The economy stopped almost overnight. It will not start again this way.
Politicians and public health experts have been arguing for weeks since when and under what circumstances to allow companies to reopen and Americans to leave their homes. But another question could turn out to be just as thorny – how?
Because the restart will be gradual, with some places and industries opening sooner than others, it will by definition be complicated. The American economy is a complex network of supply chains, the dynamics of which do not necessarily correspond perfectly to the recommendations of epidemiologists.
Georgia and other states are starting the reopening process. But even by most optimistic estimates, it will take months, if not years, before Americans throng again in bars and sneak into subway cars as they did before the pandemic.
“It will take much longer to thaw the economy than to freeze it,” said Diane Swonk, chief economist at accounting firm Grant Thornton.
And it’s not clear what exactly it means to restart a system with as many nested parts as the US economy. How can a factory reopen when its suppliers remain closed? How can parents return to work when the schools are still closed? How can older people return without an effective treatment or vaccine? What is the role of government to help private companies that may initially need to operate at a fraction of their normal capacity?
South Carolina, for example, appears to be among the first states to allow a large reopening of businesses. But if a manufacturer depends on a part made in Ohio, where the virus is still spreading, it may not be able to resume production, regardless of the rules.
“We live in an economy where there are many interconnections between different sectors,” said Joseph S. Vavra, economist at the University of Chicago. “Saying that you want to reopen gradually is easier said than done. “
The White House released a plan this month for a gradual reopening of the economy, with softening eased as states meet public health standards. States have started to develop their own roadmaps. New York Governor Andrew M. Cuomo said on Tuesday that parts of the state that had fewer cases of coronavirus could be allowed to reopen faster than New York and other hard-hit areas.
But most of these propositions are rough diagrams, leaving crucial questions unanswered about how the process will unfold at ground level. These details can help determine whether the economy will rebound relatively quickly once the pandemic ebbs or the United States faces a slow and painful recovery, as it did after the last recession.
As part of the White House three-phase plan, many companies will be allowed to open in the first phase. Schools and daycares will have to wait for the next phase. This means that millions of working parents could be asked to return to their jobs before they can take care of their children.
Mr. Vavra and two colleagues recently estimated that almost a third of American households have a child under the age of 14, and more than one in 10 have no other adult in the household to help care for the children. In addition, many reopening plans provide for young adults to return to work first, while those over the age of 55, who are more at risk of serious complications or death, stay at home longer to avoid possible harm. exposure. But young adults are also more likely to have young children at home.
Then there is the threat to public health: if states reopen their economies too quickly or without the right precautions in place, it could lead to another outbreak, with disastrous consequences for security and the economy.
“The biggest risk is that you open too quickly, too widely, and have another set of infections, a second wave,” said Mark Zandi, chief economist at Moody’s Analytics. “This is the fodder of an economic depression. It would completely erode confidence. “
Partial reopening may not work for everyone.
In the early stages of reopening, businesses will almost certainly be required to operate at reduced capacity to allow for greater social distancing. This will require changes for virtually all businesses, but in many cases it will not present insurmountable obstacles.
Offices, for example, can operate in rotating teams, with different departments arriving on different days and deep cleanups in between. In factories, production lines could be redesigned to allow greater distance between workers and to reduce or eliminate contact between teams.
But other companies may find it much more difficult to adapt. Most restaurants, for example, have tight profit margins, even at best. Operating at half capacity – or less – will mean loss of money for many restaurants.
“It is impossible in the restaurant business to be profitable with 50% turnover,” said Alex Smith, president of the Atlas Restaurant group, which operates high-end establishments in Baltimore, Houston and other locations. ‘other cities.
For restaurants that were experiencing difficulties before closing, or that were not yet sufficiently established to generate profits, owners could decide that restocking the kitchens and redesigning the dining rooms to allow for social distancing was not worth the cost. cost.
“If you were profitable before and your business was growing, then you have to stand firm and hope that there will be light at the end of the tunnel and that things will come back,” said Smith. But if you were losing money before, “You really have to ask yourself, are you digging a deeper hole? “
Public debate has focused on government mandates: when should city and state closure orders be lifted? But the fact that companies are allowed to reopen does not mean that they will, or, if they do, that customers will return.
Data from OpenTable, the restaurant reservation service, shows that people have largely stopped eating even before governors and mayors have recommended it, and long before official orders take effect. Evidence from Sweden and other countries that avoided official blockades also shows that people have cut back heavily even without a government mandate.
“I don’t think it was really the government shutdown orders that stopped the economy – I think it was the virus that stopped the economy,” said Vavra. “To say that the economy is now open is lip service. The economy will not be reopened until people want it. “
So far, there is little evidence that the public is ready. Despite dispersed protests, investigations show broad support for the closure orders and little appetite for a quick return. A recent A Wall Street Journal / NBC News poll found that most Americans were more concerned with lifting the restrictions too soon than keeping them in place for too long.
“There is no restaurateur in the country who thinks that when the government says” Go ahead “, the restaurants will be packed again,” said Smith.
Mr. Smith’s biggest fear, he said, is that the Americans are returning to everyday life too quickly, which will cause another push and another lockdown. He can borrow money and save to reopen once, he said. A second time could be too difficult to manage, especially because a false start could make customers even more suspicious.
“What scares most of us is wave 2,” he said.
The role of government is not over.
The federal government has already spent extraordinary amounts to keep individuals and businesses afloat during the economic closure. Congress approved another A half trillion dollar aid program in recent days, with more aid expected in the coming weeks.
But economists say the role of government has only just begun. Businesses will need help to overcome a period of reduced sales. State and local governments will also need help, or they will have to cut programs to offset a sharp drop in tax revenues. People will need unemployment benefits, food aid and other help to make ends meet in a recession that will almost certainly last the pandemic.
The extent of these problems is not yet clear. No one knows how many businesses have failed permanently, rather than closing temporarily, or how many laid off workers will be able to return to their former jobs. But the longer the stop, the more permanent the damage and the slower the rebound.
“You can press pause for a while, but not too long before it becomes a bad loan or default, etc.,” said Shubham Singhal, senior partner at McKinsey, the consulting firm. “Then you have the negative cycle that feeds for a while. “
The good news is that the government knows above all how to deal with this kind of problem. Unlike the current closure, which has forced policy makers to develop programs in record time, the post-pandemic period will likely resemble a more traditional recession and require more conventional policy responses.
The bad news is that, historically, the political will for these programs ended long before they were needed. Calls to curb unemployment benefits began after unemployment hit last after recession still close to 10 percent.
Barnard College economist Elizabeth Ananat, who studies poverty and inequality, said she was concerned that government support would dry up before the economy was ready to sustain itself, prolonging the downturn and hurting low-income families, which are usually the last to benefit from a recovery.
“In some ways, I am even more worried about the reopening than the closure,” she said.