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Tuesday, June 30, 2020

PK: The pandemic depression is on track

By Paul Krugman

Opinion Columnist

The coronavirus led to a plunge in output and employment. This plunge, however, was a feature, not a bug. As I've been saying for a while, we deliberately put the economy into the equivalent of a medically induced coma, suppressing activity to give ourselves a chance to get the pandemic under control.

If we had stayed the course, this period of pain could have set the stage for a rapid recovery. But it was obvious early on that mishandling the situation — failing to stay the course on social distancing, failing to use the time to develop enough testing and contact tracing to gradually resume normal life while keeping a lid on new outbreaks — could extend the pain, turning a short, sharp recession into a prolonged depression, a long period of very high unemployment.

Here's how I described the nightmare scenario more than six weeks ago: "Over the next few weeks, many red states abandon social-distancing policies, while many individuals, taking their cues from Trump and Fox News, begin behaving irresponsibly. This leads, briefly, to some rise in employment.

"But fairly soon it becomes clear that Covid-19 is spiraling out of control. People retreat back into their homes, whatever Trump and Republican governors may say."

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Well, it's no longer a nightmare scenario; it's just reality. The New York area, after a terrible start, has done what most advanced countries have done, and crushed the curve. But Covid-19 is now exploding in the Sun Belt. Arizona is in full-blown crisis. So is Texas, especially big cities like Houston, where hospitalizations have soared. Florida, which has been suppressing data on hospitalizations, is probably similar.

All three states have Republican governors who enthusiastically lifted stay-at-home orders and, in Arizona and Texas, at first even prevented local governments from requiring that people wear masks. Even now, they're dithering, taking only baby steps toward restoring social distancing as the pandemic rages.

From an economic point of view, however, it may not matter what the governors do: Fear of the coronavirus is likely to stall recovery, and maybe even send these states back into recession, even if there isn't a new lockdown. Like many economists these days, I've been using restaurant reservations from OpenTable as an early warning signal for economic changes. Here's what smoothed data for the three hot spot states looks like since the beginning of May:

Recovery, stallingOpenTable

In case you're wondering (which you probably aren't), I'm using seven-day medians — seven-day to eliminate day-of-the-week effects, medians to avoid blips like Father's Day. What the data show is a substantial recovery in eating out during May in early June, stalling and perhaps going into reverse in the past couple of weeks.

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This tells you, among other things, how to react to Thursday's employment report, which is likely to show pretty big job gains. Namely, it will show a dead cat bounce, reflecting the effects of early reopening but not the effects of the surge in infections that followed.

For months, both epidemiologists and economists have been trying to tell policymakers and business types that there was no trade-off between fighting the pandemic and economic growth. That is, if we didn't get Covid-19 under control, any short-term gains would soon vanish, and we'd find ourselves getting the worst of both worlds — more deaths plus economic stagnation. But that message was ignored, and here we are.

Quick Hits

The level of fear is more important than official rules.

Larry Kudlow continues his impressive record of never being right.

Fox News has kept millions from practicing social distancing.

Trump's self-defeating resistance to mask wearing.

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John Case
Harpers Ferry, WV
Enlighten Radio
Socialist Economics

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