As economist Michael Woodford recently noted: “While it may well be eﬃcient for restaurants or theaters to suspend the supply of their services for a period […], the loss of their normal source of revenue may leave them unable to pay their rent; loss of rental income may then require the real-estate management companies to dismiss their maintenance staﬀ […]; the furloughed maintenance staﬀ may be unable to buy food or pay their own rent […], and so on.” [3] In other words, the sectoral shutdowns have disrupted the ﬂow of payments within the real economy and thereby severely constrained the spending of many businesses and households.
Monetary policy can only help in those cases where liquidity is scarce or interest rates are too high, but it cannot make up for the loss of income due to payments not made. Instead, ﬁscal transfers directly address the fundamental problem at hand, since they substitute for lost income.