Popular Economics Weekly
When will the pandemic end and recovery begin, is the question asked of every expert and non-expert. Foremost of the experts is former Federal Reserve Chairman Janet Yellen who in a recent CNBC interview commented on just when the U.S. economy might be taken out of its “medically-induced coma” (to use Paul Krugman’s words), and return to growth.
She and other leading economists are saying it will depend on how quickly and thoroughly the novel coronavirus testing and contact tracking (tracing of infected persons back to their source) is done.
Research from the 1918 Spanish flu pandemic has shown that cities and regions with the strictest lockdown protocols, including longer lockdown periods, had the lowest death rates and strongest recoveries.
Los Angeles and Oakland, California were among cities that had the lowest death rates and strongest recoveries in 1918, whereas heavily industrialized Pittsburgh and Philadelphia didn’t follow as strict guidelines and suffered the most, said the study.
Calculated Risk’s above graph portrays the increase in testings from the COVID Tracking Project today, and just how daunting is the challenge to track all infected persons. The total U.S. percent positive over the last 24 hours was 19 percent (red line). The US needs enough tests to push the percentage below 5 percent (probably much lower), said Calculated Risks’ Bill McBride.
Today’s results also prove the 1918 Spanish flu outcomes. New York, late in calling for a statewide lockdown, is the center of the pandemic with 131,000 that have tested positive, and 190,000 tested negative as of Monday.
Whereas California with the largest U.S. population was one of the first to call for the statewide lockdown and had 14,336 testing positive and 115,364 testing negative. The difference in mortality is also stark: California had 343 deaths, whereas New York 4,758 deaths as of Monday.
Economists are looking at various recovery scenarios for this worldwide contraction that in no way resembles either the Great Depression or Great Recession. In those cases there was a sharp decline in aggregate demand—the collective spending of consumers, investors, and governments—which induced a collapse in industrial production. The unemployment rate had soared to 25 percent, the highest on record—until now.
But today’s pandemic has halted both production (the business shutdown) and consumption (because of stay-in-home requirement) simultaneously when the economy still was fairly strong, hence the induced coma.
Here is the Conference Board’s graph for the three most common scenarios once again. Professor Yellen said she hopes a Fall scenario (per graph) is most likely; or what is called a ‘U’ shaped recovery that needs at least two quarters to return to actual GDP growth.
But that can’t happen until and unless this novel coronavirus is tamed sufficiently to allow our country to return to work. And that is dependent on a better coordinated response that brings down the infection and death rates within months.
But there is the possibility COVID-19 may return in the upcoming winter, as did the 1918 Spanish flu, and even continue to recur annually if a majority of Americans aren’t vaccinated and immunity isn’t built up in at least 75 percent of all U.S. residents.
If this is like a World War, as some have intimated, then we need a Commander-in-Chief who knows how to lead a coordinated strategy, and not be the “back-up” General.
Harlan Green © 2020
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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