Price V. Fishback is an economic historian who has served as the Thomas R. Brown Professor of Economics at the University of Arizona’s Eller College of Management since 2010. He earned a PhD in Economics from the University of Washington and is a research associate at the National Bureau of Economic Research. This interview has been edited for space and clarity.
What is the scope of the COVID-19 impact and what is the federal government doing to address it?
The Federal Reserve has come out with this thing where they are actually lending directly to commercial businesses, which is highly unusual. So a lot of small businesses that normally wouldn’t get access to credit might probably be getting access to credit now through the Fed’s facilities. One of the interesting things in the $2 trillion package that they came out with was they expanded unemployment benefits quite a bit. That was actually good, because it was taking care of people who weren’t normally going to be in there. It was supposed to include contractors and other types of people like that. But the Arizona unemployment benefits aren’t real high. The typical unemployment benefit in Arizona is 50 percent of your weekly earnings, but it’s capped at $240, which is pretty low. I was looking at the average weekly earnings in Arizona for all wage and salary workers, which is about $1,000 a week. But for someone who is in retail or sales it’s about $600 to $700 a week, so $240 is not going to do too much for them. But with the new unemployment package coming out of the federal government, they’re adding $600 a week to the benefits, so actually in some cases at least for some people who are in retail in Arizona, they’re going to make as much as 40 percent more than what they would normally make if they’re on unemployment benefits during this period. Now that’s not true for everybody, retail is relatively low and that’s a group that’s been hit pretty hard. You’re thinking about people who are working at Macy’s and in the malls and various other places like that. But that’s a pretty good package for keeping people afloat.
I think the goal of these packages has been to try to provide temporary help for two, three, four months, to help people get through this, so that the structure of the economy is not breaking down. It’s kind of a temporary halt, and then when we can get start moving around again, and start acting normally, that will release people to just start back up and if that’s the case, if you don’t have a lot of bankruptcies and all sorts of things like that, then we should get a pretty sharp recovery. They talk about these “V” shaped recoveries where you have a deep dive and then you have a big jump back up. So that’s the goal is to try and get that “V” shaped recovery rather than have a longer delay. Because if people go bankrupt or they lose their jobs and are not furloughed, then you have to restart the whole process again and that could take two, three, four, five months or even longer. You have to try to keep the basic economy structure there.
Which parts of the economy will be most impacted?
Clearly the health sector, there are serious problems in the health sector because you suddenly have all these people who are working way overtime and there’s a real risk of getting sick. The police and emergency technicians and people like that have been hit pretty hard. And then all the people who are on the front lines in grocery stores and drug stores who are still meeting with the public daily and so there’s a real risk for those folks as well. But it’s all those stores that have closed down and people who do personal services where there’s close contact, those suddenly have had to shut down. Those are the ones that are really hurting the most.
Are state and local governments doing enough to provide a safety net for businesses?
It’s hard to tell, because the biggest problem is they say $2 trillion, which is a huge amount. That’s roughly about 10 percent of a year’s GDP, maybe a little bit more than that. It reminds me of 2008 when we had the Great Recession, they rolled out about $700 billion there. They didn’t use all of that, they used only about half of it. But they had it available, they took ownership stakes in banks and did all sorts of things like that. I think they really need to make sure that they’ve just got credit facilities available for people. You really want to have forbearance, I think that’s really important. I did a bunch of work on mortgages in the 1930s and how they dealt with the mortgage problems back then, and it created the Homeowners’ Loan Corporation, which went out and bought a bunch of mortgages and then refinanced them. But the key to the success was forbearance, it was waiting and waiting and waiting and allow people like two or three months, or sometimes the HOLC was letting people go for a year and a half or two years, before they’d foreclose on the mortgage that they refinanced. But the situation we’re in now is really more like one, two, three months, just depends on how long everyone is staying home. You really just need to give people enough credit to help them pay the rent and do the kind of things that they need to do. And then you want to make sure that when it’s time to repay, that you give people an extended period of time to repay, so that they can get back on their feet without suddenly having to pay everything down.
Anything else you’d like to add?
I have some friends who have done a lot of research on past quarantines and past disasters like this, like the Spanish flu back in 1918. A friend of mine named Werner Troesken wrote a book called “The Pox of Liberty” where he talks about the trade-offs between public health and freedom. And everyone has been talking a lot about China and how they closed everything down and maybe that’s the way society should be … but when you’re limiting freedom and it’s not voluntary, there are some real problems that happen along those lines, so you don’t want to go too far in that direction. I think the U.S. has been doing a pretty good job of striking the balance by recommending and not enforcing too much people staying at home, because that freedom is one of the keys to our ability to fight this as well. It took so long for the CDC to get their test out, and then it turned out their test wasn’t working very well, and then the Food and Drug Administration was actually slowing down the ability of companies to come up with tests, that we’re at least a month behind where I think we should have been. You can see all these various private companies have come out with a whole bunch of tests recently that should really improve things.