In an earlier piece, I highlighted the vulnerable industries and the wealth effect of crashing stock markets worldwide. At this stage in our high-tech world, it is sad to think we need to create a global recession to control the virus. In what follows, I look in more detail at the coming recession in the U.S. and question what U.S. policies should be.
Unemployment
The U.S. civilian work force is 164.2 million, with 158.0 million employed and 6.2 million unemployed for a 3.8% unemployment rate. What is likely to happen during the virus period? The Bureau of Labor Statistics reports there are 16.6 million employed in the leisure and hospitality sector. There are also 15.6 million employed in retail trade, with an additional 12.1 million employed in food services and drinking places.
All together, this totals 44.3 million. They are mostly closed down. So assume somewhat optimistically that only 50% of the jobs in these sectors are lost. The jobs lost would total 22.1 million. That would increase the U.S. unemployment rate to 17%. As points of reference, the rate in 2009 was about 10% at the depth of the recession in 2009 and 24.9% in 1933.
Background
Like most things in life, good government policy requires compromise. Smoking kills 5.4 million globally every year and 400,000 Americans. But smoking is allowed.
While far fewer die from alcoholism than cigarettes (the CDC estimates that 79,000 deaths annually for the years from 2001–2005 were attributable to excessive alcohol use), it might be even more destructive than cigarettes because of its broader impact – injuries and deaths from driving, fires, falls, drowning, homicide, suicide, family abuse and loss of jobs. But drinking is legal.
There are between 30,000 and 40,000 motor vehicle fatalities every year with a significant portion attributed to drunk drivers. Worldwide, people are allowed to drive cars.
Overeating has become a real and growing killer. The United Nations reports that even in developing countries, the number of obese children now exceeds the number malnourished. Being overweight contributes to getting breast and other cancers, various heart diseases, high blood pressure, high cholesterol and glucose levels, and a wide variety of physical ailments. There are no regulations to control overeating.
The point is that we don’t ban things we know are killers. That suggests that an all-or-nothing strategy to save one life needs to be examined carefully.
What Should Be Done?
The medical profession keeps telling us that in the U.S., we need to “flatten the curve.” Why? Because we do not have enough hospital beds. But there are costs to doing this. By stretching out the epidemic, the global recession will get much worse.
Some Good News
The U.S. has great analytic capabilities. It is in a position to learn quickly. Just as an example, the following table shows the results of tests by state. There is significant variation. We can learn from these and other variations. We should know shortly whether social distancing and washing hands are effective at reducing the virus.
Going Forward
Over the next couple of weeks, we will learn a lot more about the virus. And during this time, we need to consider the trade-offs between flattening the curve and the economic costs of doing so.