On Thursday, America learned that well over three million jobless people submitted claims for unemployment insurance in the past week, largely thanks to a national economic shutdown in the face of the COVID-19 pandemic. But somehow worse is that our leadership has wavered from chaotic to unreliable to, most recently, existentially dangerous. I’m referring, of course, to President Donald Trump’s suggestion that we must soon, for the sake of the economy, pivot away from social distancing and other outbreak containment efforts.
In theory, unprecedented job-loss numbers like these could serve as fodder for that argument—one in which the president has been joined by a coterie of fringe figures. But that’s not only exactly wrong from a public-health perspective, but also from an economic perspective.
In other words, if you think these layoff numbers are scary, trust me when I tell you they’d be even more nightmarish—and more routine—if we prematurely pretend it’s safe to go back to work, shop, and eat out again.
Before this past week, the highest weekly claim number on record was 695,000—in the '80s. This new spike is likely to push the April unemployment rate up by close to two percentage points. In the depths of the last recession, which was no picnic, the biggest one-month jump in unemployment was half-a-point. Back then we lost 2.3 million jobs in three months. At the time, that was the worst pace of job losses I’d seen.
Still, resuming normal economic life would lead to many more deaths and an even deeper recession. Economist Julia Coronado is exactly right: “If we go back to work and the disease continues to spread not only will people die and the 20 percent of our economy dedicated to health care be overwhelmed, but people won't have the confidence to resume normal activity.” One of Trump’s most reliable allies, Lindsey Graham, is also correct about this: “There is no functioning economy unless we control" the virus.
Containing the virus requires shutting down the economy. But this logic also works in reverse: opening up the economy prior to containment will accelerate the spread. Once that occurs, it will inevitably feed back into the economy, as, regardless of whatever nonsense is coming out of the White House, peoples’ natural self-preservation will lead them right back to where we are today, sheltering-in-place, but for much longer than would otherwise be the case. As Coronado put it, people "won't go on airplanes or travel or hold conferences or events because they won't be able to trust the public health response has been adequate to protect them."
If you want to see the economic impact of Trump’s alleged Easter re-opening, look at New York City and Northern Italy, where containment efforts most dramatically failed. Their economies are in deep freeze as they’re looking for extra morgue space.
Here’s another way to look at this. I’ve been answering as many questions as I can on the economic impact of the virus, but one of the most common, and toughest, is, how long will this downturn last? This leads economists to start talking about letters: V, U, and L. A V-shaped recession envisions a sharp contraction followed by a sharp bounce-back.
That’s optimistic, but not inconceivable. It requires two things to occur. First, social distancing must work relatively quickly to contain the spread, which must be confirmed by far more testing. Second, fiscal measures, like the $2 trillion bill the Senate just passed, must do as much as we can to ensure households and businesses are intact on the other side of the crisis. There will be considerable pent-up demand when that occurs—I plan to go out every night once the coast is clear, more conferences will be rescheduled, vacations taken, etc. But we’ve got to have an economy capable of bouncing back. What’s now frozen must be able to thaw.
At least one prominent forecast team, that of Goldman-Sachs, has a V-shaped forecast, with GDP falling a sharp 15 percent annual rate in the first half of the year and rising about 7 percent in the second half.
I fear that’s optimistic, and that a U-shaped recession-recovery is more likely. The downturn is just as sharp as the V, but containment takes longer than in the V scenario, so the trough of the recession lasts longer. My guess, and I take this more from reading epidemiologists than economists, is we’ll be very lucky to see a GDP report without a negative handle by the fourth quarter, when the unemployment rate will be at least 10 percent.
But if we listen to Trump and punt on containment too soon, we’ll be looking at the dreaded L: a sharp downturn with a trough that keeps dragging on. Weeks with millions of layoffs will become the long-term norm. What’s more, while Congress can pass fiscal measures to at least partially offset a V or U pattern, it’s much less likely fiscal policy can repeatedly ramp up to offset an L. Eventually, members of Congress—whether self-styled fiscal conservatives or Democrats irate at the idea of propping up corporations—will balk.
In other words, forget about Easter, or at least this Easter. To state the obvious, listen to Fauci, not Trump, and, with rigorous social distancing and ample trips to the stimulus well—the Senate bill will help a lot of people and businesses, but they’ll need more help before this is over—we can stave off some of the physical and economic pain of the coronavirus.
Granted, that’s not an easy prescription, but it’s the best worst choice there is right now.
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