The Case for a Coronavirus Supply-Side Stimulus
Supply-side investment in businesses is where the government can most effectively step in to spur productive spending and fill the gap we’re experiencing today.
America’s economy is at risk of seizing up. The reason is not trouble in the credit markets or concerns about liquidity, but rather a collapse in demand stemming from fears of the coronavirus.
Washington sees this collapse in demand and responds only with proposals to put more money in the pockets of consumers.
That may be necessary, but no amount of consumer stimulus is going to offset the rational fears that people have of gathering in crowded spaces. Nor will it offset the economic impact of canceled conferences or events. Businesses that provide services are experiencing a demand shock due to the virus, so while throwing cash at them may keep them from going bankrupt, it will not be sufficient to stop an economic contraction.
There will be economic pain until the current public-health crisis is resolved.
But there is one side of the equation that we must also tackle aggressively: our productive capacity.
After all, the coronavirus outbreak is not entirely a demand shock. It is creating significant demand for domestic medical services and manufacturing (think of how the price of goods such as hand sanitizer has skyrocketed since its outbreak). The spread of the coronavirus abroad has also created demand for domestic alternatives to key medical supplies now produced in China, including surgical masks, medical gowns, respirators and pharmaceutical drugs.
Normally, U.S. manufacturers would respond to these targeted increases in demand by ramping up production — allowing manufacturers to keep up with consumers’ needs and distribute vital goods, all while helping to keep the economy afloat. The problem is that, thanks to decades of offshoring our industrial base, these sectors today simply lack the capacity to meet American demand.
Of course, it is no surprise that China — the greatest beneficiary of our offshoring — immediately responded to its own coronavirus crisis by redirecting production to meet the soaring demands of its own domestic consumer base, effectively shutting exports of critical medical goods and devices to the United States.
The now-unfolding result is a vicious circle in which shortages prevent American consumers from accessing the medical goods and services they need to go out and participate in the economy.
Supply-side investment in businesses is where the government can most effectively step in to spur productive spending and fill the gap we’re experiencing today. With that assistance, businesses in areas not experiencing a coronavirus demand shock could increase production, which is what this country needs to avoid a recession or to quickly get out of one.
This, in short, is the supply-side case for stimulus. Increasing business spending where possible, especially in medical manufacturing, can help the economy produce more goods in a pinch and power through a contraction. Simply adopting strategies to offset falling consumer demand is a short-term measure that risks inflation.
Supply-side measures are no panacea, and should naturally be accompanied by other policies to mitigate the coronavirus pandemic. I have introduced a plan focused on reducing supply chain dependence on China, in particular in the production of pharmaceuticals and medical devices. In addition, I will be introducing legislation today in support of President Trump’s request that will provide the authorization for much-needed resources to the SBA’s 7(a) loan program.
Coronavirus has exposed the vulnerabilities of offshoring America’s manufacturing base — and it surely won’t be the last public-health crisis to do so. Any comprehensive solutions going forward must respond to the long-term risks heaped on by our current way of doing things and offer strategies to strengthen our supply-side and American independence as a result.
Washington must act in the face of this pandemic. Failing to address the supply-side opportunities before us would leave the best opportunities for stimulus on the table. Acting now to rebuild our nation’s productive capacity is the right move for both the present and the future.
© 2020 National Review