By Frederic Bouchet, Ph.D.
Faculty Member, School of Business, American Public University
As plans are being made to re-open the economy, we are all aware that policymakers face a difficult choice concerning when and how to go about that after weeks and months of stay-at-home orders to fight the transmission of COVID-19. It is a very challenging situation.
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On the one hand, Andrew Cuomo, the governor of New York, declared a few weeks ago that “we’re not going to put a dollar figure on human life.” There is no doubt that every life is worth saving, and we can only salute the courage and work of all healthcare professionals. Numerous healthcare providers have risked their lives — and lost them — as they do all they can without the necessary protection against this highly contagious virus.
On the other hand, keeping the economy shut down also has some human and economic costs. Those costs will increase faster and faster until things get back to normal.
Human Costs of the Coronavirus Shutdown
It is impossible to create an exhaustive list of the human costs that have resulted from keeping people confined at home for a long time. Anybody trying to work remotely and has bored children with almost nothing to do as schools are closed is currently discovering how far his or her patience goes.
The most damaging consequences will be for the people whose jobs are gone and will not come back. About 22 million people filed for unemployment in the U.S. in just four weeks, and the pain is probably not over. It means that the unemployment rate, which had been below four percent for over a year, is likely to reach 15 percent this month and could even rise higher.
We have not seen such a high level of unemployment since the Great Depression of the 1930s. To provide a more modern reference, unemployment reached a peak of 10% during the 2008-2009 recession. Those of us who were in the workforce 10 years ago remember how long it took for firms to start hiring again at the time.
Economic Costs of the Shutdown
For some businesses, the future is going to be much worse this time around. For example, even if places like restaurants, movie theaters or concert halls are given the green light to open, it is unlikely that too many people will risk going until there is a proven way to be protected against the coronavirus.
The situation will probably be even worse for airline companies. If you were the CEO of a firm, would you take the risk of flying an employee to a meeting or a conference unless it was an absolute emergency? Nobody would, especially as we have learned to work efficiently from a distance these past few weeks. In the same vein, it is difficult to imagine families deciding to be stuck in a plane for hours without any assurance that nobody in the plane is carrying the virus.
There are a large number of small businesses that were already in a tight financial situation. These businesses may not be able to survive despite the help that has been provided by recent stimulus packages.
As a result, a lot of jobs will not come back quickly, if at all. Unfortunately, it will have tragic human consequences via an increase in depression, drug abuse, suicide and conjugal violence.
The Widespread Economic Effect of the Pandemic Shutdown
The economic damage created by a long shutdown will be felt in most sectors of the economy for sure. That will be the case for all activities that require people to be in close contact.
Some of the consequences are also due to the changes of habit that people have been forced to adopt. Now that most of us have become more comfortable shopping online, for instance, it is easy to predict that many retail activities will suffer, even when people are free to go to the mall. Bankruptcies after this shutdown ends are sure to increase.
It may be surprising to hear, but one sector that is suffering a lot because of the coronavirus pandemic is the healthcare industry. Healthcare providers and hospitals all over the country are doubly hit. They are clearly on the front line of the fight and experiencing a heavy toll as an increasing number of healthcare workers are infected by the coronavirus.
Hospitals also face a tremendous financial challenge, since they have had to cancel or postpone all the activities which generate the bulk of their revenue. For instance, many hospitals have postponed non-urgent surgeries like hip or knee replacements or regular procedures like colonoscopies.
Many hospitals, especially in rural areas, will face bankruptcy before long. It is easy to imagine that Congress will not hesitate to put together a special financial package to help them (a bailout, in other words), given the role they have played during the pandemic. This aid will come on top of the $2.2 trillion package that has been recently adopted by Congress, of course.
The US National Debt Is Also Growing
We have long been hearing that the debt carried by our government would have consequences. There have been a few fairly recent government shutdowns when Congress and the President were at odds concerning raising the debt ceiling.
As you can imagine, this deficit is now growing as never before. It was already above $23 trillion at the beginning of the year, and we now can add the $2.2 trillion package as well as the $25 billion agreement decided on April 14th to help the airline industry. I suspect this is only the beginning, as it is a fair guess that more funds are going to be needed to support unemployed workers and help entire sectors of the economy return to normal.
This is the tough choice before us: Open up the economy too fast, and the virus will circulate quickly, increasing the death toll. But open it up too slowly, and the human and economic costs will keep on rising.
There’s no doubt; these choices are a hard balance to strike for all policymakers. We should be cautious about blaming them for the choices they will make.
As always, hindsight is going to be 20/20. For now, we need to follow the confinement procedures as long as they are in place and hope they will allow the economy to be opened faster.
We can do our best to support local businesses as much as we are allowed during this shutdown, while protecting ourselves from illness. A little solidarity is always good for the soul, especially now in this time of imposed isolation.
About the Author
Dr. Frederic Bouchet is an associate professor in the School of Business at American Public University. He holds an M.S. in math and economics from the Paris Institute of Technology for Life, Food and Environmental Sciences (AgroParisTech) as well as an M.S. and a Ph.D. in agricultural and applied economics from Virginia Polytechnic Institute and State University.
Dr. Bouchet was an economic and financial advisor for several private and nonprofit firms, primarily in the food industry sector, during the 18 years he lived in France. While there, he also served as the Chief Operating Officer for a network of European nonprofit organizations. Dr. Bouchet has taught mathematics and economics in the U.S. for the last 15 years.
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