U.S. Needs a National Coronavirus Shutdown, and Fast

(Bloomberg Opinion) -- If the U.S. had responded nimbly to the coronavirus pandemic, with an aggressive testing regime and tracking patient contacts, as South Korea did, it would have stood a good chance of containing the virus without the need for sweeping shutdowns and extensive social distancing. But that time has passed, and if the U.S. doesn’t proceed with extreme measures, it could quickly find itself looking like Italy, where the virus has devastated daily life and is causing hundreds of deaths a day. 

Although the federal government has dithered and downplayed the threat, state and local governments are now taking action. Led by governors such as Ohio’s Mike DeWine and Illinois's J.B. Pritzker — the former a Republican, the latter a Democrat — some states are shutting restaurants, bars and other crowded social establishments where the virus is easily spread. A number of large cities, including Los Angeles and New York, are implementing similar restrictions, even as their governors have been reluctant to extend closures statewide. A number of states and cities are also closing public schools.

Early actors such as DeWine and Pritzker are providing an example for others to follow. Even holdouts such as Oklahoma Governor Kevin Stitt, who defiantly posted a picture of himself and his family eating at a crowded restaurant on Saturday, may now accede to the inevitable.

And this pattern needs to be adopted nationwide — and fast. New research convincingly shows that Italian cities that were quick to implement shutdowns suffered much less severe outbreaks than those that lagged. One way or another, either from shutdowns or mass infection, major economic disruption is coming; the purpose of shutdowns is to have the disruption happen before the hospitals are overflowing, rather than after. Furthermore, the math of exponential growth and decay means that every day that governors and mayors delay these shutdowns means that the closure will have to last longer. The quicker governments act, the quicker this is all over.

Restaurants are important, but closing schools is also essential. Japan has experienced a much slower rate of infection than other countries, despite generally lax measures. One reason might be that Prime Minister Shinzo Abe was quick to close all of the country’s schools. Since this virus is much more harmful to the elderly than to the young, it’s quite possible that schools are silent vectors of infection — kids give it to each other, and then come home to infect their parents and other relatives.

One more thing that will probably have to cease is air travel. Airports such as Chicago’s O’Hare, New York’s JFK and Washington’s Dulles are cramming huge crowds of people into tight spaces, often as part of their coronavirus screening procedures. This will infect passengers who then spread the virus to cities around the nation.

So much of the economic life of the country is going to have to be put on hold for a while. Just how long is not yet clear. But given that the virus can take weeks to incubate and more weeks to resolve, a two-month shutdown seems necessary.

This will be economically devastating to those who work in the food service, leisure and hospitality industries. Together, those industries employ tens of millions of Americans:

Restaurants can shift to doing delivery and takeout, but bars, gyms and many other establishments don’t have this option.

Few of these workers have enough savings to cover two months of unemployment, nor should they be required to pay the cost themselves. The government needs to act to sustain these workers through the shutdowns, and make sure that most of them have jobs to come back to.

There are two basic ways of saving idled workers from economic devastation. The first, proposed by economists Emanuel Saez and Gabriel Zucman, is to have government pay businesses to keep their workers on paid leave during the shutdowns. This is the best solution, because it minimizes disruption — if government simply replaces lost revenue for two months, it means that few businesses will close, and few workers will have to hunt for new jobs. A similar approach could sustain airlines, hotels — even freelancers, gig workers and the self-employed.

An alternative, suggested by economist Arindrajit Dube, is to encourage businesses to do temporary layoffs, and then maintain workers’ incomes via the unemployment insurance system (extended to include freelancers and so on). This would be more disruptive, since more businesses would close, and some layoffs wouldn’t be temporary. But it has the virtue of using a system, unemployment insurance, that is already in place and ready to go.

Either of these measures will costs hundreds of billions of dollars. But with the government’s long-term borrowing costs running well below the rate of inflation, a few hundred billion in additional debt is no problem within the context of an emergency of this scope.

The bigger danger is that, as with the response to the pandemic itself, the federal government will simply fail to act. In that case, state and local governments — whose fiscal capacity is tightly constrained — will have to scramble to act as a backstop. They should be drawing up plans to do this, even as they urge Congress and the president to act. The U.S.’s federal system is a poor substitute for decisive, proactive national leadership, but it may end up being all there is.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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