Mankiw on the Pandemic
Listen to this guy.
Harvard economist Greg Mankiw, advisor to multiple Republican Presidents and chairman of the Council of Economic Advisors to President George W. Bush, offers his thoughts on responding to COVID-19:
*A recession is likely and perhaps optimal (not in the sense of desirable but in the sense of the best we can do under the circumstances).
*Mitigating the health crisis is the first priority. Give Dr. Fauci anything he asks for.
*Fiscal policymakers should focus not on aggregate demand but on social insurance. Financial planners tell people to have six months of living expenses in an emergency fund. Sadly, many people do not. Considering the difficulty of identifying the truly needy and the problems inherent in trying to do so, sending every American a $1000 check asap would be a good start. A payroll tax cut makes little sense in this circumstance, because it does nothing for those who can’t work.
*There are times to worry about the growing government debt. This is not one of them.
*Externalities abound. Helping people over their current economic difficulties may keep more people at home, reducing the spread of the virus. In other words, there are efficiency as well as equity arguments for social insurance.
*Monetary policy should focus on maintaining liquidity. The Fed’s role in setting interest rates is less important than its role as the lender of last resort. If the Fed thinks that its hands are excessively tied in this regard by Dodd-Frank rules, Congress should untie them quickly.
*President Trump should shut-the-hell-up. He should defer to those who know what they are talking about. Sadly, this is unlikely to occur.
Mankiw’s bonafides as a conservative and a capitalist are indisputable. That he is calling for essentially unlimited government response—do whatever the hell it takes right now and figure out how to pay for it later—should be an indication of how serious the economic mess we’re entering is.
Oftentimes, if not usually, a wonk’s response to a crisis is “This demonstrates the urgency of enacting my pre-existing preferences.” When someone of Mankiw’s standing does the opposite, we should listen.