What does a shutdown look like?

Maybe it is a good thing but I find many people struggling to understand what an economy under such tight restrictions looks like. The issue is both in the physical world and the data. Well the first one happened already with plenty of news footage showing closed shops, empty streets in metro areas with populations in the millions (cue the tumbleweed), and so on. We have yet to see this manifest itself in the data though. That ends tomorrow.

I am fortunate, if that is an appropriate word here (wait for it), that I studied the economics of natural disasters. Disasters occur in time and space and impact all aspects of life, including and especially the economy. In some cases it leads to radical declines in economic activity. This is clearly something most have difficulty envisioning, and that is not their fault at all.

The fact is “remote work” is a new innovation allowing economic activity to continue, at least to some extent, where in the past it would not be possible. That is not the reality for all however as numerous well researched and written newspaper articles make clear.

Let’s dispel the notion that activity goes to zero. Can it happen? Sure. Does it always? No. Might it happen now? Really unlikely. Even in the Grand Forks flood of 1997 which was, at least at the time, the largest evacuation in the US since the Civil War, economic activity did not go to zero. By my calculations sales tax receipts in March of 1997 were down 12% from February and April was down 34% from March. Actually, it appears April was something of a bad month anyway at that time when you look at several years.

The point is that economic activity continued, though clearly lower than might otherwise be expected. Now was we expand that out to the national level we rightly expect that this will also be the case. The one difference we have right now is that a metro area of less than 100,000 facing such an interruption and a nation of 300 million plus are very different things. Scale matters here.

The other major concern is unemployment. I am estimating 2.6 million for initial unemployment claims and cannot rule out over 3 million. (I have never wanted to be wrong about a forecast more that I can recall by the way). This is the perpetuation of the negative feedback loop that turns recession into something closer to a depression. Fiscal intervention seems a necessity, and my students by a large margin think the current $2 trillion is only the start, not the end.

People need positive news these days so I will refer back to the Grand Forks flood of 1997. Yep. Dismal scientist here. You want good news? Let’s talk disaster. The water did recede and July of 1997 was the first month of a million dollars in sales tax collections. There are some reporting lag issues in here and such so it is not so much the precise timelines I am suggesting we follow. Rather it is that harder times ended and better times were in the offing as recovery took hold. We will see the same nationally but it will take both prudence and patience. Unfortunately both are frequently in short supply.

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