GGC economics professor offers his take on COVID-19 financial crisis
The coronavirus pandemic has created an unprecedented shift in the economy as millions of Americans adjust their daily lives to mitigate the spread of the disease. Ripple effects will likely be felt for years but, much like someone fighting the flu, the American economy will regain its full strength and vigor in time, said Jason Delaney, associate professor of economics and assistant dean for faculty development at Georgia Gwinnett College.
“This is maybe the most disruptive event we’ll witness in our lifetimes,” said Delaney. “The only thing I can compare it to is something like Pearl Harbor or 9/11, in that it’s been very unexpected. People have had to shift quickly to a new reality.”
Delaney said the question of whether the country is now in a recession because of the virus is hard to answer at this point. Indicators come in at various stages, and the country is only a couple of weeks into an economic turn that could last for months. A recession is officially two consecutive quarters of negative economic growth.
“It’s tricky to try to assess something like this as indicators come in. You can’t see a recession coming, so you don’t know you’re in a recession until you’re already in it. It’s by definition retrospective,” he explained.
In the meantime, a lot of industries are getting hit hard, particularly small businesses that rely on steady local demand.
“Obviously businesses that are personal services-related like barber shops, nail salons, massage parlors, and direct sales are really being hurt,” said Delaney. “There are a few industries that stand to benefit but not many. Grocery stores are having a heyday – but I think it will only last for two weeks or so. Then there will be a significant downturn.”
Delaney said a unique thing about this event is that it’s not simply an economic crisis. It’s primarily a health crisis, and the combination of the two has proven to be toxic for America’s financial state.
“One of the things that’s very different compared to any other financial crisis is this is very broad-based,” he said “People are just not interested in engaging in economic activity and in fact are being told not to. I went to Target last weekend and people were there, but they were not shopping. They were buying things, but they weren’t browsing. Everyone is preparing to hunker down.”
Delaney said that emergency measures such as mortgage relief, waiving overdraft fees, and refundable tax credits are good solutions for the short-term.
“Economists seem to agree that the smart move right now is to get cash in the hands of people,” said Delaney, adding that keeping things simple and keeping politics out of the process will be essential. “When you just want to put an infusion in the economy complexity is the enemy. If it becomes a source of political bargaining it just slows things down. Sooner is more important than perfect with these sorts of things.”
Where does all that money come from? Delaney said that, if needed, the U.S. Government can simply make it.
“The thing about being a government as opposed to a household is there’s always exactly as much money as the government decides there is,” he said. “If you and I wanted to go home and print more money, that’s not an option to us. But if the government prints money and says it’s legal tender, that money is legal tender.”
Historically the government hesitates to print more money because it runs the risk of people bidding up prices on goods and services, Delaney explained, which could lead to rapid inflation. However, he said inflation is not the main worry in a time like this.
“When you have a giant demand shock like this, where people just aren’t going out and buying things, the real risk we have is the opposite – prices will fall quickly. Who wants to go out and buy a dryer right now? It doesn’t matter how much Home Depot puts them on sale. When you have people withdrawing from the economy then prices go down and that can lead to deflation, which is a more serious risk than inflation.”
Deflation, as Delaney explained it, happens when people see their money becoming more valuable, so they withhold spending, which leads to prices dropping, which leads to people sitting and waiting to see if their money gets even more valuable. The result can be “a deflationary spiral that can cause the whole economy to grind to a halt.” Japan struggled with deflation in the late 90’s and early 2000’s, Delaney said, “So we know it can happen.”
Despite these daunting worst-case-scenarios, Delaney is confident the American economy will survive this crisis.
He said he sees the financial market stabilizing and climbing back up in time. He noted that as long as people are working hard and serving each other, the economy does well. Once this pandemic is sorted and we have a vaccine, he said, all of those things are going to happen again.
“The question is not whether it survives, but how well we’ll do in the interim. The people who are at risk are among the most vulnerable, not just health wise but economically. America has been through a lot of stuff and continued to flourish, and we will do it again. The thing I’m most worried about is just making sure that people are taken care of in a time that’s hard on everybody.”
Dr. Jason Delaney is an associate professor of economics and the assistant dean for faculty development for the School of Business at Georgia Gwinnett College. Delaney specializes in public economics, state and local public finance, and environmental and experimental economics. He has published articles in top field journals and has conducted research on market response to environmental regulation, experimental approaches to analysis of public goods provision and congestion, risky behavior and religion, skill-based immigration and urban growth, public expenditure analysis and equalization.
Delaney holds a master’s degree and a Ph.D. in economics from the Andrew Young School of Policy Studies at Georgia State University.
He is available to speak to reporters about the effects of COVID-19 on the local and national economy.