One Simple Idea That Explains Why the Economy Is in Great Danger

Neil Irwin in the New York Times:

To understand why the world economy is in grave peril because of the spread of coronavirus, it helps to grasp one idea that is at once blindingly obvious and sneakily profound.

One person’s spending is another person’s income. That, in a single sentence, is what the $87 trillion global economy is.

That relationship, between spending and income, consumption and production, is at the core of how a capitalist economy works. It is the basis of a perpetual motion machine. We buy the things we want and need, and in exchange give money to the people who produced those things, who in turn use that money to buy the things they want and need, and so on, forever.

What is so deeply worrying about the potential economic ripple effects of the virus is that it requires this perpetual motion machine to come to a near-complete stop across large chunks of the economy, for an indeterminate period of time.

No modern economy has experienced anything quite like this.

More here.