This is not your father's business recession

 The response to date to the Covid-19 pandemic has caused an unprecedented "recession" in economic activity.  I quote-mark recession because the plunge was so steep and deep and because the recession was caused by the various governments' response to the coronavirus pandemic.

I worked in and around employment and unemployment statistics for about 30 years and have stayed fairly aware of how they were doing even after I kicked the habit.  I have never seen the unemployment rate rise almost 10 percentage points in 3 months.  Heck, the highest I had ever seen the unemployment rate was 10.8 percent at the worst of the double-dip recession of the early 1980s.  I had never seen, nor ever expected to see, the word "plummeted" in the BLS employment report.  Language like that may have been joked about in early drafting sessions, but there it was in print on May 8 in reference to jobs in the leisure industry.  

These numbers are something economists more clever than I, a large class, may be able to get their minds around.  But these are mere numbers and I haven't even heard of someone working on the real difference between this and a regular economic crisis.  The current recession was the result government edicts at the state and local levels to shut down, lock down, go home, stay home, and damn the consequences.  The consequences were more than 20 million jobs off the payrolls in 2 months.

The public health emergency was absolutely real but the lack of a public health response showed a stunning lack of readiness.  The result was that the authorities had to ban broad categories of economic activity, rather than implement policies such as masking, distancing, washing, testing, and then isolating infected persons.  These may not have been enough, but at least a track record of trying to do the least harm would have been established.  Instead, the track record was to shut down the last mile of the economy, the actual sale of goods and services. About 7.6 jobs, were lost from February to April in retail trade and food service and drinking places. This was about a third of all jobs lost.

The insistence of the public health scientists and experts that the rest of us blindly follow their advice and accept 21 million layoffs as a fair price for the experts missing the signs eventually meant that refusing to accept the basic civic duties of wearing a mask, limiting social interactions, and being aware of unhealthy environments become symbols of "liberty from the pointy heads", rather than mere annoyances.  These are more akin to fastening your seatbelts than to bending the knee to the Mother of Dragons, but have turned into mouth-foam talking points in certain quarters.

So, the scientists and experts left us with a 20-some-odd million layoff mess to clean up.  The reaction at the state level was hampered by the fact that unemployment income replacement systems were both old and set up more to reduce fraud than to quickly get some sort of income stream to the millions of new applications the employment security agencies were getting from laid off workers.  

I'd bet that there also are exacerbated problems with the financial condition of the unemployment  insurance plans.  I'd bet farther that these problems will be met, at least in part, through the experience rating process in which employers are penalized for laying off the people who are now receiving unemployment checks.  I'll leave it to you to imagine how the employers' cries that the government made them conduct the layoffs is going to go over.

So the music stopped at the Federal government's chair.  To their credit, they did the things they generally do in times of recession fairly well and promptly.  What they generally do is dispense gobs of money, in this case trillions of dollars.  I'm going to be generous and suppose that there was not much more fraud, waste, and abuse than is generally the case.  Unfortunately, the problem is that this is not a recession, it's a government ordered shutdown that has had a huge impact on the most financially delicate part of the economy, the small, customer-facing businesses that had to lay off millions of workers.

This raises two problems.  First, these ex-employers of millions have little or no revenue any more while at the same time have quite a few fixed obligations such as rent, equipment leases, insurance payments, supplier credits, and whatever else I've miss because I've never operated a small business.  Second, the individual payments to have largely been expended on necessities such as rent, mortgages, car payments, utilities, food, and so on.  If you got the full $1,200, the Federal government has, after much straining and heavy lifting, subsidized you to the tune of $171.43 per month--maybe a car payment? Oh I see, you want my rent and car payment to be the same check.

The second problem is the more urgent.  Please, will somebody step up and show some leadership and deliver another round of individual relief?  Drop the rest of the stuff until next year. It all seems to be ideological crap mixed with the usual pablum from the two sides:  Corporate welfare from the Republican Senate and green dreams from the Democratic House.  Cut it out, Winter is coming.

The first problem runs a lot deeper.  I studied economics and practiced a primitive form of it for a decently successful career and I never saw attention given to the potential problem of nursing an economy sucker punched by government ukases into recovery.  We've already seen the traditional macroeconomic income stabilization approach go pretty much as far as I've ever seen it pushed. This was all entirely necessary and woefully insufficient.  

I hope brighter minds than mine are trying to figure out some creative approaches to bankruptcy law, credit analysis, bank portfolio rating, UI tax policies, and myriad other "how the hell can I meet payroll this week" issues.   This, not traditional counter-cyclical policy,  is where the recovery will catch on or not.  If not, it will be a very long winter.