States That Rushed to Reopen Damaged Their Economies — Just as Experts Warned

June 30th 2020

Texas Governor Greg Abbott speaking at FreePac, hosted by FreedomWorks (Gage Skidmore)

By Josh Israel

American Independent Foundation

Numbers of COVID-19 cases in states that rushed to reopen for business are spiking, and their economies are suffering new setbacks, according to new analysis. This is exactly what economists and public health experts warned would happen if businesses reopened before the science said it was safe.

According to economists with Nomura, a financial services company, “high frequency data on service sector activity suggests businesses and consumers may already be responding to the surge in new cases,” Axios reported on Monday. The same report cited a Deutsche Bank analysis that found “states with faster case growth are now underperforming economically based on measures of small business activity, restaurant bookings and consumer spending.”

CBS News last week reported that economic growth was stalling in states with surges of coronavirus cases. The network quoted economist Ian Shepherdson of the research consultant firm Pantheon Macroeconomics: “More people are staying home as cases soar, and small firms are shedding jobs.”

CBS said that data released by small-business scheduling software company Homebase shows that hours worked by leisure and hospitality employees “increased until mid-June but have now stalled” in places where rising infection rates combine with consumer fears of lax social distancing and face cover use.

As Donald Trump and his Republican allies have pushed to end social distancing rules, ignoring the federal government’s own recommendations about when states could safely reopen, experts have warned that doing so would be bad for both public health and the economy.

Dr. Anthony Fauci, the nation’s top epidemiologist, warned in April that “unless we get the virus under control, the real recovery economically is not going to happen.”

“So what you do if you jump the gun and go into a situation where you have a big spike, you’re going to set yourself back,” Fauci predicted. “So as painful as it is to go by the careful guidelines of gradually phasing into a reopening, it’s going to backfire. That’s the problem.”

“The push to reopen the economy is making a W-shaped recovery very much more likely,” Harvard Kennedy School economist Jeffrey Frankel warned in May, predicting that things would improve and then worsen again.

“Unless the reopening is carefully managed with extensive testing and voluntary social distancing, infections will rapidly rise in many localities,” said Yongseok Shin, a research fellow at the Federal Reserve Bank of St. Louis, according to Fortune. “People will then hunker down for fear of infection, and local governments will re-impose lockdowns, quashing any economic recovery we will have had to that point.”

Also in May, Philadelphia Federal Reserve president Patrick Harker predicted that a rushed reopening would mean a spike in cases and a worsening economic downturn. “Not only would this be a health catastrophe, but it would reverse the recovery as well. In this less hopeful scenario, I project a similar growth path to the baseline for 2020, followed by a painful economic contraction of GDP in 2021 as shutdowns are reintroduced,” he told the Chicago Council on Global Affairs.

Despite the warnings, many states prematurely eased social distancing requirements. Gov. Greg Abbott (R-TX) even privately admitted that, “almost ipso facto,” the reopening would “lead to an increase in spreads,” but went ahead and began allowing his state’s businesses to reopen anyway.

Several Republican lawmakers took the view that the economy was more important than public health. Rep. Trey Hollingsworth (R-IN) suggested in April that COVID-19 deaths were the “lesser of two evils” compared to the economic pain of keeping businesses closed.

But the new data indicates that the two goals are inextricably linked. Over the past week, Abbott has paused Texas’ reopening, and governors in other states have reimposed some restrictions, in hopes of curbing the spread of the coronavirus.

On Saturday, 44,782 new cases of the coronavirus were reported in the United States — the fifth straight day the number of new cases had broken previous records.

According to the Department of Labor, 30,553,817 Americans claimed unemployment benefits for the week ending June 6.

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