Monthly Brief for May 2020: The Great Reopening?
How does America bounce back from a pandemic? The politics and economics surrounding the reopening debate in May 2020 may offer some indications of what to expect going forward.
May 1: The Great Reopen?
With President Trump having largely turned over “reopen” decision to state governors by allowing federal social distancing guidelines to expire, the debate over the efficacy of social distancing and lockdown measures now goes local.
This week, Texas, Georgia, Florida, and South Carolina all started lifting stay at home restrictions.
Meanwhile, in California, the governor appears to have doubled down on quarantine measures by closing public beaches, which has already begun to generate a backlash.
The debate about the wisdom of reopening remains intense and highly partisan as coronavirus cases in the US climbed past a million. While health experts are anticipating sharp declines in case numbers in May, some are still anticipating spikes in locales that open too quickly.
Testing for the virus is expanding, but not as rapidly as some may like, hence the hesitancy to reopen among some governors. However, Gallup finds that another curve is flattening, and that’s the number of Americans willing to continue to comply with quarantine measures.
Historically, Americans have been cooperative with short term restrictions in the interest of public health, but that time window is closing
The delays in developing a vaccine leaves AEI wondering if there’s a plan B for the economy should those delays continue.
Concerns about the economy are well founded. Axios reports that most Americans are saving, not spending their stimulus checks to build up cash reserves, Q1 American GDP shrunk by almost 5%, and FiveThirtyEight reports that nearly 20% of the American labor force has filed for unemployment. This is Great Depression territory folks.
Technically speaking, what America is facing is a liquidity trap, where pumping cash into the economy is insufficient to stimulate consumer demand, and therefore hamstringing economic growth.
Making this looming liquidity trap more dangerous is the fact that unemployment benefits are outstripping wages in some states, which could further hinder a recovery where employees just decide not to return to work.
Ever the optimist, US Secretary of Treasury Steve Mnuchin anticipates a strong bounce back in the late summer and fall, but that bounce back will be stymied if the economy is allowed to slide much further. Tech companies may lead that bounce as Microsoft and Facebook both posted gains in Q1.
May 8: To open, or not to open?
Leaders from the President down to mayors seem to be recognizing that lockdowns can’t last much longer, and more constructive steps are being taken to reopen communities here in the US (where half of the counties have no reported cases) and abroad.
Reopening will likely be a slow and very cautious process, however, as research and models being used to chart the spread of the virus indicate potentially higher death rates in the short term, though current case counts seem to be steady. The constantly in flux numbers, though, are creating a credibility gap.
Disrn points out that Germany has yet to see a second wave as it has reopened, while National Review notes that Sweden did not lockdown and seems to have remained stable.
Some governors seem to remain unconvinced of the virtue of reopening, as Michigan’s Governor Whitmer extended her state’s lockdown. California is gradually opening up, possibly because the state’s massive lockdown effort has contributed to a $54 billion budget deficit. Not pretty in a state with a balanced budget amendment.
May 15: Econ Wars - Stagflation Strikes Back
In the US, several high risk states showed some level of declines in new case counts.
The National Review notes that after eight weeks in lockdown, the worst case scenarios have not developed.
This is all good news and should be celebrated as such. It should also motivate us to carry on. We’re not out of the woods yet as the Trump administration extended border restrictions, and the wearing of masks have become more generally accepted even as the public pushback on quarantines is breaking sharply partisan.
Skepticism still abounds, however, regarding contact tracing efforts, especially the kind that seek to leverage invasive digital technology.
Unemployment continued to climb along with grocery prices last month. The significance of that? Last time we saw that inflation-unemployment combo was in the stagflation 1970s. Call it stagflation or a liquidity trap, it doesn’t really matter, the effects are the same - 1) stunted economic growth meaning high unemployment for a while, and 2) repeated stimulus spending from the government will lose its effectiveness over time. This is basic economics that the average American understands. Small wonder, then, that Americans don’t trust the Federal Reserve to address their concerns, even as chairman Powell calls for more stimulus.
Despite the poor economic present and far from certain future, consumer confidence is unusually high… for now. Gallup nuances this picture with a series of reports that indicate Americans are not donating to charities (suggesting economic belt tightening), are starting to bend social distancing rules, and are more in favor of targeted quarantines.
