Haphazard Reopening Risks Public Health and Economy
(Bloomberg Opinion) -- The U.S. is polarizing on when and how to reopen its economy. State governments are being pressured to make decisions with a less-than-comprehensive assessment of the trade-offs between public health and the economy, increasing the probability of a stop-go-stop pattern that, if we are incredibly lucky, could lead to a desirable outcome but also faces the considerable risk of ending up with the worst of both worlds.
Circumstances are pushing most state governments into what economists call corner solutions — that is, extreme positions that, in this particular case, are more pronounced than analytically reasonable.
On the one end is the decision to reopen businesses and society, allowing for the gradual resumption of normal economic activity and livelihoods. But this comes with a considerable risk of another spike in infections and deaths.
At the other end is the decision to maintain strict social-distancing requirements, including stay-at-home mandates, to contain the spread of the virus while scientists work hard on health solutions. But this comes at a considerable economic cost that also has health consequences. The longer the lockdown, the greater the damage to current and future economic well-being, the higher the risk of market instability, and the more urgent the threat of household financial insecurity compounding anxiety, irritability, mental anguish, domestic violence and opioid addiction.
These two positions are playing out on television and on the street in real time. Health and business interests are increasingly clashing. Protests calling for the reopening — “liberation” — of the economy are increasing, claiming that the cure is worse than the disease. Others, with less presence on the streets, call for maintaining social distancing.
The best way to channel this conflict to a safe and sustainable place is quick progress in reducing what medical experts call the “R-naught” of Covid-19 — the average number of people who catch the virus from a single infected person — through advances in three key areas: identifying virus transmitters and tracing their interactions; improving the ability to treat illness; and increasing immunity.
Researchers are still working to determine the precise number for Covid-19; early and inherently noisy and unstable estimates put it at between 2 and 3. And while steady progress is being made every day to reduce that figure, absent a major breakthrough in the next few weeks, few health experts expect it to fall below 1 any time soon.
Another way to reconcile the conflicts is by finding better ways to contain the damage while the economic shutdown continues — that is, by building a better and longer economic and political runway to give health experts time to prevail over the virus. Yet as hard as the government and the Federal Reserve have tried, it has proved difficult to avoid widespread unemployment, substantially offset income losses and contain market instability. There are simply not enough readily available policy transmission pipes, clarity or efficient ways to counter the multifaceted costs of a countrywide economic sudden stop that is compounded by the collapsing global economy.
The result of all this is a high likelihood that the U.S. will reopen the economy in an unsynchronized fashion among states that not only disappoints both sides of the argument but also risks a subsequent disorderly shutdown that would prove even more controversial and possibly more harmful to the economy and society.
Citing the sobering experience of Singapore, the majority of health experts are hesitant about the vast majority of reopenings under consideration, cautioning that they risk being premature and could result in another spike in infection rates and deaths. Business experts are likely to conclude that an unsynchronized and partial reopening does little to move the economic needle, especially as some individuals and companies stay on the sideline, interstate mobility is restricted, and the global economy and markets remain disrupted. Should both materialize, as I suspect they would, the vast majority of state governments would be inclined to return to strict social-distancing requirements. With time, the whole lockdown-restart cycle would be initiated again.
It’s too early to say whether, having stumbled into a stop-go-stop pattern, the process ends up causing even more human misery and volatility or instead, after a rough start, produces a healthy and sustainable economic recovery. That will depend on durable medical solutions and better economic relief measures. Everyone needs to learn from data, adapt their mindsets and course-correct their behavior to avoid the former and achieve the latter.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide."
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