Lockdowns and the Economy

Lockdowns, in whatever degree, impact the economy. Obviously. But the economy is an abstract entity. And it is real people who run into money problems and get laid off. There was a pic of a protest by such folks against the lockdown in Ohio, USA, about which Alex Tabarrok wrote:

“It wasn’t a large protest, about 100 people, but they look pretty angry. They want to reopen the economy.”

One protestor said:

“We have children to feed, businesses to run, employees to pay, and Ohio must end this shutdown now.”

On the other hand, those who have the savings or jobs that can last an extended lockdown want their country to be more China-like, says Charles Harris:

“What I'm seeing now is a bunch of people begging, almost unknowingly, to be more like China. Some of the U.S.'s own values might be getting eroded now out of fear. It's so hard to say.”

This debate is going on in almost every country. Given the sheer numbers of those badly impacted by lockdowns, Tyler Cowen correctly says:

“Any model of optimal policy should be “what should we do now, knowing the lockdown can’t last very long?” rather than “what is the optimal length of lockdown?”

And so, he says, all democracies will inevitably act as follows:

“America is a democracy, and the median voter will not die of coronavirus (this sentence is not repeated enough times in most analyses). And so we will reopen pretty soon.”

I am positively surprised by how India has approached this problem pragmatically. The farm sector was given an exemption for the harvesting window. The plan is to open individual sectors progressively, not one shot. Loan repayments (EMI’s) were put on hold. Yes, no policy is perfect. Yes, there will be instances of bias and favoritism. Still, on the whole…

In any case, as Wuhan shows, even if you lift the lockdown, it’s not as if the economy returns to normal. People remain scared. They don’t step out easily. And so the economy doesn’t pick up steam easily, a problem China has to solve first (since they’re ahead of everyone else).

I suspect that getting the economy moving is going to be a major problem for the richer countries. Their economies are based overwhelmingly on non-essential consumption: travel and holidays, sporting events, apparel, movies, entertainment etc. Do you really think that anyone is going back to those activities anytime soon? In poorer countries, on the other hand, most consumption is closer to the essentials, avoidance of labour (maids, car cleaners etc), and the convenience of commuting and avoiding traffic (delivery boys), and so I expect the hit to their economies would be relatively lesser.