Economists responding to the Coronavirus economics class announced that the recession has begun, New York City may be on the verge of issuing a "shelter" order, and the White House says it wants to issue checks directly to all Americans. Changing with each passing day. In the past, the vast economy of the United States suffered a huge shock-the Great Collapse of 1929, and the financial crisis of 9/11 and 2008 immediately came to mind-but has there been a sudden pause like this?

When I asked the question to Barry Eichengreen, a professor of economics at the University of California, Berkeley, on Tuesday, he said he couldn't remember. Just a few months ago, the "supply shock" originating from China has evolved into an unprecedented economic shutdown, which is remarkable not only in terms of scale but also speed. Eichengreen specializes in economic history and is the author of more than a dozen books, including the acclaimed history of the Great Depression. He said his job was to assume that consumer spending fell by about 30% in the second quarter. 2020. This will be unprecedented.

Of course, the Great Depression started with the stock market crash of October 1929, but it was really painful and disastrous. But Eichengreen points out that it develops more slowly than coronavirus shock. "Production of goods and services has fallen by about a third, but it has continued for more than three years," he said. "Industrial production has fallen by half, but it has fallen again in three years. The unemployment rate has risen to about a quarter , But more than four years. Now we are talking about the possibility that the unemployment rate may surge sharply in a short period of time. "According to the New York Times, Treasury Secretary Steven Mnuchin told Congress Republican Without a positive policy response, the unemployment rate could reach 20%.

At least in the modern era, the economic impact of other epidemics cannot be compared with what is happening now. According to some studies, more than half a million Americans died during the 1918 pandemic, and some cities closed restaurants and other public gatherings to stop the virus from spreading. Eichengreen said the epidemic "has had a great negative impact on the retail industry," but according to existing statistics, the entire economy has not fallen into recession. Eventually, a plunge occurred in 1920-21, but Eichengreen and other economic historians usually attribute it to the Federal Reserve raising interest rates to prevent inflation.

Still, Eichengreen insists that, whether it is the 1918 pandemic or the economic disaster of the 1830s, there is something to teach us how to deal with the coronavirus. Regarding the pandemic, he said: "I learned the lesson that locking in a comprehensive way is really important." He noted that mortality varies by city. Some places, such as St. Louis, have responded positively to the crisis and managed to slow the rate of infection. Other cities, such as Philadelphia, were too late, too light, and the results were disastrous. A study showed that the worst death rate in Philadelphia was eight times the mortality rate in St. Louis.

The Great Depression, although terrifying, was used as a large laboratory experiment for two policy approaches. With the economy plunging between 1929 and 1932, the Herbert Hoover administration avoided large-scale efforts to increase federal spending and rescue the affected industries. Roosevelt (FDR) took a more proactive attitude after taking office in 1933. His government provides cash payments to farmers, debt relief for mortgage holders, public works projects for the unemployed, and low-interest loans to disaster-stricken banks and railways. The Roosevelt government also abandoned the gold standard in order to relax monetary policy and eventually introduced unemployment insurance and social security systems. "Scholarships about the Great Depression show that we have stabilized and restored both fiscal and monetary policy, as well as strategic interventions targeting specific industries." Eichengreen said. "But not in the previous period, when a more fragmented approach was taken."

At this time last week, Eichengreen feared that the federal government would once again fail to meet the challenge at a critical juncture. But then the Federal Reserve cut interest rates and launched a series of emergency loan programs. By Tuesday, when the White House came up with a multi-trillion-dollar bailout plan, the plan would provide cash payments to all U.S. households and financial assistance to businesses damaged by the shutdown. "There are signs that people, including our fearless leaders, are now aware of the seriousness of the situation," he said. "It appears that the necessary steps have been taken on the currency side and may also be taken financially. "

Of course, this remains to be seen. The various components of the stimulus package have not yet been finalized. One proposal that is certainly controversial is to bail out airlines. The Wall Street Journal reported on Tuesday that the Trump administration wants to provide $ 50 billion in financial assistance to the industry. This money may come in the form of loans, but will such loans be as unsecured as the aviation industry hopes? Or do they serve as security for carrier assets, such as aircraft and valuable take-off and landing slots, so that the government can seize these assets without repaying the loan? In the 1830s, Eichengreen reminded me: Reconstruction Finance Corporation, an institution set up by Hoover, Roosevelt (FDR) expanded aggressively, providing loans to banks and railways, Both are in poor condition. Eichengreen said: "Loans to railways are secured by rolling stock." "In my opinion, this seems to be the most appropriate model to follow now."

Even if the Trump administration accepts the proposal, bailouts to airlines or other large companies could cause a political backlash. Eichengreen said the public's response may not be as painful as the Obama administration's rescue of Wall Street in 2008 and 2009, as this time the federal government also proposes massive aid to families and small businesses. Eichengreen believes that the Trump administration should consider another policy initiative that the Italian government recently adopted: suspension of mortgage and other loan payments. "If you lose your car or your home unselfishly, it is a personal difficulty," Eichengreen said. "But it will also affect the entire economy."

The White House will have to force banks and other lenders to stop loan payments. Eichengreen believes that this will represent a further increase in government enthusiasm. He said: "The American approach to these things has been almost always-Herbert Hoover during the Great Depression-let enlightened bankers do the right thing, voluntarily forgive late payments and suspend fines, etc. "Hopefully we are quickly recognizing that voluntaryism and enlightened capitalism, although desirable, may not be enough."

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