It seems to me that a lot of the economic discussion of Covid impacts and policy response is still using the wrong metaphors and models. For example, we keep hearing about "stimulus" bills when that's not mostly what they are. So, some thoughts 1/

My stylized model of the economy right now looks like this: there are two sectors, essential (E) and nonessential (N). What's mainly happening is that we are — rightly — shutting down N to limit social interaction and flatten the curve. 2/

This isn't a conventional recession; it's more like a medically induced coma, where you temporarily shut down much of the brain's activity to give it a chance to heal. But doing this requires that we provide life support 3/

In particular, how are laid-off workers in the N sector supposed to keep buying essentials? They need aid — and when you consider how much of the economy is being shut down that aid has to be on a massive scale. $2 trillion isn't nearly enough 4/

So this is basically disaster relief, not stimulus, although there is a stimulus element. After all, without aid those unemployed N workers will cut purchases of E products, leading to a second round of job losses, which we also want to prevent 5/

You might ask, how do we pay for this massive disaster relief? The immediate answer is borrowing. But where will the borrowed funds come from? The answer, mainly, is the E sector. And why will that sector provide funds? Because it has drastically cut spending 6/

After all, it's not buying (not allowed to buy) N products; most of that foregone consumption will probably be reflected in saving, rather than increased purchases of still-available goods. Savings rates of still-employed households are surely soaring 7/

Add in slumping investment — who's going to build office parks and houses in a plague? — and you have vast savings looking for someplace to go. Real interest rate on long-term debt is -0.25: investors basically paying feds to take their money 8/ https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield

So we want massive, debt-financed disaster relief while the economy is in its medically induced coma. And while we're doing some of that — that "stimulus" bill was far better than the things Rs were talking about a week earlier — it's still not nearly enough. 9/

In particular, I've been talking about laid-off workers, but state and local governments, which must balance their budgets, are also facing crisis and desperately need federal aid. So that's the next frontier in this policy struggle 10/

Oh, and don't tell me about the stock market. Stocks actually rose during the deadly 1919 influenza pandemic. 11/