Senator Rand Paul seems to have intuited the situation correctly as he’s calling for a reopening of the economy sooner than later, and he seems to have empirical support as Florida and Georgia are reopening, and the Daily Signal points out that over half of Covid-19 cases in the US are clustered in 1% of American counties (last week, I shared data showing that half of American counties don’t have any reported cases). This suggests that large swaths of the country can, and should, be getting back to work. For their good, and ours.
I take all that to indicate that Americans are desiring, ready, and anticipating a general reopen sooner rather than later. Elected officials will likely see significant November consequences if these indicators are not heeded.
May 22: Reopening pain and gain
As America struggles to reopen, a new Gallup poll show 49% of American approve of President Trump’s handling of the situation and 31% approve of Congress. That’s actually good news for Congress who hasn’t seen numbers like that since the last time the economy was in the toilet in 2009.
However, even as the move to reopen gathers steam, coronavirus cases are rising across the south and last week saw 2.4 million new jobless claims get filed. The economic bad news claimed another major American retailed this week as Pier 1 Imports announced it would be closing.
The situation led FiveThirtyEight to argue that Congress could deepen the recession without additional stimulus spending, but Brookings reports that small businesses in the hardest hit states are not getting access to funds in the first rounds of stimulus spending.
Fed Chairman Powell and Treasury Secretary Mnuchin both painted fairly stark short-term economic forecasts if more isn’t done, with Powell suggesting that full reopen of the American economy may not be possible until a vaccine is available (more on that later). In an effort to reduce costs to businesses and their federal regulators, the Trump administration is moving to remove a host of business and industry regulations.
However, all the government action may be mere catch up as Americans gain confidence in being out and about, and start reopening things themselves. The move to reopen seems to be extending to the medical field as well as 600 doctors signed an open letter calling on the President to reopen the country. The doctors indicate that the lockdown “cure” is worse than the disease, something that Axios seems to corroborate as it charts the decline in a list of medical procedures.
It wasn’t all bad news, though, as auto workers returned to work at several manufacturing plants in the Rust Belt, and the stock market seems to be doing alright despite the drubbing its taken lately.
As the reopen rolls out unevenly, it’s becoming increasingly politicized. Early polls indicate an increasingly partisan gap between Americans on reopening with a disproportionate amount of liberals expressing fear.
The American Conservative notes that public health has always been a political hot potato in an American political culture where the tension between individual freedom and collective well being is a feature not a bug.
Still, that tension in the context of a very polarized country could have very real damaging effects as an alleged arson attack on a Mississippi church indicates.
May 29: Ripple effects
Between racial tensions, election fights, and tensions with China, coronavirus almost took a back seat in this week’s news cycle, but there were some important developments worthing noting:
The WHO suspended hydroxychloroquine tests due to safety concerns.
Human trials on a vaccine have begun in Australia.
While covid-related deaths in the US crossed the 100,000 mark, deaths and new cases in hard hit New York are declining.
The economy is showing signs of life as the New York Stock Exchange reopened its floor, small businesses are getting back up, and housing sales ticked upwards. Still, most Americans are pessimistic about an imminent recovery.
OK, those are the factoids. What I’ve noticed alongside the day to day reporting on the virus and the emerging second and third order consequences that are going to play an increasing role in weighing when and how to reopen segments of the US.
AEI runs data showing that America has essentially had three different experiences with the virus, but (unhelpfully) largely one narrative. The study underscores the reality that the virus is disproportionately affecting certain sectors of America. Failure to acknowledge that reality has led to scandal-level policy decisions like those surrounding placing covid-19 patients in New York nursing homes.
Vox reports on a covid-induced gap in immunizations that could create additional public health problems.
A new poll reports that 1 in 3 American adults are now dealing with some form of anxiety or depression as a result of lockdowns and economic upheaval.
Perhaps in recognition of these trends, Dr. Anthony Fauci warned that taking lockdowns farther could do “irreparable” damage….. This after he had gone on record warning against reopening without a vaccine.
In other news…
Stay tuned for a new episode of the TTP podcast coming out tomorrow!