This year has been the worst in many countries around the globe. This is because the virus has put a lot of countries under pressure, especially on the economic part. At the beginning of the pandemic, several countries put measures to control the spread of the virus. Some of these measures affected the economies of countries. For example, borders and international flights were not operating hence there were no international visits. This makes a loss in the county’s economy in the tourism sector specifically.
However, some countries decided to reopen most of their economic activities. In some countries, it had a positive impact whereas in others such as the United States the impact was negative. This is because the US reopened too early and their economy got no better. We see this as there is an increase in the number of coronavirus cases and deaths hence increasing fear in people.
There are more than 5 million cases in the US and 160000 fatalities. Some few months ago there was an increased number of people who filed for unemployment claims. The US government intervened in the situation and promised to give some unemployment benefits. The fear of people returning to business and the increased rate of unemployment has affected the nation’s economy.
How Does Unemployment and the Virus Affect the Economy?
An economy means the state of a country in terms of its production and consumption of goods and services. Factors such as labor, human capital, and tech determine the growth of the economy. So, when people do not go to work, there is a reduced level of economic activities in terms of production. As a result, the firms will not generate enough money to pay the workers. In turn, the workers will not have money to pay taxes and consume goods and services.
This will cause pressure on the government’s side forcing them to borrow and burden the future generation. On the other side of firms, they will not have enough money to cater to the costs such as salaries hence laying off people.
The negative impacts of the economy cut across a larger portion than just on employment. Therefore, countries ought to be careful not to mess up their economies more. Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, gives a solution for the US to save its economy.
Neel Kashkari’s Views
He says the solution is for the country to reimpose lockdown measures for more than 4 weeks to save people’s lives.
“If we aren’t willing to take this action, millions of more cases with many more deaths are likely before a vaccine might be available.”
He says that when there was a lockdown there were good effects but the government removed the lockdown earlier. This failed to give the health officials enough period to bring the coronavirus under control. Hence an increase in the rate of infections and a negative impact on the economy.
Neel says the nation needs a harsher lockdown until the health officers can control the disease. After that, the nation can consider returning to normalcy.
During Neel’s interview, there was an issue of increased fed unemployment benefits racking up the debt. Racking up means to accumulate the level of debt. When the governments run a deficit in its budget, it will have to borrow from abroad or locally to cater for the deficit. In this case, when the US has no more money to pay the benefits, it will have to borrow and this increases the fed debt.
Kashkari says that during this economic recession, the savings rates have increased significantly. Personal savings have increased from 8% to more than 18%. The financial authorities then put the cash in banks. Through the act of putting money in the banks, there are enough resources, so the government will not borrow a lot from abroad.
An increase in domestic savings can help the US government fund the increased unemployment benefits. Therefore, it would be wise for the US to reimpose lockdown measures to save the economy and avoid additional costs.