Webinar discusses economic effects of restrictions
Last updated 5/11/2020 at 11:49am
The Solid Finances Webinar put on by Montana State University Extension Thursday had economists discussing the effects restrictions like stay-at-home orders will have on the U.S. economy.
MSU Assistant Professor of Health Economics Mariana Carrera said on average, someone who is infected with novel coronavirus 2019 will pass it on to at least two other people before they cease to be contagious.
She said this exponential growth rate has been slowed considerably by the various restrictions put in place by states since the pandemic began, with the growth rate having been reduced by about half in most states.
She said because the growth of the disease is exponential, reducing exposure by half can lessen the total number of cases dramatically.
Carrera said states have had to take action of their own due to the lack of federal response to the pandemic which has led to great variability in how well states have dealt with the pandemic.
“There was no real federal strategy overall,” she said.
Despite the situation with the economy, Carrera said, most people in her field agree that aggressive action to address the pandemic is necessary.
“These measures have been seen as quite controversial,” she said, “They have a big effect on the economy of course. … They’re also seen as infringing on some personal liberties. So why do economists and policy makers defend these measures? Well, because when you have something like a contagious disease there are negative externalities associated with going out being in a position to get infected and further spread that disease.”
Carrera said these measures helped slow the spread of the disease and prevented hospitals from being overwhelmed worse than they were in places like New York City and Italy.
She said a working paper by the National Bureau of Economic Research, which used anonymized cell phone data as its primary indicator, shows that the time Americans spend at home risen by 50 percent since the pandemic began. The NBER estimates that just over half of this is a result of state level actions like stay-at-home orders, with the rest being a result of private action by individuals.
Carrera said the curve is pretty flat in Montana and generally agreed with Gov. Steve Bullock’s opinion that this is evidence that early aggressive action against the disease has been a success.
“Compared to other parts of the country, Montana is doing particularly well,” she said.
She said Montana is doing better at containing the virus than neighboring rural states like Wyoming, Idaho and the Dakotas, and said, the severity of their situations with the virus line up with how seriously they took implementing things like stay-at-home orders.
“For example, South Dakota was in the news as one of the few states where their governor resisted calls for imposing a stay-at-home order or any kind of mandate for businesses to close, and they also had a terrible outbreak at a pork processing facility,” she said.
Carrera also said Idaho is facing similar problems because they waited too long to implement restrictions.
She said stay-at-home orders have been associated with up to a 43.7 percent decline in confirmed cases, with increased effects the earlier they were implemented.
Carrera said framing these restrictions as having a negative effect on the economy may be misleading.
“An important thing to keep in mind is that the damage to the economy isn’t so much coming from these shutdowns as just from the virus in general,” she said.
Carrera said it’s still too early to evaluate the economic impacts of Phase One of Montana’s re-opening, and that people shouldn’t expect the easing of restrictions to have immediate effects.
“Easing these restrictions is not going to magically bring the economy back to normal,” she said.
Bureau of Business and Economic Research Director Patrick Barkey then detailed some projections about what the effects of the pandemic will be and provided further details about what may happen in the years to come.
Barkey said IHS Markit’s latest projections predict a 5.5 percent decline in GDP from 2019 to 2020.
“The severity of that downturn in the U.S. economy is much swifter and much larger than the great recession,” he said.
However, Barkey said, that same projection also said there will be a substantial comeback in the following year, and by 2022 the U.S. will be catching up with the growth trajectory originally projected for 2019.
He said these are just projections for now and that they may not come true, but they are encouraging.
Barkey said projections indicate employment in the state of Montana will drop by 7 percent, and that the state can expect a $4 billion drop in personal income, which is about seven and a half percent, in the next few years.
“It is a profoundly disruptive event,” he said.
Barkey also said Montana, like the rest of the U.S., may see a substantial return to form in relatively quick order.
“That bounce-back will be much more robust from the downturn during the great recession,” he said.
MSU Professor of Microeconomics Vince Smith talked about potential food shortages that may result from the pandemic and said such shortages may be problematic, but will likely not be catastrophic.
“There is no evidence that we are likely to face, in the near or long-term, food shortages that are significant enough to justify that we would introduce rationing,” Smith said.
He said a meat shortage is going on, but it is more prominent when it comes to higher quality cuts of meat, and that any shortages will be specific to certain products and not necessarily indicative of general food shortage.
“If there is likely to be a shortage it is likely to be associated with a particular problem for a particular class of product,” Smith said.
He said one such problem is the labor difficulties now faced by meat packing plants across the U.S.
Smith said packing plants tend to disproportionally recruit people from economically disadvantaged ethnic groups, who, according to the CDC, have a much higher rate of hospitalization and mortality from COVID-19.
On top of this, he said, most packing plants are designed to necessitate workers being in close proximity to each other, and this makes them especially susceptible to outbreaks, and makes it more difficult to implement social distancing measures.
“Even when the plants re-open, because workers are going to be more spaced out, the processing capacity of the plant will be lower,” Smith said.
He said there is a possibility that prices for food may rise during the pandemic, and that this will have particularly harsh effects on poor families.
“If there is any food inflation, those low-income families are likely experience considerable difficulties,” he said.
Smith said this may lead to significant nutritional deficits among the children of poor families.
He also said recent calls for import or export bans on certain products are misguided.
“If we were to ban imports of food … that would be a serious problem for consumers in terms of fresh fruit and vegetables,” he said.
Smith said one of the problems with import restrictions, is that they tend to take a long time to be rescinded once put in place regardless of the effects they are having.
He said one of his colleagues recently pointed out that using trade measures to try to deal with the COVID-19 crisis in developing countries has not worked out well for them, and on average it would not work out well in the United States either.
MSU Extension Economics Associate Specialist Joel Schumacher said this week’s webinar scheduled for Thursday will be the last webinar in the Solid Finances series, but they might revive it as more data becomes available later in the year.
He said next week he will be speaking, as well as MSU Professor of Small Business Finance George Haynes and Assistant Professor of Economics of Farm Management Decisions Kate Fuller.