The U.S. economy is falling over a cliff. Output is plunging and unemployment jumped by 3.3 million people last week, which is the largest jump ever. The president signed a $2.2 trillion aid bill that provides relief payments but will not stop the crash in output. The payments come at the expense of higher taxes and lower incomes down the road, which will ultimately hit young people already burdened with $24 trillion in federal debt.
Each governor is making this tradeoff based on local conditions, with about half of them imposing broad-based shutdowns of nonessential businesses. Gov. Gavin Newsom foresees continuing California’s shutdown for up to three months, which would impose a crushing economic blow. Broad shutdowns ignore that every business has a unique layout and operations, and they don’t allow firms to experiment and find ways to reopen safely.
Furthermore, mandates separating “essential” from “nonessential” businesses ignore the fact that industries are interconnected. The essential hospital and food industries need inputs from many other industries such as plastics, metals, paper, chemicals, energy, software, and transportation. Broad-based shutdowns extended too long will cause shortages unforeseen by officials.
Every option we face is bad, but the focus in coming weeks should be on narrowing the breadth of shutdowns if businesses can find ways to reopen safely. Going into the crisis, American businesses responded faster than the government—and many closed down voluntarily. In coming weeks, state governments should start giving them leeway to open back up if they can incorporate social distancing and extra safety precautions.
Economists Paul Romer, a Nobel Prize winner, and Alan Garber, the provost of Harvard University, argue that we should move “to a targeted approach that limits the spread of the virus but still lets most people go back to work and resume their daily activities.” They advocate widespread and repeated virus testing to pinpoint where the strongest social distancing measures are needed combined with broad distribution of safety equipment.
Rapid advances are making a targeted approach possible. The production of safety equipment such as masks is soaring. The nation’s labs have ramped up to more than 100,000 virus tests a day, and Abbott Labs ABT, 1.347% just won approval for a test that can give results in five minutes. Meanwhile, dozens of drug companies are pouring resources into a diversity of possible COVID-19 treatments.
Widespread testing will keep us on top of regional outbreaks of COVID-19 as it bounces around the country over the next year or more before a vaccine is available. We will need to rely on the less-afflicted regions to keep the nation’s economic engine running. The Trump administration has the right idea in localizing our response based on county-level data, but local responses should be handled by the states—not the bungling federal government. Florida Governor Ron DeSantis, for example, just announced tougher stay-home policies targeting just the hardest-hit counties in the southeast of his state.
Former Florida Governor Jeb Bush favors a decentralized emergency response. He wrote the other day:
“The federal government’s inability to respond quickly and effectively to the coronavirus is creating a newfound respect for local initiatives, private-sector creativity, personal responsibility and civic engagement. Let us hope that Washington loosens its grip on policy and allows federalism to bloom.”
He is right, and in parallel state governments should plan to start loosening their grip on businesses to avoid the health disaster turning into an economic disaster. With federal financial help to rapidly deploy widespread testing, states will be able to narrow the scope of shutdowns and allow creative safety solutions to bloom in the private sector.
