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October 28, 2020

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The economic impact of COVID-19

“There is some evidence from the 1918 pandemic that the places that had more efforts to shut down controlled the virus better. They also recovered from an economic standpoint more rapidly.”

Dr. Jonathan Andreas, Howard Raid professor of business and professor of economics, provided insight into the economic collapse and emerging, yet still uncertain, rebound of the last six months during Bluffton University’s first Colloquium presentation of the year titled, “The Economics of COVID.”

Using unemployment data, polls from economists and graphs charting changes in GDP, Andreas wove together a picture of a recession that evolved more quickly than one ever experienced in the United States. 

While the last major economic downturn, Great Recession of 2008, took over a year to bottom out, Andreas explained the rapid change in trajectory this time around is already bigger in magnitude and “just as historic of a macroeconomic crisis” after only six months.

Andreas pointed out that the current recession and subsequent response includes a nearly unprecedented loss of jobs, major increases in quantitative easing and a federal stimulus response that eclipses the Great Recession.

For example, so far in 2020, Americans have experienced the biggest drop in jobs since the Great Depression. While the overall unemployment numbers are larger for the Great Depression, Andreas shared that the timespan involved was also much larger. 

As for quantitative easing, a monetary policy used to inject money into the economy, the federal response is nearly three times bigger this past year than it was during all of 2008-09. The total fiscal stimulus for the COVID-19 crisis in the United States this year is already about triple the stimulus that was doled out over several years during the Great Recession.

“Nobody is talking about this. The Fed increased its balance sheet from $4 trillion to $7 trillion,” said Andreas. “That’s a crazy amount of money in a space of only six months.”

Andreas also addressed the common narrative that there was either a choice to keep the economy healthy or keep Americans healthy.

However, polls of economists from the University of Chicago’s Initiative on Global Markets (IGM) showed an overwhelming number of economists agreed or strongly agreed that a lockdown would reduce economic damage. The reason, Andreas explained, was a lockdown would reduce the spread of the virus.

“There is some evidence from the 1918 pandemic that the places that had more efforts to shut down controlled the virus better,” said Andreas. “They also recovered from an economic standpoint more rapidly.”

Going forward, Andreas is hopeful the United States will have the virus under control in the coming months due to new studies coming out, better contact tracing, new testing technologies and the possibility of a vaccine. He’s hopeful for a positive economic recovery as well, but just like the spread of the virus, there are a lot of variables.

“There’s a lot of optimism about how fast the economy can recover which I think is one reason the stock market is doing so well, but this is a really historic episode we’re going through,” said Andreas.

“Nobody really knows how fast unemployment is going to get back to normal, if there will be a future wave of bankruptcies, or if there will be another stimulus. Right now, we just don’t know.”

Andreas’ presentation served as this year’s annual Howard Raid lecture. The professorship and presentation honors Howard Raid, a Bluffton business professor from 1947-79.