In fact, nobody upheld the public-health interventions as long as they should have. San Francisco reduced mortality by at least 25% – the highest rate among US cities. But, rather than reinforcing its commitment to its interventions, this success led the city to cancel its restrictions in November; a second, much deadlier wave of infections followed in December and January. Had San Francisco sustained its social-distancing rules for longer, the National Academy of Sciences estimates, it could have cut the death toll by 95%.
Political leaders might also abandon economic stimulus too soon – the second mistake that could lead to a W-shaped recession. The events of 1936-37 in the US show just how devastating this decision can be.
In 1936, satisfied with progress in recovering from the depression that had begun seven years earlier, President Franklin D. Roosevelt’s administration curbed federal spending and raised taxes. At the same time, the US Federal Reserve tightened monetary policy, doubling bank reserve requirements and sterilizing gold inflows. By 1937, the US economy had relapsed into a severe recession, which lasted through 1938.
US policymakers made a similar blunder after the 2008 global financial crisis. President Barack Obama’s fiscal stimulus program, enacted in February 2009, together with the Fed’s monetary expansion, halted the economy’s free fall. The recovery began in June of that year. But in 2011, after Republicans took control of the US Congress, the fiscal stimulus was prematurely ended, impeding the recovery considerably.
There is good reason to worry that US policymakers will make a similar mistake today. While unprecedented bipartisan fiscal and monetary measures are helping, the job is far from finished. If Trump loses the White House in the November election, but Republicans remain in control of the Senate, they may suddenly rediscover the evils of deb and once again demand policies that are effectively procyclical. After all, America’s debt-to-GDP ratio will climb above 100% by the end of the fiscal year, according to new CBO forecasts. (It doesn’t help to have entered 2020 already saddled with a $1 trillion budget deficit – a reflection of awful fiscal policy at a cyclical peak.)
Policymakers everywhere should remember a simple rule of thumb: to avoid a W-shaped recession, let “W” stand for premature “withdrawal” of public-health or economic-stimulus measures. As previous crises have shown, such proposals should be avoided like the plague.
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers.