Keeping Business Alive: The Government as Buyer of Last Resort by Emmanuel Saez and Gabriel Zucman
The coronavirus threatens the world’s economic life. Social distancing measures, essential to fight the epidemic, are sharply reducing demand in sectors such as transportation, restaurants, hotels, and entertainment. Other industries will have difficulties producing due to supply disruptions (employees unable to come to work; outbreaks closing down firms). This direct output loss is expected to be short, probably a few months. Although the government cannot undo this direct output loss, it can alleviate economic hardship during the epidemic and prevent the direct output loss from causing lasting damage to the economy.
Absent government actions, the direct output loss will create large losses for businesses and may lead to mass layoffs. Many businesses and workers do not have enough liquidity to weather dramatic shortfalls in demand. The risk is to see many businesses liquidate, severely affecting workers’ families. The death of a business has long-term costs: the links between entrepreneurs, workers, and customers are destroyed and often need to be rebuilt from scratch; laid off workers need to find new jobs. Keeping businesses alive through this crisis and making sure workers continue to receive their paychecks is essential—even for businesses and workers that have to remain idle due to social distancing…”
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