The case for extreme measures
There's no such thing as being too early. That's the big lesson from the COVID-19 crisis: The risks of overreacting are minuscule compared with the risks of waiting to see how bad things get before you act.
Why it matters: The U.S. is already suffering from waiting too long to prepare itself for the medical emergency.
- And Congress is debating a trillion-dollar fiscal stimulus plan — one that former Minneapolis Fed president Narayana Kocherlakota says should be closer to $2.5 trillion.
- Top of mind for decision-makers should be the risks of not doing enough.
The big picture: The first case of COVID-19 in South Korea surfaced on Jan. 27 — exactly the same day that the first case of COVID-19 was found in the U.S. The Korean response was swift and aggressive; the U.S. response wasn't. The result is that Korea has the pandemic under control, while the U.S. does not.
How it works: The Federal Reserve is a good example of a U.S. agency that has tried to err on the side of doing too much too soon. It slashed interest rates on March 3, two weeks before its scheduled meeting, and then brought them down to zero during the weekend of March 15, along with a passel of other actions copied and pasted from the 2008 financial crisis handbook.
- The Fed even backstopped money market funds on Thursday, despite the fact that they are currently experiencing inflows and need no such backstop. Better safe than sorry.
The bottom line: When Italy quarantined 16 million people on March 8, it felt like an extreme measure. Now that Italy's COVID-19 death toll has surpassed China's, it doesn't look so extreme.
- No one is harmed by doing too much too early.
- The cost of doing too little is measured not only in billions of dollars of economic activity, but also in human lives.