After the 2008 financial crisis cut stock market valuations in half and destroyed 9 million American jobs, economists identified a culprit: interconnectedness. It wasn’t so much that any individual bank was “too big to fail,” in the popular phrase; it was that each failing bank might bring the others down with it, all at once. The real world quickly reflected the panic in the financial world, as financial firms cut off the credit that supports jobs in construction, manufacturing, and consumer services such as travel and restaurants. Twelve years later, as coronavirus spreads around the world, we’re seeing an inverse of that earlier crisis of interconnectedness. The coronavirus is abruptly ripping apart the intricate physical entanglements that exist not among banks, but among people and goods. This human interconnectedness is the real-world global economy. This time around, financial markets aren’t creating the acute disruption. They are simply reflecting it. This crisis is easier to understand—but it may be harder to fix.
In late January, the United States, along with other Western governments, essentially quarantined Chinese nationals in their country, forbidding almost all tourist and work entries to the U.S. and Europe. Now, with Italy under lockdown, people from other European and Asian countries under various quarantine decrees or simply too scared to fly, and the Trump administration’s suspension of all travel from Europe for 30 days about to take effect, it’s impossible not to notice that streets are emptier. Global and domestic airlines are slashing schedules by double-digit percentages. Layoffs in this industry, which employs nearly 700,000 people, are already happening. The hotel industry, which employs 2 million, is also immediately vulnerable.
Restrictions on global movement have quickly escalated into restrictions on local movement. Workplaces are telling anyone who can work from home to do so. People working from home are not spending money on transit to get to and from work; nor are they spending money eating lunch or having a drink with friends after a day’s work. Even when New Yorkers or visitors into the city aren’t working, they’re often supporting someone who is. Last week, Broadway saw a nearly $4 million drop in revenues, or 18 percent, as 20,000 theatergoers stayed home, and now, Broadway is closed for a month. Nationally, too, the broader leisure and hospitality industry, which employees 15 million, is at immediate risk of job losses.
Drops in the stock market over the past six weeks—25 percent, so far—reflect these fears and more. The longer that people must stay home, the more anxious they will be about spending money. Just as in 2008, even people lucky enough not to lose their jobs or see a significant drop in freelance or tip income will absorb other people’s anxieties, and cut back on their spending, whether in person or online, thus harming jobs in industries not directly affected. This time, the anxiety isn’t just economic but interpersonal: why risk going out and getting a haircut when it can’t hurt to wait a few weeks? Millions of people making such decisions at the same time spell economic disaster.
What can the government do, this time around? President Trump and Congress are preparing stimulus. Of course, Washington should accelerate unemployment insurance and other benefits to people who find themselves laid off. State and local governments will find themselves with drops in tax revenue just as they have bigger bills for public-health costs and emergency-worker overtime. Targeted federal aid—when the federal government itself can borrow at record-low rates of less than 1 percent—will help.
But people are not going to go out and spend money if they are afraid to leave the house. Nor will the post-9/11 strategy work: exhorting people to show that they won’t let the terrorists win, by going to a basketball game, venturing back on an airplane, splurging on a new pair of shoes. The reality is that it’s not responsible to circulate in a crowd and thus potentially expose older or unhealthy loved ones to a potentially deadly virus. All the economic stimulus in the world won’t change that.
This phase of coronavirus, too, shall pass—though when, or how, and after how great a toll, no one yet knows. But the virus reminds us of something positive: despite all the concerns over automation and remote work, the global economy depends on people interacting with one another, whether they’re middle-class Chinese venturing on their first trip abroad or tech-industry workers going to an open office together in suburban California so that they can exchange ideas. People fortunate enough to avoid coming down with the virus will likely emerge from this crisis finding themselves stir-crazy, and lonely—and they should. In the end, the economy isn’t made up of financial instruments, or robots. It’s made up of human beings, individually and collectively.
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