Apr 3, 2020

The Economy Looks Like It’s Falling Apart, But That’s the Plan to Fight COVID-19

Keep calm and flatten the curve

The jobs report released by the Bureau of Labor Statistics today was out-of-date before it even hit the wire. That’s because it shows just the onset of COVID-19’s impact on the US economy, which lost over 700,000 jobs between mid-February and mid-March. This was the first net job loss in over ten years, bringing the record-making employment expansion to a close. And after achieving the lowest unemployment rate in 50 years, we’ve just seen the largest monthly jump in the unemployment rate since 1975, from 3.5 to 4.4 percent.

But the numbers in today’s report are only the tip of the iceberg. The surveys that are the source of the jobs report were taken from March 9 through March 13, the week before many governors and local officials started mandating social distancing and community-wide shutdowns to contain the spread of COVID-19.

At this point, 90 percent of the US population lives in a state or municipality that has mandated the closure of a large swath of the local economy. Unemployment insurance applications skyrocketed to 3.3 million the week after the jobs report surveys and to 6.65 million last week as the shutdowns began to take hold. If we assume that every person who was laid off or furloughed over those two weeks immediately applied for unemployment insurance, then the unemployment rate at the beginning of this week was around 10.5 percent.

Even with this cautious estimate, today’s unemployment rate likely surpasses the highest level reached during the Great Recession (10 percent). In other words, over the last two weeks we’ve likely seen more net job losses than occurred during the entire Great Recession, which lasted 18 months from 2008 to 2009.

In Pennsylvania, Gov. Tom Wolf was an early adopter of stay-at-home policies to limit the spread of COVID-19. And because the state also speeded up the process to apply for unemployment insurance, it might serve as a bellwether for what is coming for the rest of the country. Over 15.5 percent of Pennsylvania’s workforce applied for unemployment insurance in the last two-and-a-half weeks, meaning that the best estimate for the unemployment rate there today is at least 20.2 percent.

But despite these seemingly catastrophic numbers, Americans shouldn’t despair at what is happening in the economy. We’re falling into a unique recession—one of our own design, consciously entered into to forestall a worse outcome: the uncontrolled spread of COVID-19.

A reasonable analogy would be to compare the closure of businesses with a controlled burn (or more properly, “lighting a backfire”), which firefighters use to contain a wildfire. We’re reducing access to the fuel COVID-19 needs to expand at ever-increasing rates.

The economic harm from shutting down the economy is a real problem though, especially for those whose income, and health insurance, has suddenly vanished. The recent bills passed by Congress offer some hope that workers and businesses will be able to make it through these difficult times. More action is almost certainly necessary, and the federal government will need to move faster to get payments and loans to the families and businesses that need them.

So, while the economic news is breathtakingly bad, we should keep in mind that these outcomes were predictable. Most importantly, we shouldn’t panic (yet), even if it seems like the sky is falling.

Probably the best guidance we can turn to now are the words of President Franklin Delano Roosevelt as he took office in 1933 at the bottom of the Great Depression:

"This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance."

FDR would say that even if we can’t fully control COVID-19, we can control our response to it. And we should understand that the plunging economic statistics we’re seeing are the result of our own actions, not a fundamental structural problem in the economy that has suddenly emerged.

In short, the job losses are a signal that our strategy to create social distance to slow the disease is working. It’s not the ideal solution to the problem, but we were unprepared for this crisis and Congress turned to the tools it had immediately at hand (stimulus checks and expanded unemployment insurance). In the coming months the conversation will need to turn toward better solutions, but for now it’s enough to know that the economy isn’t falling apart.

Photo by SAUL LOEB/AFP via Getty Images

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