There are elements of support that make immediate sense. Medical aid to facilitate testing and treatment, employment support for those who may be furloughed or fired, programs targeted to industries most severely impacted, and aid to states to head off local contraction would all have powerful impacts in the near-term. The programs must be sizeable: at least 1% of gross domestic product (more than $200 billion for the U.S., €135 billion for the eurozone). As we go to press, a package of that scale is reportedly being finalized in Washington; Europe will require more time.
Ideally, economic stimulus should be well coordinated across countries. But the diminished standing of global interactions and global commerce is making this difficult. At moments like these, the recent tendency of countries to go their own way is jeopardizing the health and wealth of nations. They need to come together—right now.
The Staying Put Option
Ryan reviews the rapid slowdown in travel, and deliberates whether to add to it.
My family and I were slow to decide on our summer travel plans. In this case, procrastination worked to our advantage. Conversations that began with open-ended daydreaming about destinations abroad took a darker turn: Is travel a good idea in the midst of a health crisis?
Epidemiologists have shared clear guidance that we should all avoid gatherings of large numbers of people. The recent spate of trade show and conference cancellations reflects sound judgment. Corporate travel departments are uniformly reducing business travel, not wanting to put their employees in any danger. Tourists now face the choice of whether to rearrange their plans, though new travel restrictions may make the decision for them.
Travel is a cyclical sector. We expect less travel in any economic downturn: Employers will limit travel expenses, and households can get by without a vacation. But such decisions usually follow diminished economic circumstances instead of causing them. The ordering may be reversed this time around. Airlines and hotels are already seeing mass cancellations. Their employees are braced for a reduction in hours if the slowdown is temporary, or layoffs if demand stays depressed.
International airlines started by reducing their service to areas highly impacted by COVID-19, citing low demand for these routes, safety concerns for their employees and temporary government prohibitions on arrivals from these destinations. But as the virus has spread, so has a nervous attitude toward travel and mass gatherings. An increasing number of events (including a sizeable fraction of the world’s sporting contests) have been cancelled, and an increasing number of tourist attractions have been shuttered.
When these things occur, the knock-on losses to the host city are legion: hotel rooms sit empty, restaurants welcome fewer patrons, and rideshare drivers find fewer fares. Sales tax receipts fall, affecting local governments.
Halted tourism is especially painful, as it is usually a permanent loss. While deferred purchases of durable goods can be made up as economic conditions improve, trips not taken are not recovered. Airplanes flying with empty seats today will not recapture that revenue another time. Cancelled conferences are rarely rescheduled. A family that decides against a holiday this year is unlikely to book two trips to make up for it next year.
