Anything you can do, I can do better

Posted by: Paul Donovan

18 Mar 2020
  • Governments are competing over the size of their stimulus plans. The UK offered substantial fiscal help to small businesses, coordinated with targeted central bank easing. Spain offered business focused stimulus. However, Europe and the US are targeting different things.
  • The US proposes a package of over a trillion dollars (it has to pass Congress. That takes time and will change details). The central focus is a "Readers' Digest Prize Draw" style giveaway of USD 1,000 for every adult. This will be welcome for everyone who has lost their job. But that is the problem.
  • A USD 1,000 check buys lots of toilet rolls. In a lockdown, it does not save jobs at a bar or cinema. Service sector job losses are prevented by supporting businesses; that is the junior part of the US package. Cash for consumers focuses on phase two – supporting the bounce back – but has less effect on avoiding a double demand dip (phase one).
  • How much money is required? Around 1% of GDP per month for the length of a lockdown should save jobs (if the pain is mainly in the service sector). Medical spending, spending to prepare for a possible second virus wave, and spending to help the bounce back are also needed.

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