First published in Around the O on April 7th, 2020.
National policymakers and journalists seek out the UO’s Tim Duy, a professor of practice in economics, on a daily basis for his expertise on monetary policy. He sat down for a quick — and virtual — Q&A on how COVID-19 is affecting the economy and what people can do to help.
What is the most important thing to know about this crisis?
This is a unique event, unprecedented. Until we can understand, control and minimize the virus, we are not going to be able to return to some of our normal activities very easily.
What is the best thing people can do to help restore normalcy?
We need everyone who can stay home to do so, because this helps protect essential workers who cannot do their jobs from home. It is everyone’s responsibility to help minimize the spread of this virus.
Why have toilet paper, disinfectants, hand sanitizer, wet wipes and yeast gone missing?
In the early phase of a panic like this, you get a scarcity of goods that people perceive as being in short supply, which actually creates the shortage. But we are not using that much more of these items than we would normally, so the surge in demand should be temporary. Give it a month, and stores should be restocking these products. Our real problem is how we restart the economy after the stay-at-home restrictions start to loosen.
What about the lack of personal protective equipment for those on the front lines?
Supply chains are designed for normal times, and the chains for things like N95 masks might be sufficient in normal times but suddenly appear thin and dispersed in a crisis. It would be challenging and expensive to set up a supply chain that could react instantly to a change of this magnitude. Instead, we need to prepare for this kind of event by having sufficient stockpiles to bridge the gap before supply chains can be brought up to speed. Apparently, we did not.
What signs of recovery should we watch for?
It will be like a dimmer switch, where you slowly raise the lights again. At some point, we will be told the crisis is past. but there will still be some restrictions until we, hopefully, get a vaccine. Trailheads will be reopened. Maybe restaurants can reopen, but they will have to space their tables farther apart. You’ll probably see situations where it is easier to maintain some kind of social distancing allowed to open first, but gyms may not be able to reopen as quickly and large public events will not be possible until we are confident we have the virus controlled.
What is your assessment of the CARES Act passed by Congress in late March?
The bill is an important step in trying to stabilize the economy, but the government needs to do more. The key aspects of the CARES Act are enhanced unemployment benefits and forgivable loans for businesses that use the money to meet payroll, cover employee benefits and pay rent. Basically, the government is paying you to keep your workers employed. From my perspective, looking at monetary and fiscal policy on a national level, policymakers have moved with amazing speed relative to what I’ve seen in past crises. The delay in processing unemployment claims in many states, however, reveals that the systems in place are not designed for an event of this magnitude.
What should elected officials keep uppermost in mind as they hammer out other stimulus packages?
They need to realize three things. First, it’s a false choice to say this is a choice between saving the economy or public health. If you’re going to save the economy, you have to get the public health threat under control. Second, this situation is no one’s fault, so we need to recognize that government aid will not negatively impact people’s future incentives for working. In other words, we are not facing moral hazard concerns. Finally, we need to make sure there is plenty of economic support from the federal government, so the next round of federal support must include direct aid for state and local governments. What people will see over the next year is that it’s not that government cannot do things, it is more a political decision to not do those things. Some politicians may claim lack of resources as the reason they cannot provide a social safety net, but they underestimate the resources that are available.
How is Oregon doing in addressing this situation?
Oregon moved a bit slower in shutting things down than I would have wanted. Thankfully, it finally got there, and I was proud to see the university taking the lead by closing down campus and moving to remote education. We have to realize that unless we really slow the spread now, it will quickly overwhelm Oregon’s health care system, just as it has in other parts of the world.
What is the likely impact on Oregon’s economy?
It’s easier to look at what will not be quick to recover. Maybe I am being overly pessimistic, but we could see fairly limited room for travel and tourism activity for an extended period of time. This is a critical sector for many Oregon communities, such as Ashland, for example. The rapid spread of the virus in crowded places means that large events such as conferences, performances, concerts and sporting event may not resume for more than a year. Regions with less leverage on tourism and travel would be expected to have stronger recoveries.
Can anything positive come out of this crisis?
This is not the first time this has happened in history, and it’s not going to be the last. One positive outcome would be if we recognize the importance of the social safety net. The speed at which the economy came to a halt should be a wake-up call that everyone is vulnerable at some point in their lives. Job loss can no longer be viewed as something that “just happens to other people.” Another potential benefit is that we should recognize the need to modernize our health care system to match those of other developed nations. We need to create a mechanism that brings everyone into the health care system at reasonable prices, and we need to modernize it so we can effectively provide service to all of our citizens. You cannot realistically think you’re going to control a pandemic if people do not go to the doctor because they are afraid, even when they do have insurance, of being hit with a huge bill and possibly even bankruptcy.
Tim Duy is a professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of “Tim Duy's Fed Watch.”
—By Melody Ward Leslie, University Communications