State Watch

Easing lockdowns seen unlikely to stop economy bleeding

Several states including Georgia and Texas moved to stanch the economic bleeding from the coronavirus pandemic by beginning to ease lockdown restrictions this week.

But given widespread fears about the virus and contagion, economists say, they may not see much economic benefit, and instead risk new outbreaks, especially as the country remains far behind in its testing capabilities.

“Even if the government were to open up everything — you can go to bowling alleys, you can go to restaurants, you can go to anything you want — people aren’t necessarily going to feel safe,” said Paul Pfleiderer, a finance professor at the Stanford Graduate School of Business.

“Opening up the door of a restaurant does not mean that people are going to come into that restaurant. They’re only going to do that if they’re fairly confident or quite confident that they’re going to be safe,” he added.

Georgia Gov. Brian Kemp (R), in particular, has come under heavy criticism by those who believe he’s moving too quickly to open a wide variety of businesses, including tattoo parlors, barbershops and nail salons where close contact is inevitable, before the coronavirus infection rate has fallen.

Stay at home restrictions will be lifted for most of the state’s residents on Friday, continuing Georgia’s gradual easing of restrictions, though Kemp has still urged people to stay at home. 

Whether people will venture out to businesses remains uncertain. While results of a clinical study of anti-viral drug remdesivir have shown promise, a “home run” treatment remains elusive and scientists say a vaccine is unlikely before January in the best-case scenario.

“People are essentially scared at the moment. Even if you open up, people aren’t going to show up at the store,” said Alessandro Rebucci, associate professor at the Johns Hopkins Carey Business School.

“We’ve seen that in China,” Rebucci added. 

In China, where tough lockdowns, widespread testing and a technologically-based system of contact tracing have been put into place, manufacturing activity has shot back up, but small businesses and services are facing a sluggish recovery.

“Risk is still so elevated that individuals aren’t willing to take those chances,” Rebucci said.

There’s reason to believe the same thing would happen in the United States. Consumer confidence has plunged 30 percent since the start of the pandemic, according to Morning Consult, reaching levels typically seen over the course of a recession in just a month.

Morning Consult asked people how soon they’d be comfortable getting back to a variety of activities, such as going to restaurants, the gym, a work conference or a shopping mall. Across the board, the proportion who said they’d be ready to go within the next two weeks were in the single digits.

“For most activities, it’s three to six months out, and that’s regardless of whether there’s a ban or not,” said John Leer, a Morning Consult economist.

“Consumers are closely following the health outcomes, that they’re updating their views on the economy on a daily basis based on these outcomes,” he added.

Political leanings may matter. Red states that tend to be opening up may see more of an uptick in activity than bluer states: a Gallup poll found that while just 22 percent of Americans are ready to return to normal activities, the number is double among Republicans.

For many, the concern is that the moves to shore up the economy will not only fall short of benefiting businesses, but also lead to a resurgence in COVID-19 cases, which in itself would further damage the economy in the longer term.

“Opening up has dangers to it, serious dangers,” said Lawrence Casalino, a professor of public health at Cornell’s Graduate School of Medical Sciences.

“I do think that chances are we’ll have a resurgence of the virus. We won’t catch it soon enough, and psychologically and economically, it’ll be devastating,” he added.

A Brookings study by Jonathan Rothwell and Hannah Van Drie looked at 20 wealthy countries to compare their health outcomes with their economic outcomes, and found that even the places that did not impose tough restrictions saw major economic downturns.

“A key thing that comes out of this analysis of looking at different countries is that there really doesn’t seem to be an easy way out economically,” Rothwell told The Hill.

“If people feel unsafe or are worried about transmitting it to people who are most at risk, they’re going to change their behavior in pretty significant ways, even if businesses are open,” he added.

The four countries that have managed to keep their unemployment rates and death counts relatively low, such as New Zealand, Australia, Denmark and Germany, had put in place effective systems of testing, he said.

Sweden and Iceland, for example, have fallen on the more lax side of the lockdown spectrum, but Sweden has seen its death rate soar, whereas Iceland employed a high level of testing and strict quarantining to keep it down.

Critics of states that are moving to reopen without widespread testing cite other potential downsides.

For example, only 26 states provide unemployment insurance for reduced work, so employees brought back from furlough for reduced hours would end up financially worse off.

And even with only a small trickle of customers, the increased interaction among workers could increase their exposure to the coronavirus.

“Surveys show that most contact is happening at the workplace,” Rothwell noted.


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