Common sense to help the economy?

Having spent this week watching my investments fall and worrying about a global pandemic, I got to thinking today about how the economy could get some juice. The pundits, politicians and media are all expecting the Fed to drop interest rates but I got to wondering how that might help instill confidence, which is what’s needed both on Wall Street and Main Street. 

Obviously, the biggest impact would come from getting the coronavirus under control but other than that, what can be done? Would a drop in interest rates really make a difference or might there be another approach?

Now, I’m no economist and maybe I’m being naïve but as I understand it, rate decreases in the Fed Funds Rate are meant to stimulate demand through monetary policy. The goal is to increase the money supply by lowering interest rates, hence increasing overall demand. But demand is already high and the Fed Funds Rate at 1.75% is already low. So, other than appeasing one person in Washington D.C., who may not understand the economy as well as the average person on the street, how much difference can a ¼ or ½ point drop in rates make?

The real problem is not demand it’s disruptions in the supply chain due to the coronavirus. That’s a problem that goes beyond what the U.S. can do and requires a unified and integrated global health response. We can’t fix the health system in China or anywhere else but we can remove an administrative and financial hurdle in the supply chain that can smooth things out a bit.

All trade tariffs should be removed, at least suspended, as soon as possible. That would do two things: (1) it would have the appropriate impact on demand as foreign goods would immediately become less expensive; and (2) it would remove an administrative function that takes time and causes uncertainty in foreign suppliers. Global health problems will still exist but taking away one step in the process would make the chain move smoother and faster. 

Buying Chinese goods will still be problematic but tariffs have been placed on many products from the EU as well. Products like wine and cheese are small in the big picture but why not get ships loaded and moving, fill warehouses, lower prices and send consumers home happy.

Tariffs are essentially a hidden tax on consumers but worse because they slow down the flow of goods. Assessing them never seemed to make much sense in the first place. Removing them now would seem to be only common sense.

Agree or disagree? I’d love to hear what all my fellow “economists” think.

 I’m CEO of Oomiji, an innovative marketing automation platform that has food and wine clients, but as written here, I have opinions on the economy too. If you’d like to know more about Oomiji, contact me at jon@oomiji.com