‘As far as I am concerned, there must be a third support package’

We see one record after another in the economy. Consumption levels have never gone down this fast and the unemployment rate has never increased at this rate. When Bas Jacobs, Professor of Public Economics at Erasmus School of Economics, looks at the economy and the current figures, shivers run down his spine. In a podcast by Brainwash, Jacobs tells us how he feels about the current situation and public policy.

'The things I see go beyond my imagination as an economist' 

When keeping an eye on the news, it is easy to see that the current situation is unprecedented in every possible way. Still, Jacobs believes that many people do not realise the gravity of the situation because wages are still being paid by the government. This is, however, also something which we have never seen before. ‘The government is taking measures that are normally unheard of. The government is going to increase the national debt by 92 billion euros in only one year. The things I see now go beyond my imagination as an economist. Reality turns out to be even more bleak than I could have ever imagined.’

Crisis-mode

We're seeing a lot of reorganisation within companies now, says Jacobs. Companies have to adjust their earnings models and throw out everything that is flexible. They are also trying to get tax deferrals in order to avoid having to go the bank. ‘The downsizing we’re seeing right now is going to have long-term consequences for the economy. If all companies respond to the situation in the same way, the interrelationships between companies will be destroyed. Many people are now in some sort of ‘crisis-mode’ and I'm afraid that the damage will be permanent because of that.’

Providing insurance and liquidity

Nevertheless, Jacobs believes that the government's crisis policy is good. The government is doing what it should be doing to keep the economy from completely falling apart: providing insurance and liquidity. ‘The government has announced a production ban, which means that supply and demand are simultaneously reduced to zero. You also see that people are being more careful in sectors that are still open. People try to avoid going to the shops and companies are also looking at which way the wind blows. Therefore, we also see a drop in demand in the open sectors. A part of the economy has been put in a coma and we are hoping that we can bring it back to life soon. Then, we need to see which part of the closed sectors is still standing.’

A third support package

The government has already announced a support package twice, and according to Jacobs, they should do this a third time. ‘Because of the economic halt in the closed sectors, we are doing so much damage which means it is going to take years for the economy to recover. We also saw this during the previous crises. Now, we must really make sure that the economy does not break down and that those sectors that are closed stay alive. I understand that this is not a situation which can be sustained forever, but the benefits from what we are doing now is so much greater than when we would say 'Just pull the plug, this cannot be saved anymore', so as far as I'm concerned, there must be a third support package.’

Professor
More information

The full podcast from Brainwash, 3 July 2020, can be found here (in Dutch). 

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