The viral recession

A downturn stemming from an epidemic is an unusual one. And it might prove unusually difficult for policy makers to fight, in the United States and abroad.

For one, the coronavirus epidemic has come with extraordinary, intense uncertainty. Officials are not sure how many cases there are and how deadly the virus is. Businesses and households are uncertain of how long the danger will last and what measures governments might take to counter it. People are afraid, as the market panic demonstrates, and it may take months for that fear to abate.

Second is the way that the coronavirus is stifling growth. Many recessions, including the Great Recession and the 2001 downturn, intensify when demand evaporates from the economy. Struggling businesses lay off workers. Cash-strapped consumers stop buying houses and cars. Spooked investors stop pumping money into the risky, growing ventures that vitalize the economy in the long term. To stanch the damage and turn the business cycle around, central banks lower interest rates and soak up safe assets, encouraging investors to take on more risk; congresses and parliaments cut taxes and disburse money to towns, states, and households, also spending on things like bridges, schools, and environmental projects.

But the coronavirus is not just sapping demand from the economy. It is also affecting supply. The epidemic has already led to shortages of drugs, industrial chemicals, medical equipment, and consumer goods like smartphones, as factories in mainland China shutter and those closures disrupt complicated trade networks.

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