Why Opening the Economy Won’t Be the Stimulus We’re Hoping For
Both Supply and Demand Needed
“I don’t want to die, nobody wants to die, but, man, we’ve got to take some risks and get back in the game and get this country back up and running.”
That’s how Lt. Gov. Dan Patrick of Texas explained why he thought businesses needed to start opening to get the economy running again.
Mr. Patrick and Southern governors who are following President Trump’s encouragement to relax their social distancing measures are likely to find that the economy will still stagnate, while more people will die.
That’s because to spark economic activity you need both supply and demand. Those arguing for a quick opening think the problem is just one of supply, that once state officials reopen restaurants, hair salons, clothing stores, and other non-essential businesses the cash register will start ringing again.
But robust economic activity depends upon demand, and in the face of a pandemic that has killed over 45,000 Americans, Americans are worried about their safety and will be weighing the benefits of a haircut or new outfit against the risk of contracting – and dying from – COVID-19.
This clarifies something that is very important, but thus far missed by policymakers: the only way to stimulate the economy is to first minimize the risks of illness. A successful public health system to manage the pandemic is the only way to instill confidence among Americans and restore consumer demand. Only then can the economy soar again.
Four important pieces of data tell us that Americans are unlikely to engage in their usual economic activities, whether states allow businesses to open or not.
First, a Gallup poll recently indicated that four out of five Americans were not ready return to their normal activities if restrictions were lifted. Remarkably, one out of 10 said they would wait indefinitely. Americans are not eager to shop and dine out just because shelter-in-place restrictions are lifted.
Second, the restrictions on businesses may not have been the major reason for consumer demand declined in the first place. Cellphone data shows that people began physically distancing, even skipping church, on March 15 – four days before the very first state, California, issued shelter-in-place orders.
Americans voted with their feet, demonstrating that they found the risk of catching the virus too high to venture into stores, shopping malls, or in this case, even church. The shelter-in-place orders did not cause them to stop shopping and avoid religious gathering; it mainly confirmed what most people were doing – and encouraged those who were slow to adopt the changed behavior.
Third, directives to close business accounted for only a small fraction of the growth in unemployment claims, as a recent article by researchers at Harvard reports. Another study showed that less than a third of unemployment claims among food and restaurant workers was associated with restrictions on these businesses. This strongly suggests that businesses began to close because of customers and workers were staying away because they were worried about their health.
Fourth, downturns in several industries were due to declining consumer demand. Airlines were flying planes with one passenger for days before they cut flights. Hotels have converted into shelters for health care workers away from home because weddings are cancelled or postponed and business meetings have gone virtual. Once again, the loss of business at restaurants, hotels, airlines, and hair salons may be due less to business being forced to close and more to people avoiding venues where they might become infected.
Opening up restaurants, department stores, salons, and jewelry stores may well induce some people to shop or eat meals. After all, there is plenty of cabin fever and 20 percent of Americans say they want to go back to business as usual.
Doubtless politicians and other advocates for opening up will latch onto any activity to declare victory. But the data suggest the resumption of activity will be too small to justify the risk of a COVID resurgence.
Because much of the decline in economic activity is driven by a lack of consumer demand and businesses’ hesitation to open their doors, rather than the shelter-in-place policies, economic revival will only occur once we can ensure public safety through rigorous public health measures that slow the virus to a halt – or a vaccine. Only public health will return the United States to normal economics.
Leaders like President Trump, Gov. Brian Kemp of Georgia, and Lt. Gov. Patrick have their economics and epidemiology wrong. Physical distancing measures aren’t responsible for the economic slowdown – fear of getting seriously ill by dining out or shopping is.
Our economic health depends on protecting our public health. Failing to do so will only make us sicker and poorer.
Amol Navathe, MD, PhD, is an Assistant Professor of Medicine and Health Policy; Atheendar Venkataramani, MD, PhD, is an Assistant Professor of Medical Ethics and Health Policy; Ezekiel J. Emanuel, MD, PhD is the Diane v.S. Levy and Robert M. Levy University Professor of Medical Ethics and Health Policy. All three are LDI Senior Felllows.