A top banking official compared the economic damage done by shutting down businesses in response to the coronavirus to a nation-wide natural disaster.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said the economic toll of emergency regulations used to combat the coronavirus is similar to if Hurricane Katrina, which struck New Orleans in 2005, had hit the entire United States at once, according to the Wall Street Journal.
“This is, in effect, an economy-wide shock. When [Hurricane] Katrina hit New Orleans, it was a catastrophe. This is like a natural disaster hitting the whole economy at once,” Kashkari said.
“Except for food and grocery stores, most other sectors are all being squeezed at the same time, across industries,” Kashkari added. “All these firms are drawing down bank lines of credit because they’re scared. That’s the mechanism by which this natural disaster is going into the financial system.”
Kashkari noted that the brunt of the financial damage will fall on small businesses that, because they are so numerous, are difficult to send aid to individually. They also lack the resources of large corporations and are less able to weather an economic stall or collapse.
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“[With] big business, we know how to bail out airlines, car companies, we’ve done it before. But there are thousands of restaurants, bars, health clubs, coffee shops being shuttered,” Kashkari said.
Aid to the businesses most vulnerable during the coronavirus shutdown should be made available sooner rather than later, even if that means more waste and less precision in making sure taxpayer dollars go to those who need it most, according to the bank president.
“If a bunch of businesses get help that didn’t need it, that’s fine, that’s much better than taking a decade to rebuild the labor markets,” Kashkari said.
U.S. workers applied for unemployment insurance in record numbers last week. The Labor Department reported on Thursday that 3.3 million workers sent in new claims, the largest number of claims in U.S. history.
Most U.S. states have imposed regulations restricting the size of public gatherings and have requested residents limit social contact as much as possible. Thousands of businesses deemed “nonessential” during the pandemic have been ordered to close, and others, such as restaurants, have been ordered to significantly cut back their operations.
California, which reported over 4,200 total cases and 85 deaths from the pathogen by Friday afternoon, has enacted some of the heaviest regulations in the nation, threatening to charge people with a crime for leaving their homes without a state-approved reason, such as purchasing groceries or caring for a sick or elderly family member.
