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  • Writer's pictureJoe Carson

When Business and People "Mobility" Stops

The coronavirus is creating a sudden stop in business and people "mobility"--- as workplaces fall idle, schools close and social and business gatherings of all sorts are canceled or postponed. The potential scale of the hit to the economy is unlike anything seen in recent times given the number of businesses and people impacted and the abrupt and sharp drop in the movement of goods and people. The policy prescription must start with ensuring the medical security and safety of all people and then restoring confidence in a "safe" business environment for a rebound in "mobility".

The US economy is mainly a service economy. According to the Bureau of Economic Analysis (BEA), the value-added from all of the private service industries totaled $12.5 trillion in Q4 2019, accounting for 57% of overall GDP. Yet, the gross output of the private service sector is even bigger because the business use of service industries (such as travel and entertainment) is classified as an expense, and not included in the value-added GDP measure.

According to BEA, the gross output of all private-sector service industries totaled $23.7 trillion in 2018 (the latest available data). And the service industries that are most directly impacted by the spread of the corornavirus---Transportation, Arts, Entertainment, Recreation, Accommodation and Food Services Industries accounted for 12% of the gross output of private sector service gross output, employing more than 22 million workers.

An economic recession occurs when then there is a sharp drop in consumer and business demand. Yet, the current slump in demand is not triggered by lack of income or liquidity, but instead by a lack of "mobility". As a result, it is not possible to fix a drop in demand that is triggered by an abrupt stop in business and people "mobility" with the traditional policy prescriptions of providing more "money", in the form of a "payroll tax holiday", to people and businesses. To be fair, cash "handouts" might mitigate the demand hit to the economy, but a better approach would be to direct the fiscal resources to greatly enhance the medical response nationwide, restoring the confidence of businesses and individuals of safe environment to once again interact.

Until that happens the slide in the economy will only get worse and the financial losses will multiply in magnitude. The biggest quarterly decline in real GDP was 8.4% annualized in Q2 2008 and the largest peak to trough wealth loss of $ 9 trillion for households occurred in the 2007/09 financial recession. The US must use the right type of its policy defenses to ensure that those record declines in business activity and wealth do not occur again .

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