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Economic Recovery will Depend on DC Policy Action

Economic Recovery will Depend on DC Policy Action

March 16, 2020

Protecting Businesses from Impact of Distancing Policies will be Key to Future Recovery

OK, here we are now, with an economy that only weeks ago was the envy of the world – now appearing to implode around us.  So much like 2008, in that any attempt to discern what the future holds is met with a grey foggy uncertainty. 

Many of my previous posts on this topic stressed the idea of looking forward to the end of the crisis.  We know this won’t last forever, we will get out of this.  It may seem like an eternity as we live it – but someday this will be another piece of history, much like the 1918 Spanish Flu (hopefully with a less dire outcome!).  But how does this end?   Does the virus need to ultimately spread through the population until we all catch it?  If that is the outcome, all of this painful social distancing is really just spreading out the pain so that health care providers do not get overwhelmed.  And I guess that is a good thing, we need to be able to provide care for those who are most badly afflicted. 

Or are we hoping we can spread this out until a vaccine is available?  But with experts saying that won’t be until 2021 – I wonder just how long we can all take the isolation?  It is promising to hear that the first vaccine trials are getting under way in Seattle, but even if successful, we are a long way from mass inoculation. 

Both of these possible end games put the resolution far off into the future – and this presents the biggest uncertainty for markets.  The virus is not going away – and therefore social distancing will be with us for quite some time.  There are many, many companies who cannot survive for even one or two months without revenue.  Small businesses – hair salons, flower shops, restaurants, gyms – so many will fail within a month or two without income.  Larger businesses, including airlines, restaurant and hotel chains, etc. are also at risk.  First they will need to layoff employees, but they are still saddled with high fixed costs and need ongoing revenue to survive.  If we can’t stop the virus, there is no option but for the President and Congress to step up with the kind of bold action we have only rarely seen out of our political leaders.   

If we as a society allow these businesses, large or small, to die - out of no fault of their own - we will pay the price for years to come.  We have  a choice as I see it – the federal government can choose to provide a lifeline to businesses large and small STARTING TODAY – allowing them to pay their bills and retain their workers through the end of this crisis – or let them fail.  We have never done anything like that - but this is not a run of the mill business cycle weeding out the weak.  Virus containment will kill the weak and the strong.  Failure means employees won’t be able to pay bills, will lose homes, lose insurance (the cost of which ultimately falls on society).   Meanwhile many small independent business owners will suffer the same fate.   If we allow this to happen today, we will have to wait years and years for those businesses and places of employment to be replaced.   It makes no sense to allow a temporary health scare to destroy an economy.  Assistance needs to be targeted directly at those impacted by social distancing policies - protecting employers AND employees both.  Payroll tax cuts and student loan interest moratoriums do not pass this test. More creative vision is required.  

Hopefully our leaders have remembered the important lessons we learned in 2008.  Bold action, taken promptly – is what is necessary to prevent a crisis.  If our leaders in 2008 had been a little more bold, and acted more quickly, we could have perhaps experienced a lot less pain that we ended up with. There is not a lot of time for the powers to be to act.  

For investors – having fallen so far so fast, there is now little choice available but to see this thing through to its conclusion.  So it becomes extremely important that our leaders in Washington now act as grown ups and provide visionary leadership, Lsince they are the ones who will largely determine how this story will end.