The coronavirus has caused millions of American workers to lose their jobs, and millions more will be out of work before the end of the pandemic. The longer state governments force businesses to close their doors, the likelier it becomes that the economy will go into a depression.
The Federal Reserve of St. Louis has estimated that 47 million Americans will become unemployed, which is equivalent to a 32% unemployment rate. To put that in perspective, the highest unemployment rate of the Great Depression was 25%. There has never been a negative supply shock caused by public health emergencies to this magnitude, and it has prompted economists and policymakers to ask how long the country should wait until we re-open the economy.
CNBC reported, “Nearly 50% of companies say they are at least somewhat likely to conduct layoffs over the next three months due to coronavirus COVID-19, while more than one-third of firms (37%) say they already have instituted a hiring freeze.”
On Sunday, President Trump announced that he has extended his guidelines on how to stop the spread of the virus before April 30. Trump had been floating around the idea of re-opening the economy by Easter. However, that wasn’t practical given the continuing rise in reported infections, and he reversed course.
Trump and others have contemplated the tradeoffs between closing the economy and longer-term damage to the economy and other issues that may arise. But how exactly do we strike that balance? Robert Kaplan and Mickey Levy have some ideas and they articulated some possible solutions in The Wall Street Journal.
“There recommendations warrant further discussion here. They posited that the country should expand testing, choose an appropriate yardstick, protect the vulnerable, and let the young return to work first.
They argued that the vulnerable should be kept isolating, writing that ‘the elderly and other high-risk populations should be identified, quarantined until the acute stage of the epidemic has subsided, and provided with guarantees of home delivery of food and necessities.’
They wrote that “for young, healthy people who contract the virus, it isn’t a death sentence and symptoms are relatively mild. If people are allowed to return to work but develop symptoms and test positive, they and those in contact with them should be quarantined and treated, as in Singapore. Those who have recovered or are tested and found to have antibodies against the novel coronavirus are likely to be at low risk for reinfection and could be allowed to return to work.”
As I have written previously, the economy isn’t like a game of street hockey where, when a car is driving down the street, you pick the net up and yell “game off” and then put the net back and yell “game on” when the car drives away. Businesses take years to grow their customer base and establish supply chains. You can’t put Humpty-Dumpty back together again overnight. Severe dislocation will occur in the business and labor market.
This an unprecedented health and economic crisis. At some point, our leaders are going to have to make a decision about how America is going to re-open for business. If they make the wrong call, we will have another Great Depression on our hands.