It’s The Pandemic, Stupid: Public Health Worries—Not Shutdowns—Driving Recession


Imagine if all the political debate over whether or not to ‘reopen’ the economy were a total waste of time because fears about contracting Covid-19, not government-mandated shutdowns, are actually to blame for a deepening economic slump.

That’s basically the finding of a new paper from Barack Obama’s top economic adviser Austan Goolsbee and his University of Chicago co-author Chad Syverson.

“While overall consumer traffic fell by 60 percentage points, legal restrictions explain only 7 percentage points of this. Individual choices were far more important and seem tied to fears of infection,” the research finds.

Foot traffic at stores “began dropping before the legal orders were in place; was highly influenced by the number of Covid deaths reported in the county; and showed a clear shift by consumers away from busier, more crowded stores toward smaller, less busy stores in the same industry,” the authors write.

The findings echo international evidence from countries like Sweden, where fewer restrictions on movement and commerce led to similarly sharp economic downturns.

“This is a truly global crisis as no country is spared,” wrote Gita Gopinath, the International Monetary Fund’s chief economist, in a new blog accompanying the IMF’s dire forecast downgrades.

The Fund estimates the slump will cost the world economy some $12 trillion this year and next.

“Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions,” wrote Gopinath.

“Emerging market and developing economies face additional challenges with unprecedented reversals in capital flows as global risk appetite wanes, and currency pressures, while coping with weaker health systems, and more limited fiscal space to provide support.”

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Pedro Nicolaci da Costa is a Senor Reporter at Market News International, where he covers Federal Reserve policy and the economy. He has been writing about economics and financial markets since 2001, at Reuters, The Wall Street Journal and Business Insider. Pedro was a fellow at the Peterson Institute for International Economics from 2014 to 2016. In 2010, da Costa co-authored “Cozy Ties at Club Fed,” a report that prompted the central bank to adopt a more transparent communications policy that includes holding quarterly press conferences. His reporting on the failure of some academic economists to disclose financial industry ties resulted in the American Economic Association’s adoption of a new code of conduct. Both articles received journalism awards.



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