discuss 2nd order effects of economic shutdown

[kenmoremmm]

there is the obvious immediate term impact of the shutdown of a large chunk of the economy as a result of covid-19.

how do you see 2nd order effect playing out?

for example: states and federal government will have taxes collected slashed by at least 2 months' worth (maybe more or less depending on length of shutdown, and there are also taxes that continue to come in like property taxes)

once the economy "restarts" - whatever that looks like - states and fed will realize that their budgets have imploded and there'll be mass layoffs + cancellation of planned work, creating a secondary gut punch to the economy.

while my job looked secure (working on state-funded projects lasting through the end of the year), i question whether there'll be any money in budgets in 2021 while everyone tries to rebalance. or, will everyone just borrow like there's no tomorrow?

[Michael in ABQ]

Governments won't lay people off - they'll just issue more bonds or decide not to pay into pensions.

My state just decided on some very substantial increases in spending during the January legislative session. After all, with booming oil production revenues were projected to increase as much as a billion dollars - not bad when the state budget is normally around $5 billion. Fast forward to oil prices crashing and projected revenues falling and nary a peep from the state government about cutting all the new spending they just promised. Maybe they'll change their mind in a couple of months when the impact of lower tax revenue provides the second hit. I doubt it though.

[GuitarStv]

Now that most governments are paying people to do nothing and stay at home, I'd expect that people who are required to work from home or to work in public will be less and less enthused over time and there will be difficulty finding replacements.

[Scotland2016]

I work for a state university. There is already a hiring freeze and we are anticipating major cuts.

[AnnaGrowsAMustache]

I think a lot of bullshit jobs will go, maybe for good. If you can't produce a primary product or an important food/water/shelter type of service, you may be headed for the scrap heap. "You" being an organisation.

I think the law will be one place that does quite well, however. There will be law suits up the wazoo after this, especially tenancy and employment law.

[marty998]

It takes a lot longer for tax receipts to bounce back. This is because a lot of companies out there will have income tax losses carried forward for a few years to come.

The Australian experience after the GFC suggests this could go on for 5 or 6 years before tax receipts return to normal. Possibly more.

[talltexan]

Governments won't lay people off - they'll just issue more bonds or decide not to pay into pensions.

My state just decided on some very substantial increases in spending during the January legislative session. After all, with booming oil production revenues were projected to increase as much as a billion dollars - not bad when the state budget is normally around $5 billion. Fast forward to oil prices crashing and projected revenues falling and nary a peep from the state government about cutting all the new spending they just promised. Maybe they'll change their mind in a couple of months when the impact of lower tax revenue provides the second hit. I doubt it though.

They might do the pension thing, but encouraging layoffs means increasing pension outflow, too. There's no easy fix for the fact that 49 of these state governments are required to balance their budgets, apart from the Federal gov't stepping in to backstop their revenue shortfalls, but that isn't popular in Washington.