Glenn Hubbard on How to Avoid the Demand Doom Loop
The former chair of the Council of Economic Advisers says the government needs to cover businesses’ lost revenue.
If you shut down an economy in a pandemic, you need to replace private business demand. Think about all the small and midsize firms who have to turn off a switch and just not operate for eight weeks, 12 weeks, whatever it is, and lay off all their employees. That’s a cataclysmic event. The health part is unavoidable. What’s avoidable is the demand doom loop, and to do that you’d have to fill in private demand.
It doesn’t mean mailing $1,000 checks to everybody, though I have nothing against that. It means doing something for businesses. If I were doing it, it’s replacing a significant fraction of revenue for small and midsize firms, the small-business owner. [His plan is to replace 80% of a business’s revenue loss for as long as the pandemic lasts.] I go to the bank—not a new government entity—and get a loan. It would be guaranteed by the government, and that loan would be forgiven at the end of the pandemic period provided I’ve kept my employees in place. So you’re keeping your employees, the relationships, and the business network in place. And when the lights come back on and the pandemic is over, you’re ready.