By Tim Hunt
What shape will the recovery take?Uploaded: Jun 9, 2020
It’s an open question about how quickly the economy recovers from the three-month shutdown and there’s little agreement among economists and pundits.
Last Friday’s job report was stunning—instead of the expected loss of 8 million jobs, jobs grew by more than 2 million. And Wall Street has soared for the last week.
I’ve been listening to some Hoover Institution virtual briefings over the last several weeks. Here are some takeaways from a discussion with fellows Stephen Haber and Alexander Galetovic on the COVID-19 government approaches in the Unites States and elsewhere.
• Sweden accepted a higher death rate in the short term by relying on responsible actions by its citizens and kept its economy running. Where it missed was in nursing homes where patients have suffered half of the deaths. Their actions likely will result in herd immunity much sooner than countries that shutdown.
• Haber pointed out the choice isn’t dollars vs. lives. It’s lives vs. lives. Research has shown that poverty from unemployment results in shorter life spans to say nothing of other issues such as drug use, depression and alcoholism.
• He also noted that flattening the curve does just that, but is not a long term solution. It’s still a bet on a vaccine, effective therapies or eventual herd immunity.
• Haber criticized the one-size fits all approach taken both nationally and in large states such as California. The issues in San Francisco and Los Angeles are vastly different than in rural counties. And there’s now the challenge of restarting the economy.
Steven J. Davis, a Hoover fellow and economics and business professor at the University of Chicago, conducted a study about job loss and what can be expected in the recovery. He’s an advisor to the Atlanta Fed. In a briefing and a later interview with CNBC, he cited one poll that showed 78% of respondents expected to return to work in their same job within six months. His research indicated that if they were recalled within two months, that is likely—but any longer and it won’t be there.
He said 42% of the prior jobs will vanish. He pointed out that the travel and hospitality industries are in for a major reset as business travel shrinks dramatically. The airlines are being paid by the government to keep employees on the payroll through September, but they already are preparing for layoffs. Southwest, which flies few international flights (Mexico and the Caribbean), has announced a buyout package, something that Delta also is doing. American plans to cut 30% of its management and support staff.
He expects a shift from dine-in restaurants to more takeout and delivery. Currently, because of the $600 weekly federal unemployment payment, the bottom 20% of the workforce is making twice as much sitting home as they were when they were working. That disincentive to work needs to go.
Other suggestions for allowing the economy to adjust and recover include ending onerous licensing requirements everything from physicians and dentists to hairdressers. These are state-based and came into focus when New York Governor Andrew Como begged for help from out-of-state health care workers. Turns out they could not legally practice in New York because they were licensed by another state. A temporary fix overcame this—it should be permanent.
Healthcare also will shift as many people have become accustomed to telemedicine. That trend will continue and likely accelerate.
In short, the economy is dynamic and will reset—government needs to get out of the way.