As the economic toll from the pandemic grows, so do the uncertainties regarding just how we plan to move forward as a nation. COVID-19 has severely slowed down many sectors of our economy while grinding others to a near halt. Worse, what should be an entirely data-driven response to a global health crisis has devolved into an opportunity for seemingly endless political maneuvering and virtue-signaling. Behind all the smoke and mirrors, the impact on the economy remains very real and may prove even more costly down the road. Below are five ways the pandemic has severely impacted our economy.
1. Small businesses continue to bear the brunt of the pandemic
According to an initial study for the Proceedings of the National Academy of Sciences done before the CARES Act was implemented, Covid-19 was expected to create a “major economic shock” affecting small businesses in an unprecedented manner. Almost half of all small businesses across the nation were forced to temporarily close during the pandemic. Even with subsequent federal aid, the study proved quite prescient. The CARES Act seems to have only prolonged the inevitable as various pandemic restrictions remain in place all across the nation:
“Across the full sample, 43% of businesses had temporarily closed, and nearly all of these closures were due to COVID-19. Respondents that had temporarily closed largely pointed to reductions in demand and employee health concerns as the reasons for closure, with disruptions in the supply chain being less of a factor. On average, the businesses reported having reduced their active employment by 39% since January. The decline was particularly sharp in the Mid-Atlantic region (which includes New York City), where 54% of firms were closed and employment was down by 47%. Impacts also varied across industries, with retail, arts and entertainment, personal services, food services, and hospitality businesses all reporting employment declines exceeding 50%…”
The findings of the study also indicate just how significant the duration of the lockdown could impact small businesses. If pandemic restrictions continue to stay in place, many businesses may still to go under by the end of 2020 with or without federal assistance:
“The crisis duration plays a central role in the total potential impact. For a crisis lasting 4 mo instead of 1 mo, only 47% of businesses expected to be open in December compared to 72% under the shorter duration. There is also considerable heterogeneity in how sensitive businesses are to the crisis. In-person industries like personal services or retail reported worse prospects for riding out the pandemic than professional services or other sectors with minimal need for face-to-face contact.”
And now with no further federal relief in sight, the initial CARES Act may have only temporarily halted the seismic impact the pandemic has had on small businesses. A survey done by the National Federation of Independent Businessreports “Most PPP borrowers (84%) have now used their entire loan, up from 71% in July,” meaning much of the initial federal aid has run out for many small businesses, leaving them in dire straits.
2. Minority-owned businesses hardest hit
Other studies suggest race also plays a major factor in how the pandemic restrictions have affected small businesses. A recent study for The National Bureau of Economic Research reports that black-owned businesses continue to be hit the hardest:
“African-American business owners were hit the hardest by COVID-19. The first estimates from April 2020 for black business owners in the United States indicate a massive drop of 41 percent in business activity. Black business owners were also disproportionately negatively affected in May and June relative to national levels with declines in business activity of 26 percent and 19 percent, respectively. Simulations indicate that the industry distribution of blacks was partly responsible, placing black business owners at greater risk of losses in business activity due to the pandemic.”
3. The consequences of massive unemployment
High unemployment numbers continue to stagger the economy and any hope for recovery as the response to the pandemic remains mired in vexing uncertainties.
Responding to the latest unemployment numbers, National Review recently reported, “The week’s filings still sit well above the pre-pandemic record of 695,000 claims in a single week and the Great Recession’s high of 665,000, showing the ongoing economic impact of the coronavirus pandemic, even as the virus has waned in many areas nationwide.”
Unemployment may also impact public health to a far greater degree than the current pandemic if these current jobless rates remain in place for the foreseeable future.
Writing for City Journal, Allison Schrager offered the following worrisome insights:
“Numerous studies have shown that having a job is essential, beyond the obvious need to earn money to sustain life. Unemployment harms mental health. The lack of social contact and status, of a sense of control and routine, lead to anxiety and depression. The damage can be long-lasting if unemployment goes on for many months. In 2015, the Centers for Disease Control warned that high unemployment was a public-health problem, though the CDC has been silent on the health impact of mass unemployment in recent months. A study of teenagers estimated that summer jobs lead to lower rates of crime, violent crime, incarceration, and even premature death. Historically, prolonged large-scale unemployment has led to political crisis, and even revolution.”
A 2003 study published in the Journal of Epidemiology and Public Health bolsters Schrager’s argument concluding, “Being unemployed was associated with a twofold to threefold increased relative risk of death by suicide, compared with being employed.”
