Financial Markets Rattled By The Multiple Effects Of COVID-19

(SOUNDBITE OF BELL)

NOEL KING, HOST:

That is the sound of the opening bell on Wall Street. Just minutes after it rang yesterday, U.S. stocks fell so fast that it triggered a 15-minute halt in trading. By the time the day was over, the Dow and the S&P had experienced their biggest one-day drop since 1987. Lawmakers in Washington continued to work on an economic rescue package. They're, of course, trying to respond to the impact of the coronavirus pandemic. Economist Megan Greene is in the studios of WBUR in Boston. She's a senior fellow at Harvard Kennedy School of Government. Good morning, Megan.

MEGAN GREENE: Good morning.

KING: So I want to step back here because this has been a really odd and interesting week. President Trump outlined some proposals to stimulate the economy on Wednesday night. And then yesterday, Thursday, the market goes into meltdown. What is happening here?

GREENE: Well, I think a piece of it was President Trump's address. He seemed nervous, so it didn't really instill confidence. You know, he made three errors in a scripted address that he had to correct afterwards. So I think that's a piece of it, but I also think that what's going on in the rest of the world and particularly Italy, where the entire country's been shut down, is playing into it as well. It just suggests that this has gone from being a supply-side shock where the worry was that, you know, American companies wouldn't be able to get parts to finish their products to sell an appliance to now being a demand-side shock where everybody's working from home. And so you don't have people out buying stuff to finally this week being a financial shock where, yesterday, the Fed had to step in with emergency liquidity measures to try to deal with some of the funding stress in the markets. And so this crisis has moved, you know, at a lightning speed from just a supply-side shock to all three kinds of shock. And I think that's driven the markets.

KING: Let me disambiguate something you said there about the demand shock because it's very easy to not quite get that, right? I go into the supermarket, the shelves are empty, there's no wipes, there's no Lysol. And I say, well, everybody's buying everything. There must be a lot of demand, right? So where's the shock coming in?

GREENE: Yeah. So there's some demand from the - you know, from people buying groceries and hand sanitizer and masks, but generally, nobody's buying washing machines or cars or big-ticket items. And also if you think about the guy who runs a coffee stand on the corner of the street in Manhattan, he's not getting business because people aren't walking to work anymore. And the Uber driver in, you know, some city where a big concert's been canceled, he's not getting rides. So if you kind of multiply that out across the entire economy, that really adds up, and that creates a demand-side shock.

KING: Congress - lawmakers are working on an economic rescue package with the Trump administration. What do we know about what's in it?

GREENE: So we know that Trump announced that he's, by executive decree, leaning on the Small Business Administration to increase loans to small and medium-sized companies that form the backbone of our economy. And he's increasing them by $50 billion, so that's a lot. That's positive. He mentioned a payroll tax, but actually, Nancy Pelosi has come out, and she's described what's being agreed. Hopefully today it'll be voted on, and it doesn't include a payroll tax. It seems like what it does include is free coronavirus testing for everyone, 14 days of paid sick leave. We're not really sure how that'll be paid for, so it could be tax rebates, it could be that companies just have to apply to get that money back - we're not sure - increased funds for Medicaid, which is really important because both states and the federal government have to contribute to Medicaid.

And so the federal government is saying we'll contribute more, which means that states won't have to make fiscally constrained decisions, especially when it comes to health care, and then, finally, enhanced unemployment benefits and food aid, which is really important if you think about lots of families who, you know, their kids get food at school as part of SNAP, and actually, if schools close, where are they going to get those meals from - so figuring out how to get money on to the debit cards that people get for SNAP, which is the food stamps benefit, and also increase unemployment benefits. So that should help, but it's nowhere near as far as we need to go. What we need to see is checks cut across the economy to everyone so you can get money to everyone, you know, the small Uber driver and the coffee shop guy. You might get checks to people who don't need them, but that's OK. We need to get money out really quickly.

KING: And you're talking, in the seconds we have left, about me just getting a check in the mail.

GREENE: Yes, that's right. And you can do it in, you know, about six weeks in theory. So that's the fastest way to distribute money and counter this demand-side shock that we're seeing.

KING: That would be really interesting. Economist Megan Greene at Harvard's Kennedy School of Government, thanks so much.

GREENE: Thank you.

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