Opinion | Markets Are Spooked. How Bad Could It Get?

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Among my age cohort, there is a recurring joke that goes something like this:

But even those among the large minority of Americans without a cent invested in the stock market probably heard about Monday’s plunge, the worst since the 2008 financial crisis, which only partly reversed itself on Tuesday. (If you do happen to own stock, you might be wondering about what you should do. According to The Times’s personal finance columnist, probably nothing — except wash your hands.)

Why is the economy lurching, how bad could it get, and is there any way it can be stabilized? Here’s what people are saying.

Investors panicked because of two coinciding risks to the global economy, as Neil Irwin explains in The Times: the spread of Covid-19, the disease caused by the new coronavirus, and a shock to oil prices sparked by two of the world’s largest producers. Mr. Irwin writes:

Already, it appeared that chunks of the American economy would have to reduce operations or shut down entirely to try to slow the spread of a novel coronavirus, especially in travel-related businesses. Then over the weekend, Russia and Saudi Arabia began an oil price war that sent the price of crude to its biggest plunge in three decades — which could cause widespread bankruptcies in the American energy industry.

President Trump is partly responsible for the climate of uncertainty, David Remnick writes at The New Yorker. Of course, he says, no president can single-handedly solve a public health crisis of this nature, and the resistance to general panic is reasonable. “But Trump’s overweening self-confidence, his carelessness with language, and his suspicion of government professionals — another facet of his fear of ‘the deep state’ — exacerbates public anxiety and contributes to the chaotic national response to this crisis,” he writes.

But the Covid-19 outbreak is also exploiting vulnerabilities that long predated Mr. Trump’s presidency, says Lisa Lowe, a professor of American studies at Yale. There’s no doubt that the administration’s response to Covid-19 has lagged remarkably behind that of other countries. But many of those countries also maintain stronger social safety nets that better equip them to absorb the shock of a public health crisis. Ms. Lowe tweeted:

Underlying economic indicators suggest the real economy is strong enough to weather a downturn, The Wall Street Journal editorial board wrote over the weekend. Friday’s unemployment report for February, for example, was notably positive. The board also argues that lower interest rates should encourage more home buying, while the tight labor market should discourage employers from laying people off.

[Related: “Mortgage rates could be even lower, but lenders are struggling to keep up with demand”]

But a downturn triggered by an epidemic is unusual and harder to fight, Annie Lowrey writes in The Atlantic. Covid-19 has not only shocked demand by triggering travel restrictions, social distancing and pervasive uncertainty. It has also shocked supply, disrupting global trade and causing shortages of drugs, medical equipment and consumer goods. The problem, Ms. Lowrey says, is that the two government safeguards against economic free fall — fiscal policy and monetary policy — work primarily on the demand side.

The upheaval in oil markets could also make a considerable dent in the American economy, Clifford Krauss, a national energy business correspondent for The Times, writes, especially as Covid-19 causes energy-intensive economic activity to slow. Even if Saudi Arabia and Russia resolve their differences, a global oil glut could keep prices low for years. “Thousands of oil workers are about to receive pink slips,” he predicts.

All recessions hit poorer people harder, but this one would be especially burdensome, The New York Times editorial board writes. Should the Covid-19 outbreak accelerate, lower-income people — less likely as they are to have health insurance, paid sick leave or the ability to work from home — will pay a heavier toll in both health and wealth. “Wealthier Americans can dream of riding out the coronavirus with the help of Amazon; it is less affluent Americans who will sort and deliver the packages,” the board writes.

Limiting the spread of the virus now is the best way to minimize long-term economic harm, the editorial board adds. But an effective public health response requires short-term limits on economic activity. To offset the damage, the government should mandate and fund paid sick leave. Most developed nations require employers to provide some form of paid sick leave, but about one-quarter of American private sector workers — 32 million people — aren’t entitled to any. “Paying sick workers to stay home is good for public health and the economy,” the board writes. “It protects the physical health of colleagues and customers, and the financial health of low-wage workers who might not be able to afford unpaid time at home.”

Congress must also pass a stimulus package, the Times columnist Paul Krugman says. As he wrote last week, interest rates were already low before this shock — short-term interest rates in Europe are actually negative — so there’s little room to cut further to encourage spending. Beyond the tax cut the Trump administration is considering, which Mr. Krugman believes would be the wrong response, there are still a few options. He tweeted:

Low interest rates mean the government is in a good position to borrow funding for a stimulus package, Ms. Lowrey says. In The Atlantic, she suggests a detailed, pandemic-induced financial crisis plan. No such plan exists, but she points to potential blueprints: Harvard’s Jason Furman has argued that Congress should send every adult American $1,000 and every child $500 immediately, for example, while Claudia Sahm of the Washington Center for Equitable Growth has proposed aid for strained families.



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