back to work and recover? – asks Dickens. “If so, we can have a very fast recovery.”

After the Americans, in fact, have been trapped in their own homes for several months, they are likely to be short of restaurants, travel, and other goods and services that are currently stopped. This sudden outlay can help the economy recover quickly from a recession.

“On the other hand, if what happens, we allow cascading bankruptcies – one business went bankrupt, his creditors went bankrupt, creditors' creditors went bankrupt, and so on – then we don’t have an economy to return to when the illness is over, says Dickens. “And therefore, preventing this kind of bankruptcy cascade is the biggest concern to make sure that the economy is in good shape after it all ends, and that we can recover quickly.”

If a recession leads to a large number of bankruptcies, it is much more difficult to get the economy on its feet – banks cannot issue new loans if they do not have sufficient assets, and small enterprises rely on this financing to recover from losses and create new jobs.

“We just went through the 2007/2008 recession,” says Dickens. “We had a serious blow to our financial system, and after that it took a lot of time to get back to work, because we do not have financing for new enterprises or for expanding existing enterprises until the financial system exists. Does not work properly. We could see the same here if we are not careful. "

To prevent this, U.S. Congress this week approved a $ 2 trillion economic stimulus bill that will provide unemployment benefits, direct payments to taxpayers, and a $ 500 billion fund to support troubled businesses.

“They did a very good job in terms of increasing unemployment benefitsextending unemployment benefits for a longer period and, perhaps most importantly, extending them to people who otherwise would not normally be eligible for unemployment benefits, says Dickens. – I think they really Well done there, and I think it will help a lot to isolate the economy from the problems we worry about. "

Right now, the best thing we can do for the economy is to stay home, Dickens says. Otherwise, we may encounter the worst of both worlds.

“This means that we don’t have enough“ social distance ”to stop the spread of the disease, but we can have enough to slow it down, so that in the end we have to carry out long-term social distance,” says Dickens. “And that will probably be the worst possible outcome for economy".

US holds leading global virus counts and records unemployment (update)

US unemployment claims have skyrocketed. Is recession needed to fight COVID-19? (2020, March 27)
restored March 28, 2020

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