To manage this dilemma, policymakers need to get creative. Instead of the usual formula of cutting interest rates — as the Fed just did — lowering taxes, or mailing people checks — as the White House and the Senate have agreed to do — we need targeted spending and regulatory interventions that stimulate the economy while promoting public health. One way to do that is by encouraging consumers to spend online.
When the Fed cuts interest rates, borrowing gets cheaper. Borrowers spend some of this cheap money on goods and services, such as restaurant meals and vacations. Similarly, President Trump’s past proposal of lowering payroll taxes puts more money in people’s pockets. If the stimulus works as planned, people spend the added money on services or goods.

In a typical recession, these effects are desirable. Unfortunately, what worked in previous recessions won’t work for coronavirus. If schools and businesses are closed by order of public health authorities, then lower interest rates and tax cuts do not increase spending much. Instead, people are likely to save the money, undermining the stimulus effect. And if people do spend the money instead of saving it, monetary and fiscal stimulus may harm public health by encouraging people to go out and spend.

In response, economic policy needs to promote spending that improves, rather than detracts from, public health — a task that requires a mix of regulation and fiscal policy that I call “law and macroeconomics.”

Because social distancing mandates have devastated the economy, policymakers need to find a way to rapidly increase spending and employment in the segments of the economy where increased spending does not endanger public health. Buying and selling goods and services virtually presents fewer health risks than doing so in person because it does not require in-person interaction. Many service providers, such as personal trainers and restaurant chefs, are suffering, but there is an opportunity for them to offer their services online because in-person demand has shriveled.

To boost virtual service provision, like online personal training or cooking instruction, Congress should send each US resident a $1,000 virtual services voucher that expires at the end of June.

Another voucher should be sent if the coronavirus continues to spread and social distancing continues into the next quarter. People could spend the voucher on services from any provider who signs a legal document asserting that they are providing online services. Because the voucher expires, people would spend the money quickly instead of saving it, stimulating the economy now and reducing unemployment in the services sector. At the same time, the voucher improves public health by shifting spending to less risky channels.

Responding to the interconnected threats of coronavirus and global recession requires creative policymaking. Ordinary monetary and fiscal stimulus will not work in this case. Instead, we need to promote virtual goods and services that keep the public healthy and stimulate the economy at the same time.

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