Wise words from economist Brian Wesbury:
The government-mandated shutdown of business, and the massive drop in economic activity it is causing, may actually do more harm to the United States than the coronavirus itself. Early estimates suggest the U.S. economy will contract at a staggering 20% annualized rate in the second quarter, and the number may move even higher. Despite multiple recessions, global wars, the avian flu, SARS, 9/11, and natural disasters, the U.S. hasn’t experienced a quarterly drop in activity like this since the Great Depression.
The unemployment rate is likely to double from 3.5% to 7% in the coming months, representing a loss of more than 5 million jobs. And the longer the shutdown lasts, the further that number is likely to rise. Few businesses have cash hoards that can tide them over for this drastic a decline in activity. People are coming up with creative solutions, stopping rent and loan payments, but there isn’t enough money in most business coffers to survive a trillion-dollar drop in economic production. The greater the number of businesses that don’t survive, the slower the path to recovery when this global tragedy passes.
Tax payments to federal, state and local governments will fall precipitously, and many government entities will face serious financial challenges (if they didn’t already). Illinois, for example, still has billions of dollars of unpaid bills, not to mention a severely underfunded pension system. A 10%-to-20% drop in tax revenue makes these problems that much worse. And every extra day the shutdown continues, the deeper the hole is dug.
Source: Cut the Politicians’ Pay
RTWT for Wesbury’s proposed solution.