The 1930s had the Great Depression. The early 21st century had the Great Recession. Now, in the 2020s, we are suffering a Great Suppression.
With hundreds of thousands of North Carolinians out of work, many others losing incomes, and some business owners closing up for good, the consequences of the COVID-19 downturn will be severe no matter what term we choose.
But the Great Suppression — a label I’m borrowing from Gene Epstein, the former economics editor of Barron’s — is an apt description of the current economic crisis. Its causes bear little relationship to the monetary, fiscal, and regulatory policies that helped spark or prolong earlier recessions. Purposefully, and arguably necessarily, the government has prevented the production of goods and services. It has forced workers and consumers to stay home. It has massively suppressed the economy.
As I have previously argued, regardless of how tight you think the restrictions ought to be to “flatten the curve,” a stay-at-home order is not a medium-term plan. North Carolinians cannot endure it for months without a massive cost in incomes, freedoms, safety, and lives.
I believe Gov. Roy Cooper and other leaders understand this reality. I must assume they are making plans for a staged reopening of the state’s economy in the coming weeks, one that will rely on social distancing guidelines, widespread use of masks and other protections, and an emerging body of data that distinguishes higher-risk areas and activities from lower-risk ones.
We should not fool ourselves into thinking, however, that such a reopening will result in an immediate, V-shaped recovery from the Great Suppression. It’s going to take a while. State economists say they don’t expect an upswing in gross domestic product until the fourth quarter of 2020. Even that may be overly optimistic.
For one thing, employment isn’t just going to snap back. In its understandable rush to impose sick-leave requirements, expand unemployment-insurance benefits, and cast a lifeline to struggling businesses, the federal government has made the labor market far more rigid than usual.
For millions of Americans, they stand to make more money staying home through the end of July than they would returning to their jobs, because of the way Washington set the UI benefit. Their effective stay-at-home wage may approach $20 an hour — or more. Some in Congress are saying the expanded benefits should stay in place past July, or in some form permanently. This would be a recipe for disaster, of course, but that doesn’t mean it couldn’t happen.
“Well, just raise the minimum wage!” say progressives — but this is a bizarre suggestion. One might debate the disemployment effects of a modest minimum-wage increase during an economic expansion. But when the jobless rate is in the teens and consumer demand is soft, jacking up the wage floor by such an amount would be catastrophic. Businesses cannot pay workers in excess of the productivity of their labor for long. They will have to raise prices, automate some jobs, or do some combination.
Speaking of businesses, the federal government’s Payroll Protection Program is, unsurprisingly, not going according to the original plan. The regulatory burden on lenders is larger than Congress claimed or even intended, the Trump administration subsequently made the loan forgiveness harder for some businesses to retain, and the backlog of claims has slowed down the speed at which firms will receive the money to cover payroll.
If the recovery from the Great Suppression proves to be sluggish, politicians will inevitably call for even more borrowing and spending as a “stimulus.” But here’s another inescapable reality that the COVID-19 crisis is compelling us to face: the federal government cannot endlessly run deficits.
Past Democratic administrations expanded entitlements rather than reforming them. And past and current Republican administrations didn’t accompany their tax cuts with spending cuts. Bipartisan fiscal irresponsibility has put the federal government in a poor position to respond effectively to a genuine emergency.
The Great Suppression is underway. I fear it may linger for a painfully long time.