Want a fast economic recovery? Invest in tests, Fed’s Kaplan says

Robert Kaplan, president and CEO of the Federal Reserve Bank of Dallas.

Mary Catherine Wellons | CNBC

Even with tens of millions of jobs lost and a historic decline in output projected this quarter, the U.S. economy could still pull off a relatively quick recovery, Dallas Federal Reserve President Robert Kaplan said on Thursday.

“If we made a dramatic national initiative for testing — and I mean dramatic …that could help create the V,” he said in an online interview with local public TV station KERA, referring to a recession characterized by a sharp decline in output followed quickly by a steep ramp back up. “The highest return on equity investment we can make in this country is testing.”

The U.S. Congress has committed nearly $3 trillion to shoring up an economy gutted by extended shutdowns aimed at slowing the spread of the coronavirus and buying time for the healthcare systems to build capacity to care for the sick.

The pandemic has infected nearly 1.4 million people in the U.S. and killed more than 82,000, with many modelers projecting deaths to surpass 100,000 by early June.

“Why not spend hundreds of billions of dollars, or tens of billions of dollars, to avoid spending trillions more? It is clearly the highest priority,” Kaplan said in the interview, conducted jointly with Dallas Mayor Eric Kaplan.

The United States has conducted more than 10 million tests for the coronavirus since the beginning of the crisis, according to the Covid Tracking Project. But in many parts of the country people can only get tested if they have symptoms, and there is no capacity for the kind of mass testing that China is using to screen Wuhan’s 11 million citizens this week to stamp out a recurrence of infections there.

After weeks of shutdowns to slow the spread of the coronavirus pandemic, the U.S. economy does need to reopen, Kaplan said. “We cannot remain shut down indefinitely,” Kaplan said. At the same time, he said, without ubiquitous testing, “people are going to be more hesitant, they are going to be slower to reengage,” and the recovery will be slow and, perhaps, a second wave of infections more likely.

The Fed has cut interest rates to zero, rolled out a raft of lending programs and bought trillions of dollars of bonds to help stabilize the economy and financial markets.

If there is a resurgence in the virus once states reopen further, Kaplan said, the Fed is prepared to do more: “It will take more Fed lending, it will take a larger Fed balance sheet, it will take more fiscal money, even though we’ve already spent trillions,” Kaplan said.

“Let’s invest a fraction of what we would have to spend on the second wave in testing, a national approach to it, particularly in dense areas, to prevent that second wave from happening – it will be a fraction of the cost.”

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