Leading NC Economist: We are to going to pay big price for massive COVID-19 economic rescue packages

RALEIGH – Dr. Michael Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy. He is often sought after to present economic analysis to the N.C. General Assembly and the Division of Fiscal Research, when evaluating government policies or taking the pulse of the state economy.

Walden penned an op-ed for WRAL in which he warns of the price Americans will pay for the enormous rescue packages from Congress and the Federal Reserve. That price speaks to the unintended consequences of hasty and monumental public policy making.

From WRAL TechWire:

“The coronavirus crisis continues to be “the” story of our day. Few events have hit our lives and our economy with such force. We anxiously watch the daily data on cases and deaths, hoping to see the curves finally turn downward.

I have dubbed the economic damage caused by the virus the “mandated recession”. The current recession – and, indeed, we are in a recession – is unlike any of its predecessors. Typical recessions are caused by some “excess” in the economy, the most common being an over-indulgence in private debt.

In contrast, the mandated recession is a planned recession. Economic interactions have been purposefully curtailed in order to limit the spread of the virus and to keep our health care system from being overwhelmed. The loss of business activity and jobs have been the price we’ve paid to reduce deaths and illnesses from the virus.

This is the reason why the federal government has moved quickly to backstop businesses and households in hopes of preventing them from falling into bankruptcy and financial chaos. The federal help has been enormous. To date the President and Congress have allocated almost $3 trillion for supporting companies, people, farmers and first responders, with more likely to come.   The Federal Reserve – the nation’s central bank – also has set aside $4 trillion in resources to keep financial markets working and also to support firms and governments.

The reasoning for these expensive efforts is straightforward. The coronavirus caught most of us by surprise, so businesses and households couldn’t plan for it. The steps that have been taken to control the virus, including shutting down large parts of the economy, have also come as a surprise. As a nation we have decided that people and businesses shouldn’t be driven to economic collapse for something they’ve had no hand in causing or foreseeing.

Hence, the $7 trillion combined effort of the President, Congress and Federal Reserve is designed to keep the economy alive until the virus is controlled and banished. The alternative is letting a large part of the economy be destroyed.

Yet, will there also be some price to be paid for this massive federal financial rescue? And if the answer is yes, what kind of price will it be?

There are two potential prices. [CONTINUE READING]

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History-making spending packages, on the heels of history-making lockdown mandates, do not occur in a vacuum. The misguided and reactionary shutdown policies that came in response to the Wuhan virus will have knock on effects far beyond the last emergency order is lifted. We’ll all pay for it, in one way or another.

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