(Bloomberg Opinion) — As Americans and their elected officials struggle to deal with the economic devastation wrought by the coronavirus, there is an unheralded ray of hope: the dynamism of the U.S. economy.
There are understandable calls for complete income and payroll support for workers and businesses suffering because of the Covid-19 outbreak. After all, none of this is their fault. Even more important, a strong economic rebound depends on the continuation of relationships between employers and employees that in some cases have taken decades to build.
At the same time, I worry that even my fellow economists sometimes underestimate how adaptable the U.S. economy is. Current efforts to address the Coronavirus Recession focus first on economic relief and then on stimulus.
Relief is primarily generous unemployment benefits and payroll support for businesses that have no cash flow. Stimulus centers on efforts to increase spending by consumers, business or the government in order to jump start the flow of cash moving through the private sector.
Deutsche Bank has argued that any sort of traditional stimulus is not only inappropriate but also counterproductive: Since the government is refusing to allow people to work, the overall supply of goods and services in the economy is fixed. Increasing the level of spending on a fixed supply will only lead to bidding wars and higher prices.
The flaw in this logic is that supply is not, in fact, fixed. Instacart, Walmart, Amazon, Dollar General and CVS are right now looking to hire combined 550,000 workers to cope with the surging demand for food and other staples.
Meanwhile, online grocers have seen sales nearly double versus the same week last year. Not only are people are stocking up for what might a long quarantine, but restaurants are closed.
And while groceries and pharmacies are considered essential because they supply food and medicine, they don’t supply only food and medicine. Walmart is both the leading grocer in America and the largest retailer. To the extent that it can keep its doors open and supply chains running, it will be able to offer most of what Americans need.
This points to a larger potential phenomenon: the coronavirus economy. No one knows for sure how long the extreme social distancing measures will need to last (New York might need to hunker down for nine months). Under the worst-case scenario, efforts to slow the virus won’t abate until there is a vaccine.
Under these eventualities, America will need to create an economy that can operate under pandemic conditions. This could bring such changes as widespread touchless delivery, temperature checks at retail stores and restaurants and nightly sanitation at essential businesses. It means an expansion of health clinics, in-home physician services and perhaps the provision of social-distance-compliant day care.
Building these kinds of services will require not only entrepreneurial creativity but also a lot of labor. The U.S. has both.
A free-market economy will always try to adapt to conditions. That process happens most seamlessly when there is amble demand and flexible regulations. As Congress debates how best to respond to the pandemic, it should keep these points in mind.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Karl W. Smith, a former assistant professor of economics at the University of North Carolina and founder of the blog Modeled Behavior, is vice president for federal policy at the Tax Foundation.
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