CORONAVIRUS

Medical news key to recovery, economists say

Rebound depends on how consumers respond

A bicyclist makes the turn onto Washington Street near the nearly deserted Ped Mall in Iowa City on April 1. (Jim Slosia
A bicyclist makes the turn onto Washington Street near the nearly deserted Ped Mall in Iowa City on April 1. (Jim Slosiarek/The Gazette)
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Will Iowa’s and the nation’s economy stage a rapid strong recovery or will it be a long, slow slog marked by bankruptcies and job losses?

Some economists say medical news that affects the length and severity of business and social restrictions ultimately will determine the speed and length of any economic recovery.

“It depends on the medical community because without a medical solution like a vaccine, the economy grinds down to a lower level,” Creighton University economics professor Ernie Goss said.

“If we continue to have a stay-at-home policy, how many restaurants are going to close — all of them, 80 percent of them? Business meetings, hotel stays, are operating in the perhaps 10 to 20 percent range now.”

Early on, Goss anticipated a V-shaped economic recovery once current pandemic subsides — a quick and powerful bounce back from the bottom to the top.

But now he’s thinking more about a U-shaped recovery, which would mean a more protracted time along the bottom before rising again.

“I’m going off the models the medical people are coming up with,” Goss explained. “As they get more pessimistic, so the economics get more pessimistic.”

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Dave Swenson, Iowa State University economist, said until a large section of the population has had COVID-19 or been vaccinated, it is unrealistic to expect anything like business as usual.

“How long is that going to take? We know that a vaccine may be 12 to 18 months away,” Swenson said. “We are perhaps sometime next summer slowly reacquiring all levels of output across all industries.

“Until that time, the coronavirus is probably going to continue to interfere with the economy.”

There will likely be a substantial recovery in several sectors, Swenson said, with people able to go to work in the summer or the fall.

“The economy is going to start going back up, but we will still have to practice social distancing,” Swenson said. “Certain kinds of venues where people congregate will need to continue to be careful.

“Everything that we do that keeps us from consuming at levels that we normally would have consumed will affect a recovery. If I am inhibited from consuming because I have to stay at home, other people are inhibited from consuming because they have lost their job.

“We are stuck in that cycle until we can interact normally with one another without sickness.”

Goss urges people not to get discouraged.

“Things appeared hopeless during the 2008 Great Recession, but we bounced back,” he recalled. “The difference is that we didn’t have then what we have now — a medical problem.

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“So it’s more in the hands of scientists and physicians — the medical people — than economists.”

This is one of those situations where there is little that people can do to make things better, Swenson added.

“As individuals, we can be jerks and make things worse,” he said. “So let’s just not be jerks.”

How consumers feel

Nationwide, signs are emerging that any recovery will fail to match the speed and severity of the economic collapse that occurred in just a few weeks. The 2020 presidential and Senate elections likely will take place as the world’s largest economy still is attempting to climb back from the deadly outbreak.

“Anyone who assumes we’re going to get a sharp snapback in activity isn’t thinking about how consumers are going to feel. They’re going to be very cautious,” said Nariman Behravesh, chief economist at IHS Markit.

“Households and businesses have seen their finances deteriorate. People are buying groceries on their credit cards.”

To understand the consequences of a sudden negative shock on the economy, Behravesh studied how many people returned to flying after the Sept. 11, 2001, terrorist attacks.

“It took two and a half years for airline passenger traffic to go back to previous levels,” he noted.

One of the arguments for a quick recovery has come from the Harvard University economist Larry Summers, who served as a top economic adviser to President Barack Obama during the Great Recession, He suggested on Twitter the U.S. economy would behave much as a beach town on Cape Cod, which closes in the winter and reopens around Memorial Day for a burst of summer activity.

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Adding to the challenge is political leaders simply cannot command an economic recovery to occur. The timing depends on the shared actions of millions of consumers and employers, said Paul Winfree, a former Trump administration White House official who is now director of economic policy at the conservative Heritage Foundation.

“I don’t think we’re going to get out of this because of political leadership,” Winfree said in an email. “This isn’t WWII.

“Rather, things won’t turn around until a significant majority of people decide that we’ve done enough (privately and publicly) and have to move along. Hopefully, that coincides with the success of public health efforts.”

Jobs and money

A strong economic rebound likely depends on people and companies being able to preserve their money, so that it can be spent and invested once the gloom begins to subside.

The challenge now is that incomes are eroding, and that could limit the recovery.

Not only have 16.8 million Americans — roughly one in 10 workers — lost their jobs in the past three weeks. Workers have seen their hours slashed, have seen sales commissions disappear and have accepted salary cuts — such that incomes have declined for half of U.S. working households, according to a survey from the Associated Press-NORC Center for Public Affairs Research.

Children can no longer attend school, reducing the productivity of their parents. And on a regional basis, many state economies may take time to claw back what has been lost.

Florida will need to bring back roughly 130 million tourists annually. The decisions of Texas employers, for example, likely will depend on crude oil climbing back above $30, to a point at which drilling and pumping is profitable.

Stanford University economist Nicholas Bloom is an expert on uncertainty and believes the economy will end this year 10 percent smaller than it was at the start of 2020 — a loss of nearly $2 trillion even with the $2.2 trillion rescue package.

The long-term outlook also has deteriorated, he added, in ways that could hurt the recovery.

“Working from home is creating a collapse in investment,” Bloom said. “All firms I have spoken to have canceled training, new product introductions and R&D projects, while at U.S. universities and laboratories unless you are working on COVID-19 you have stopped work.

“So innovation — the main driver of long-run U.S. growth — has stopped.”

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Bloom personally has responded to the decline in an ominous way. He said he pulled his retirement funds and college savings from the stock market and placed them in interest-bearing accounts to wait out the storm.

Associated Press contributed to this report.

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Our most important Coronavirus coverage is free to the public.

If you believe local news is essential, especially during this crisis, please donate. Your contribution will support news resources to cover the impact of the pandemic on our local communities.

All donations are tax-deductible.