Virus Fears Hurt U.S. Economy Whether Locked-Down or Reopened

(Bloomberg) -- As a second wave of coronavirus cases spreads across the U.S., economists say fear of the disease likely plays a bigger role in stalling business activity than any rules that governments put in place.

That’s the key finding in a series of studies that cast doubt on the effectiveness of attempts to reopen the economy while the pandemic is still raging. The research also suggests that reluctance to re-impose lockdowns on economic grounds may be misplaced.

The U.S. has the world’s largest number of coronavirus cases and deaths, and it’s reporting rising levels at a time when many other countries appear to have gotten a grip on their outbreaks. That divergence may soon have consequences for the economy if it takes longer for American shoppers or diners to get comfortable returning to prior habits.

In a study of customer visits to more than 2.25 million businesses, University of Chicago economists Austan Goolsbee and Chad Syverson found that traffic fell by 60 percentage points -- and that legal restrictions explained only slightly more than one-tenth of that drop.

The decline began before stay-at-home orders were in place, was closely tied to the number of virus deaths locally, and showed that consumers were actively avoiding the busier stores, according to the paper distributed by the National Bureau of Economic Research.

“The politicians like to feel like they’re the ones in control of making the decision, but at the end of the day the virus is the boss,” said Goolsbee, a former aide to President Barack Obama. “If the death rate goes back up and people get scared, the economy will get worse. It could easily wipe out the economic recovery that you generated in the short run by getting rid of the order.”

‘Getting Scared’

That’s why the key pandemic data-point is the reinfection rate, known as R0, he said: “We are going to end up back to the plan which is we have to do everything to get the R0 down so this disease peters out.”

Job losses in states that were initially hit harder by the pandemic, or that imposed stay-at-home orders earlier, weren’t significantly higher than in other states with slower outbreaks or responses, according to another paper published by the NBER in April.

There’s not much evidence that “the timing of the lockdowns was significant,” in a crisis that was a national phenomenon rather than a local one, said its co-author David Wiczer, an assistant professor of economics at Stony Brook University.

“In all of these states, you saw very similar magnitudes and timing,” he said. “As soon as people started getting scared is when job losses started.”

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