Mar 20, 2020

New Research on the Economic Effects of COVID-19

New Mercatus research from the week of Mar 16-20
Shannon Dailey Staff Writer

Grand Innovation Prizes to Address Pandemics: A Primer

Alexander Tabarrok | Policy Brief

The world needs rapid innovation to address the myriad consequences of the COVID-19 pandemic. The sudden onset of the pandemic and its immense human and economic costs suggests that ordinary processes are not enough. The world also needs innovation and incentives to respond quickly and effectively. Prizes are an important tool for this purpose.

When we are uncertain about the best ways to combat the COVID-19 pandemic and want to draw on as many people and on as wide a domain of knowledge as possible, prizes are an important weapon in our arsenal.

COVID-19 Pandemic, Direct Cash Transfers, and the Federal Reserve

David Beckworth | Policy Brief

The economic fallout from the pandemic of COVID-19 is likely to be large. Entire portions of the US economy are shutting down, and as a result, many are calling for a large government response, including direct cash transfers to households, a proposal with growing bipartisan support.

Additionally, the COVID-19 shock has accelerated the decline of interest rates to the point that it is impairing the ability of the Federal Reserve to function. Interest rates were already falling, but the COVID-19 shock simply hastened the decline, leaving the Fed to become increasingly impotent at the very moment the economy needs it most. Ironically, these growing calls for direct cash transfers and the mounting weakness of the Fed may be the very catalyst that brings about a much-needed overhaul of the Fed’s operating framework. 

David Beckworth’s new policy brief outlines a three-step plan to ensure that the overhaul of the Fed’s operating framework can provide powerful countercyclical policy in a manner that is both systematic and based on rules. The Fed is not equipped to handle this crisis in its current state, but hopefully this policy brief will encourage discussion on these shortcomings and impress upon policymakers the need to upgrade the Fed’s operating framework.

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