‘It’s not viable’ – An economist looks at anti-restriction sentiments

New COVID case rates in Kalamazoo County are 1,180 percent worse than on July 4, when the effects of Gov. Gretchen Whitmer’s initial stay-at-home executive orders were in full swing.

Locally, we set a record for new cases on Nov. 19, as Whitmer via the state health department initiated a “pause” in day-to-day business, such as closing indoor restaurant dining and other limitations on in-person gatherings. If enough people take the pandemic seriously enough to slow the rate of infection, we could un-pause on Dec. 20.

Despite the data that show the success of mask wearing, social distancing, and other regulatory measures – and the extreme failure in public health when people choose not to adhere to the scientific recommendations – there is, in fact, a potential downside: the impact on workers, businesses, and the economy.

Some restaurateurs, business associations, and others blamed Whitmer for the economic impact of pandemic health policy decisions. This frames the public debate as between two extremes: Complete lockdown (which no one is seriously advocating for) and elimination of all restrictions (which science shows would lead to a massacre). 

We thought that debate to be irrational and harmful, so NowKalamazoo sought both intellectual grounding and common ground: We posed this to a nationally renowned economist right here in Kalamazoo who focuses on labor issues and local economic development.

“You want to alleviate the economic pain to the extent you can,” said Tim Bartik, senior economist at the W.E. Upjohn Institute for Employment Research. “It’s not feasible to pretend there is no pandemic going on and everyone should go to work and go shopping. It’s not viable.

“The better thing is, let’s have a targeted public health approach, target sectors where you think you can shut them down short term, without damage to other parts of economy, and where the risk of virus spread is highest. But what we need to do is aide people and businesses. Cover some of their fixed costs. And help the unemployed with income in various ways.”

Earlier in this pandemic, respective governments increased the size of unemployment funds, sent checks to most taxpayers, and provided assistance to businesses (though a court-ordered release of data showed a significant portion directed to large, very profitable, or politically connected businesses).

In the months since, COVID cases worsened and new operating restrictions were put in place to protect public health. Whitmer has recently called on the Republican-controlled state legislature to approve $400 million, including funds to help workers and business owners. And while there appeared to finally be daylight from the federal government, a new bipartisan $908 billion relief package could be upended by the politics that continues to undercut the health of Americans and underscore the nationwide response to the pandemic.

How much is needed?

In November, Democratic Party leaders were pushing for a $2.5 billion aid package — $2 billion more than the Republican Party.

“I don’t know that’s the magnitude that’s needed,” said Bartik, giving one example: “What’s the fixed cost of restaurants and bars for next six months, if that’s what’s needed?”

The pandemic – and the public and government’s response to it – is embedded in uncertainty. Health experts say it’s more than just a coincidence that case rates got worse in the weeks following holidays, as people opted to discard science and have unmasked or mass gatherings. The results of the Thanksgiving Day holiday will be known soon, followed by Christmas and New Year holidays and the potential carnage that will follow.

“That will affect the economy,” Bartik said, especially as it coincides with people spending the rest of the money doled out in the CARES Act from earlier this year. 

Vaccine to the rescue?

It’s a point of pride here in Kalamazoo County that Pfizer’s much-touted vaccine is being manufactured within our borders. There appears to be a high success rate, low side effect rate, and distribution in the United States as soon as the Food and Drug Administration gives the OK.

But it won’t be a quick fix – Pfizer simply can’t produce enough vaccines to meet demand.

“If we understand correctly, by sometime in the middle of next year, we will have vaccines available and hopefully a large percentage of population will take them,” Bartik said. “By September 2021, say, we will have reached sufficient level of combination of those who have gotten the virus, combined with 60 or 70 percent being immune, the pandemic may go away.”

That’s nine months from now. In the past nine months, nearly 290,000 people have died due to COVID-19, more than 15 million have been infected, and countless people’s livelihoods have been affected.

Can we make it until then?

“We need to control the virus, because the virus itself damages economic activity, both by making it harder to work safely and then depressing demand, and seriously depresses economic activity,” Bartik said. “The concern is that would be a long term problem.”

Dealing with this seriously in the short term is the defense against the long term risks. That means wearing a mask, limiting indoor activity outside of the household, and being more logical in assessing the decisions and indecision of elected officials – whether criticizing restrictions intended to save lives, or lobbying the legislatures to get to work.

Whitmer’s current health department order “controls the virus to an extent, but the sector would have been knocked down eventually due to the virus to a large extent,” Bartik said.

“In addition to restaurants and bars, we need to talk about another type of infrastructure, we would like to have child care sector and preschool sector operating with normal capacity,” he said. “If 30 percent go out of business, we can’t just flip a switch and have (high quality) centers open up.” 

All of this points to a need to put money into the safety net, not remove restrictions and let the virus run rampant, which Bartik said will be more costly to the economy and taxpayers. 

“The real concern is a large portion of the small business sector go bankrupt and that is one – unfair; and two – a drag on the economy. You lose the good will and capital being invested in these businesses and you lose a bunch of small business owners. And the impact on the employees,” Bartik said. “Ideally, you would be doing a bailout package for the restaurants and bars.”

Recommendations

• Stimulus: My reasons for big stimulus is it is insurance against a worst case scenario. Making sure small business sector and households are fine, and reducing downside risk of much more severe recession, and a huge uptick in unemployment. Right now the federal government can borrow at close to zero percent interest rate, inflation is negligible, there’s no risk in some big inflationary surge in the short term. The downside risk of stimulating the economy a little more, or overstimulating the economy, is not really worth worrying about. 
• Public health: Universal mask requirements and ramped up testing enormously. If we had 50 times the volumes of tests, that would have helped control the pandemic a lot because we know who has it and get them to stay home. Both of those would have reduced pandemic significantly.
• Economic support: PPP (Paycheck Protection Program) should have been more targeted and we should have had more state and local aide and enacted them in formulas. Then the aide phases in when economy gets worse and out as it gets better. What I would have said to the states: The federal government will make up some difference between what revenue actually is, assuming the current tax effort is maintained, and what it would have been without the pandemic. Cover some percentage of revenue loss.
• Support restaurants: I think it is tough for these restaurants, even at 50 percent capacity. So why not really control the spread and bail them out. 
• Unemployment: That’s why we need to do things like extend unemployment benefits and eligibility to additional groups. That will keep people in a better financial situation. I think we should include direct payment to individuals.
• Stimulus: We need to help keep people financially whole. We will have various small business sectors ready in fall 2021 because they didn’t go bankrupt. People and business will have more assets and that will result in more spending.