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In Washington, the focus has now turned to the economic response to the coronavirus pandemic, with experts and politicians proposing their preferred policy tools — ranging from tax cuts to corporate bailouts to direct payments of cash. Each is worth debating, but the focus is misplaced. This is not an economic crisis; it is a health-care crisis.
The distinction may sound academic. But understanding it is actually vital to designing the policies that should follow.
In an economic crisis, you could imagine a situation in which people lose their jobs and are unable to spend money. That’s called a demand shock, which is what happened during the global financial crisis of 2008. Or producers could raise prices (for various reasons), making it harder to buy their goods. That’s a supply shock, and it describes the oil crises of 1973 and 1979. But what is happening now cannot be addressed primarily by economic responses, because we are witnessing the suspension of economics itself.