Reopening the coronavirus-closed economy

James Stock

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This briefing paper was prepared as background for the Hutchins Center webinar, “Reopening the coronavirus-closed economy: Principles and tradeoffs,” on May 12, 2020.

The partial economic shutdown that began in mid-March 2020, along with additional non-pharmaceutical interventions (NPIs) such as social distancing, are “flattening the curve” of measured infections and deaths, but at a tremendous economic cost. Since the first week in March, more than 20 percent of the US labor force filed for unemployment insurance, and the April unemployment rate of 14.7 percent is a level not seen since the Great Depression.

In the early days of the epidemic, decentralized decisionmakers – governors, mayors, and leaders of major institutions like universities – shut down major portions of the economy in response to concerns over the exponential growth of the epidemic and the threat of potential deaths. Now, the policy challenge is how to reopen the economy and get people back to work while achieving public health goals.

This briefing paper makes four key points:

Non-economic NPIs play a critical role in getting people back to work. There are important non-pharmaceutical interventions that, while individually limited, collectively hold the potential to substantially reduce the spread of the virus. These include social distancing; testing, contact tracing and quarantine; wearing masks; and having adequate personal protective equipment for workers in jobs that are unavoidably high-contact. None are a silver bullet, but collectively they can reduce the probability of transmission outside the workplace and thereby make room for getting people back to work and back to something more closely resembling normal economic activity.

Low-contact, high-value workplaces should be reopened quickly, and returning workers must feel safe. Many jobs are either low-contact or can be made so by suitable modifications of the workplace. In some cases, those modifications are low cost, like encouraging work-from-home, while in other cases they might entail some productivity reductions to facilitate worker distancing at work. When coupled with low-contact forms of transport to work, such jobs can be reopened quickly.

Some high-contact activities might need to be suspended indefinitely. Certain high-contact activities might require a hiatus until a vaccine and/or effective treatment is developed. These include both economic activities (for example, live fans at professional sports) and activities with less or no economic component.

Avoid a second dip that could induce severe long-term damage to workers and the economy. While reopening the economy is urgently needed, doing so in a way that leads to a second wave of deaths and a subsequent second shutdown could result in damage that is lasting and profound. Such damage has largely been avoided to date because of federal fiscal support and aggressive actions of the Federal Reserve. There are reasons to be pessimistic, however, that these levels of support would either be available or as effective in a second wave of deaths and closings, which could lead to those temporarily unemployed now becoming long-term unemployed without a job to return to, waves of bankruptcies, and severe strains on credit markets.