While people like me are fortunate that we work mainly in front of a computer and can do so at home, the majority of Californians are not so lucky. Other retailers are shut down, and those include bars and restaurants, with restaurants (mercifully) allowed to do take-out. Governors of Illinois, New York, Louisiana, Pennsylvania, Michigan, Connecticut, Oregon, New Jersey, Delaware, Nevada, Kentucky, Massachusetts, Ohio, and Indiana have imposed similar restrictions. Interestingly, of the 15 states with such orders, 12 have Democratic governors. Only three—Massachusetts, Ohio, and Indiana—are Republican. (The nationwide split is 24 Democratic governors and 26 Republican.)
These governors have badly overreacted. There is good, if arguable, evidence for the view that the risk of the coronavirus is much smaller than Newsom and other government officials have claimed. But there is no uncertainty about the fact that the damage these restrictions will do to the U.S. economy is huge. And remember that while “the economy” is an abstract concept, 330 million humans are not. The damage to them is already real, and will increase. There are good and bad ways to recover from the recession that is almost certainly upon us as a consequence. Fortunately, the Federal Reserve looks as if it will engage mainly in the good ways. Unfortunately, many of the solutions being proposed by Congress and President Trump at the time of this writing (March 24), look to be mainly bad.
This from my latest Defining Ideas article, “How to Hobble the Economy–and How to Revive It,” Defining Ideas, March 25, 2020.
Also, while I rarely make predictions about unemployment rates for the next month or so, I’m reasonably confident about this one:
Of course, how much damage the state governments’ restrictions will do depends mainly on how long they last. On April 3, the Bureau of Labor Statistics will report the March unemployment rate, and the unemployment rate is probably the most important indicator of economic conditions. But because the extreme restrictions started last week, and because the BLS collects data in approximately the middle of the month, we won’t see the full effect. So we might see an unemployment rate of about 4 percent for March, up from 3.5 percent in February. But if the “shelter in place” restrictions are not lifted by, say, April 10, that month’s unemployment rate will likely top 8 percent. Even if it jumped to “only” 7 percent, that would be the biggest one-month jump in the unemployment rate since the federal government started tracking the monthly rate in the 1930s.
Read the whole thing, especially if you want me to respond to your comments.
NOTE: I learned something new yesterday about how the BLS collects the data on unemployment. Thus both the article and the paragraph are rewritten accordingly.
READER COMMENTS
john hare
Mar 25 2020 at 2:26pm
Florida restaurants and bars shut down except take out and delivery. Theme parks closed.
Side note, uncertain if on topic. One restaurant manager I know called all the servers after the order went into effect Friday and asked if they still wanted to work. The answer from most of them was “what would I be doing?”. Whatever we need to do to keep the doors open had over half decide to stay home. Seems odd that people that need their paychecks would turn down work.
Alan Goldhammer
Mar 25 2020 at 3:17pm
My state of Maryland which was second after Ohio to implement lock-down provisions has a Republican Governor. I believe Gov. Hogan made the right decision.
Alan Goldhammer
Mar 25 2020 at 3:43pm
David – I did follow your advice and read the paper. It convinces me more than ever that economists while very intelligent in their own field of expertise venture outside of that at their own peril. I know that lots of economists like to point to Singapore, Taiwan and the Diamond Princess as case studies but they do not approach what happens in uncontrolled geographical areas such as Lombardy where the fatality rate was far higher (with the caveat that we do not know what the base infection number is). Singapore and Taiwan are both Islands that can be closed off quite easily; they also have modest population sizes and Singapore is more of an autocracy than a democracy.
Governors have to make the tough calls in the absence of Federal leadership. I’ve been looking at all the models that have come out from various research groups along with the drug and diagnostic test developments. Social distancing is imperative. One of the models I particularly think is well done comes from a Greek/Italian collaboration looking at Lombardy based on the clinical case data. They extrapolated to a potential Day Zero of January 21 based on pretty sound epidemiological modeling and predict that the virus will fade out by mid-May. Had the scope in morbidity and mortality been known ahead of time, putting some kind of lock-down in place early on once the infection was confirmed would have shortened this time considerably.
If the infection rate is 60% in an uncontrolled population with a 0.1% mortality rate (the high end for the two recent seasonal flu outbreaks of 1957 and 1968 but well short of that of the 1918) would lead to perhaps 198,000 deaths if nothing was done. I don’t agree with the Imperial College scenario that some countries are using to argue for stringent controls. This is the type of data that makes it difficult to proceed with a business as usual approach. Personally, I think there are regions that can get back to business sooner with appropriate travel restrictions so that secondary outbreaks are avoided.
I’ll only address one final point, that of a rapid diagnostic. This is critically needed but it has to work! A test with only 60% true positive accuracy is worthless if one is to rely on it to make policy decisions. AFAIK, there is no simple check swab collection for SARS-CoV-2 similar to how the genetic test companies collect specimens for ancestry analysis. The nasal swab collection technique requires a long swab that goes way back into the distal sinus area, not something easily done at home. If you have every had a Strep test done in a doctor’s office you know how far back in the throat they go. If we cannot collect reliable data, we are back to the old aphorism often used – “garbage in garbage out.”
Christophe Biocca
Mar 25 2020 at 6:05pm
I don’t think that’s right, unless you define “default” as able to replay the whole principal but none of the interest.
If “default” means a complete writeoff on those particular loans, then the federal government can turn a profit for a default rate of up to 4%.
David Henderson
Mar 25 2020 at 11:45pm
You’re right. I was assuming some degree of default rather than all or nothing.
Michael Sandifer
Mar 26 2020 at 6:07am
I hope David is right, but I don’t think he is. It is deeply irresponsible to generalize the numbers on this cruise ship to the broader population. I think he underestimates the potential selection effects and how little we actually know about the relevant details of this cruise ship environment.
Also, I think mentioning the states that have lockdown orders in place largely misses the point. I’m in Jacksonville, FL, and the extent of voluntary lock-ins is remarkable. It is difficult, for example, to even find many local restaurants that are open at all, and street traffic has reduced dramatically. There are no police officers or national guard units on the streets enforcing restrictions.
Also, I think these “shelter in place” orders are to a pretty high degree consistent with the sentiments of the majority inof voters each state. Much of the demand for such orders I suspect is actually bottom-up.
David Henderson
Mar 26 2020 at 3:54pm
You write:
I didn’t generalize. I actually did point out selection effects. That was part of my argument.
I’m curious. If you think it’s bad to generalize from the closest thing we have to a controlled experiment, are you consistent in thinking it’s even worse, then, to generalize from the crappy data we have?
You write:
I think that’s true. It’s often the case that majorities demand policies and government provides them. That proves nothing. Your Jacksonville, FL evidence about restaurants is a better way to make your case. But isn’t it interesting that literally thousands of businesses in San Francisco didn’t close down until the mayor ordered them closed? Coincidence? I think not.
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