What if the government hadn’t released any Coronavirus economic stimulus?

It is March 23, 2020. After a month of testing fiascos, COVID-19 is ravaging the United States, with 40,000 cases in the US and 360,000 worldwide. There is a growing sense of panic as cities begin to lock down. Market circuit breakers have triggered four times in quick succession, with the stock market losing 30% of its value in mere weeks. There’s no sign that the worst is over.

covid-mar-23Above: Global Coronavirus stats on March 23, 2020, when the S&P 500 reached its lowest point during the pandemic (Source).

With businesses across the country closed and millions out of work, it’s clear that a massive financial stimulus is needed to prevent a total economic collapse. However, Congress is divided and is unable to pass the bill. Even when urgent action is needed, they squabble and debate over minor details, refusing to come to a compromise. The president denies that there’s any need for action. Both the democrats and the republicans are willing to do anything to prevent the other side from scoring a victory. The government is in a gridlock.

Let the businesses fail, they say. Don’t bail them out, they took the risk when the times were good, now you reap what you sow. Let them go bankrupt, punish the executives taking millions of dollars of bonuses. Let the free market do its job, after all, they can always start new businesses once this is all over.

April comes without any help from the government. Massive layoffs across all sectors of the economy as companies see their revenues drop to a fraction of normal levels, and layoff employees to try to preserve their cash. Retail and travel sectors are the most heavily affected, but soon, all companies are affected since people are hesitant to spend money. Unemployment numbers skyrocket to levels even greater than during the Great Depression.

Without a job, millions of people miss their rent payments, instead saving their money for food and essential items. Restaurants and other small businesses shut down. When people and businesses cannot pay rent, their landlords cannot pay the mortgages that they owe to the bank. A few small banks go bankrupt, and Wall Street waits anxiously for a government bailout. But unlike 2008, the state is in a deadlock, and there is no bailout coming. In 2020, no bank is too big to fail.

Each bank that goes down takes another bank down with it, until there is soon a cascading domino effect of bank failures. Everyone rushes to withdraw cash from their checking accounts before the bank collapses, which of course makes matters worse. Those too late to withdraw their cash lose their savings. This is devastation for businesses: even for those that escaped the pandemic, but there is no escaping systemic bank failure. Companies have no money in the bank to pay suppliers or make payroll, and thus, thousands of companies go bankrupt overnight.

Across the nation, people are angry at the government’s inaction, and take to the streets in protest. Having depleted their savings, some rob and steal from grocery stores to avoid starvation. The government finally steps in and deploys the military to keep order in the cities. They arrange for emergency supplies, enough to keep everybody fed, but just barely.

The lockdown lasts a few more months, and the virus is finally under control. Everyone is free to go back to work, but the problem is there are no jobs to go back to. In the process of all the biggest corporations going bankrupt, society has lost its complex network of dependencies and organizational knowledge. It only takes a day to lay off 100,000 employees, but to build up this structure from scratch will take decades.

A new president is elected, but it is too late, the damage has been done and cannot be reversed. The economy slowly recovers, but with less efficiency than before, and with workers employed in less productive roles, and the loss of productivity means that everyone enjoys a lower standard of living. Five years later, the virus is long gone, but the economy is nowhere close to its original state. By then, China emerges as the new dominant world power. The year 2020 goes down in history as a year of failure, where through inaction, a temporary health crisis led to societal collapse.


In our present timeline, fortunately, none of the above actually happened. The democrats and republicans put aside their differences and on March 25, swiftly passed a $2 billion dollar economic stimulus. The stock market immediately rebounded.

There was a period in March when it was seemed the government was in gridlock, and it wasn’t clear whether the US was politically capable of passing such a large stimulus bill. Is an economic collapse likely? Not really — no reasonable government would have allowed all of the banks to fail, so we would likely have a recession and not a total collapse. Banks did fail during the Great Depression, but macroeconomic theory was in its infancy at that time, and there’s no way such mistakes would’ve been repeated today. Still, this is the closest we’ve come to an economic collapse in a long time, and it’s fun to speculate about the consequences of what it would be like.

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