Should We Reopen The Economy? The Tug-Of-War Between Economists And Epidemiologists – Forbes

As several countries and some U.S. states tiptoe into “reopening the economy” ― as the popular expression goes ― epidemiologists have looked on, some with trepidation, others with dismay. 

Governments are faced with a punishing Sophie’s Choice: Do you risk the safety and possibility of sacrificing more lives or do you sacrifice the health of the economy? Reopen the economy too soon and you risk triggering a new wave of infections and possible deaths. Keep the economy shut for too long in hopes of squashing transmission and you infect the economy with its own variety of serious illness. 

The economy, like a person, can get sick. What we don’t know is just how long and how severe it will suffer. 

McKinsey sought to answer this question in a report outlining numerous recovery scenarios, as Andrew Ross Sorkin covered in DealBook back in early April, “McKinsey has laid out nine recovery scenarios with a letter spaghetti of V’s, U’s, L’s, W’s and other unidentifiable squiggles.”

The public has since (what else is there to do?) become well-versed with these Spaghettio Squiggles of graphs. For a while, there seemed to be bubbling hope for a quick-and-easy V-shaped recovery, where we bounce right back. The enduring lockdown has, unfortunately, been our wet blanket, dimming that hope with every passing day. 

Reflecting the hope that recedes in the minds of many, Sorkin writes: “A ‘V-shaped’ recovery looks unlikely, according to most economists. The number crunchers at Berenberg think that it will take two years just to make up the ground lost after a steep plunge in the first half of 2020. A recent Deutsche Bank analysis looking ‘beyond the abyss’ reckons that, compared with pre-virus trend growth, the U.S. and European economies will be $2 trillion smaller by year end, and still $1 trillion smaller at the end of 2021.”

As a child of the Great Recession, the V-shaped recovery was never on my mind. The threat of its much more ominous L-shaped sibling loomed much larger, a scenario where the economy wouldn’t recover, but would suffer long-lasting symptoms, forever maimed by the unexpected external shock of a pandemic that appeared to sideswipe the world. 

Will We Recover From The Unemployment Spike?

The meteoric rise in unemployment has been a big cause for concern. In the United States, unemployment is teetering today around 15%. Some even speculate that it could be hovering closer to 20%, levels dangerously comparable to those of the Great Depression. 

But even the Great Recession of 2008 wasn’t so long ago that the lingering psychological effects of joblessness make many ask can we come back from this and if so, when?

Just today, reports by economists cited in the New York Times estimate that “42 percent of recent layoffs will result in permanent job loss.”

But I am of a different opinion. In his newsletter in mid May, Paul Krugman looked at indexed employment growth in recoveries. The emerging graph showed two types of recoveries. 

“What you see is that before 1990 we tended to have ‘morning in America’ recoveries, in which jobs came soaring back. Since then, however, we’ve had extended ‘jobless recoveries,’ in which G.D.P. is growing but it takes a long time for the jobs to come back…[F]ast recoveries followed recessions caused by high interest rates, imposed by the Federal Reserve to curb inflation; once the Fed relented, the economy easily sprang back. Later recessions have been caused, instead, by private-sector overreach: the commercial real estate bubble of the 1980s, the tech bubble of the 1990s. These were much harder to cure…

“Covid-19 is, in some ways, like the spike in interest rates that generated the 1981-1982 recession. It’s something imposed on the economy from outside, as it were, rather than the result of private-sector excess, so you’d expect fast recovery once the outside shock recedes.” 

The takeaway according to Krugman, an argument I agree with, is we will see a recovery. We won’t be branded this time around with a dreaded ‘L’. Or at least there’s a good chance we won’t…if we put the right policies in place. 

But, of course, there is no guarantee. With the stunning lack of leadership in setting an effective response strategy, most notably in the United States, it leaves an uncomfortable amount of room for the recovery to still go astray.

“One can’t exclude the possibility of a ‘black swan of black swans’: structural damage to the economy, caused by a yearlong spread of the virus until a vaccine is widely available, combined with the lack of policy response to prevent widescale bankruptcies, unemployment, and a financial crisis,” according to McKinsey’s report.

An effective strategy is critical for recovery, but what? 

A Strategy For Reopening

And this is where we bring back the epidemiologists as the protagonists of the story. The storyline dominating the headlines to date has been pitting economists against epidemiologists, as if the only strategies available to us are either to reopen the economy in its entirety or stay inside indefinitely. 

But the countries that have kickstarted a reopening strategy, countries like Australia, Germany, and Denmark, have played somewhere in the middle. They didn’t swing the door wide open, they left the door ajar, allowing schools and small children to first wiggle their way through, leaving the door ever so slightly open for the next wave of small businesses. 

Phased reopenings are in large part made possible by the measures put in place to prevent ―  and if needed mitigate ― future outbreaks: consistent measures of rate of transmission, capacity limitations on office and retail spaces, enforced usage of masks in some cases, temperature checks, etc. The measures are by no means perfect, but cumulatively effective. 

Figuring out how we’re going to make it from here until we have a vaccine is an overwhelming prospect. But figuring out how to make marginal improvements to make it from here to tomorrow is all we might need. 

There is a classic writing adage from E.L. Doctorow: “Writing is like driving at night in the fog. You can only see as far as your headlights, but you can make the whole trip that way.” 

So too, I would argue, with an effective strategy to reopen the economy. We may never know enough to develop a strategy which we know will work. We’ll likely stay in the dark until the vaccine arrives. But that doesn’t mean we have to remain idle for the foreseeable future. 

That seems to be the bet some governments are making. Time will be the only arbiter to decide if they are right.

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