4. Protests and riots
It seems reasonable to assert that the seemingly endless series of protests and riots across the nation may not have been as prolonged or destructive had the pandemic restrictions not dragged on, forcing the economy into a near standstill and causing unemployment to skyrocket. The riots have, in turn, deepened the economic woes of many communities, particularly minority communities.
Not only did the tremendous unemployment galvanize many to protest given the restlessness and free time the lockdowns afforded, in some instances, the CARES Act may have, essentially, paid individuals to take to the streets. That, at least, is what Senator Ron Johnson (R-WI) surmised in a recent interview, according to the Milwaukee Sentinal Journal:
“’You can’t continue to riot for 100 days without having some sort of financial support,’ he said. ‘Possibly, some of our unemployment insurance in the CARES Act might be funding some of these people.’”
Certainly, unemployment, particularly among black Americans, seems to be a contributing factor to the ongoing protests fueling so many to take to the streets repeatedly, The Washington Post suggests:
“In Washington, D.C., where protesters set fire to American flags and a historic church near the White House, the percentage of out-of-work black residents outpaces white residents at a rate of about 6 to 1. African American households have struggled more economically than the median household nationwide, even when unemployment was at single-digit historic lows. Now, months into the novel coronavirus pandemic that has rendered 40 million people jobless, African Americans have lost jobs at higher rates in many communities.”
NBC News also described the huge uptick in unemployment due to nationwide lockdowns and the current protests as a “perfect storm”:
“With roughly 40 million people out of work in the U.S, and schools and activities shut down with a preceding three months that for many meant near total lockdown of their lives in New York City and elsewhere, the protests have been able to gain incredible momentum, especially among young people.”
5. Uncertainty slowing recovery
As much as the markets have rallied quite a bit in recent weeks with far less volatility than in prior months, other sectors of the economy continue to lag under the current pandemic. A study from the Carson School of Public Policy insists “there is no path to economic recovery that isn’t presaged by a health recovery,” arguing that we will suffer a continued protracted response:
“Even in the best of circumstances, problems will certainly linger as some industries continue to face substantial headwinds and begin the recovery process significantly weakened. Until the risks of COVID-19 decline significantly, limitations on human contact such as social distancing, and understandable reluctance by consumers to resume all normal activities, will impinge on the operations of many industries. These will be a drag on the economy more broadly. Lower employment and reduced activity in any industry have spillover into other industries as economic demand is weakened. In addition, many employers will be depleted or have ceased operations, and it will take some time to fully recover…How pronounced it will be is the critical economic question for coming months and years.”
Still, the notion of remaining at the capricious mercy of COVID-19 and political leaders doesn’t sit well for many Americans, especially after so much has been sacrificed already by way of jobs, businesses, and social unrest.
In his piece for the Wall Street Journal, Greg Ip offers a more measured approach that may safeguard the economy from further calamity after months of heavy-handed restrictions:
“Five months later, the evidence suggests lockdowns were an overly blunt and economically costly tool. They are politically difficult to keep in place for long enough to stamp out the virus. The evidence also points to alternative strategies that could slow the spread of the epidemic at much less cost. As cases flare up throughout the U.S., some experts are urging policy makers to pursue these more targeted restrictions and interventions rather than another crippling round of lockdowns.
“The experience of the past five months suggests the need for an alternative: Rather than lockdowns, using only those measures proven to maximize lives saved while minimizing economic and social disruption. Social distancing policies, for instance, can take into account widely varying risks by age. The virus is especially deadly for the elderly. Nursing homes account for 0.6% of the population but 45% of Covid fatalities, says the Foundation for Research on Equal Opportunity, a free market think tank. Better isolating those residents would have saved many lives at little economic cost, it says.”
Ip also argues that masks may be an integral part of both reducing the spread of the novel coronavirus and allowing the economy to recover in full, stating, “Masks may be the most cost-effective intervention of all.”
While it may be more of a correlative value rather than a causal one, Ip does provide evidence for the merits of masks, citing a German study:
“The German city of Jena in early April ordered residents to wear masks in public places, public transit and at work. Soon afterward, infections came to a halt. Comparing it to similar cities, a study for the IZA Institute of Labor Economicsestimated masks reduced the growth of infections by 40% to 60%. Klaus Wälde, one of the authors, said nationwide mask-wearing is helping the German economy return to normal while keeping infections low.”
Much of the current economic forecast seems clouded by endless political handwringing and politically motivated messaging. Still, while there have been severe consequences to the economy as a result of the pandemic, there remains some measured hope for recovery as we attempt to move forward — though it may be predicated on all of us, finally, coming together as a nation.