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andrewhollo

Economic consequences of lockdown

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andrewhollo

I'm curious about the economic impacts of the lockdown, assuming it'll go on in most Western countries for another month -- or more. 

Here in Australia, we have a situation where government is:

1. Paying affected small businesses to keep employees on, to the tune of $3000/mth per person, possibly including up to 6m people, enabling them to continue economic activity.

2. Paying people like me (as a small business owner) six-figure tax credits, to assist cashflow, whether I'm affected or not.

3. Guaranteeing no-collateral loans up to $250k (at close-to-zero interest rates), again to keep small businesses operating. 

This is costing our government about $300b --- to put that into perspective for North Americans and Europeans, that's close to a year's worth of normal TOTAL government spending, it's about 25% of GDP, and if it's borrowed, it adds about 50% to our current national debt. 

Question: What do you think will be the long term economic, taxation and debt consequences of the lockdown?

Andrew

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Praveen

Instead of the big bailouts, which will be inefficiently rolled out, I wish that the government had just created a fund to pay businesses the difference between their weekly earnings from January and now, provided they keep everyone on the payroll who was there from January.  The costs might still be in the trillions, but you would not have the cascading effects of unemployment, people withholding rent, etc.  Companies would be ready to open their doors when the stay-at-home orders lift.  Now, they will have to rehire people.

I think we will have a recession, especially in certain areas like travel, because people will still be cautious, and their are so many people looking for work.

As far as the debt consequences, I don't think they will be a factor.  The highest debt-to-GDP ratio in the U.S. was at the end of WWII.  We still haven't paid it off, but it's a blip because of growth.  The same thing will happen. The economy will keep growing and this debt from a one-off event will relatively shrink.  It's like buying a $40k home in the 1980's with a $30k mortgage.  Even if you didn't pay down the mortgage, the house is now worth $400k, so the debt lost its significance.

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patrickdaly

I don’t know Andrew and nor does anyone else but it does look as if lots of sacred cows, orthodoxies and conventions are going to be out the window in economics.

People’s sense of the possible is radically changed and that effect will last for a finite period of time unless another big shock comes along. 

At a minimum, I expect an explosion in innovation and creativity over the next two years or so as the after effects of this shock reverberate around the world.

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Alan Weiss

We're back to predictions and speculation. I really find this futile. The only importance is what we do about what we know. Some days we know more, but some days, apparently, we know less. 

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