Neel Kashkari, president of the Minneapolis Federal Reserve, in an interview on February 17, 2016.
David Orrell | CNBC
The U.S. economy needs an even more stringent shutdown than the last time if it’s going to defeat the coronavirus, Minneapolis Federal Reserve President Neel Kashkari said.
In a Friday New York Times op-ed he authored with Michael T. Osterholm, a professor and director of the Center for Infectious Disease Research and Policy at the University of Minnesota, Kashkari argues that the government should issue a shelter-in-place order “for everyone but the truly essential workers” for up to six weeks.
March’s lockdown, issued as the coronavirus became a pandemic, was not sufficiently stringent and has led to the U.S. lagging other stricter nations when it has come to containing Covid-19, they said. The result “could make what we have experienced so far seem like just a warm-up to a greater catastrophe.”
“To be effective, the lockdown has to be as comprehensive and strict as possible,” Kashkari and Osterholm wrote. “If we aren’t willing to take this action, millions more cases with many more deaths are likely before a vaccine might be available. In addition, the economic recovery will be much slower, with far more business failures and high unemployment for the next year or two.”
During the initial lockdown, the shuttering of American businesses led to the loss of at least 20 million jobs, only about half of which have been recovered during the restart. Congress stepped in with rescue funding that has swelled the national debt by $3 trillion to $26.5 trillion, and Kashkari’s Fed also has expanded its balance sheet by nearly $3 trillion by lending and providing liquidity through various vehicles.
The containment measures also crushed broader economic activity, sending GDP down 32.9% in the second quarter as calculated over a full-year’s period.
Kashkari and Osterholm said that the efforts still weren’t strict enough as the U.S. is still seeing 17 new cases per 100,000 people a day, with more than 160,000 total deaths attributed to the virus.
“Simply, we gave up on our lockdown efforts to control virus transmission well before the virus was under control,” they wrote.
Despite the economic damage done during the initial shutdown, including layoffs, thousands of failed businesses and mental health and education issues, the authors say another lockdown would pave the way for a stronger recovery.
“If we do this aggressively, the testing and tracing capacity we’ve built will support reopening the economy as other countries have done, allow children to go back to school and citizens to vote in person in November. All of this will lead to a stronger, faster economic recovery, moving people from unemployment to work,” they said.
“There is no trade-off between health and the economy,” they added. “Both require aggressively getting control of the virus. History will judge us harshly if we miss this life- and economy-saving opportunity to get it right this time.”