Economic Growth

The Fed Sees Lingering Economic Pain From the Pandemic and the Lockdowns

The danger of the virus can’t be considered to the exclusion of the need for jobs and prosperity.

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The pandemic- and lockdown-slammed economy is starting to show signs of life—but don't get your hopes up too high just yet. Last week, Federal Reserve officials said the economy is recovering more slowly than anticipated and revealed their concerns that Americans have taken an unprecedented gut-punch from COVID-19 and from government reactions to it.

The dismal news came in the form of minutes from the Federal Reserve Open Market Committee's (FOMC) end-of-July meeting. And the minutes serve as a reminder that, as dangerous as the novel coronavirus is, public health measures have the potential to do at least as much harm as viruses.

Understandably, the battered condition of jobs and businesses was the overriding concern. Despite some signs of improvement, "economic activity still appeared to have declined at a historically rapid rate in the second quarter," the minutes revealed. "The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast."

"Indicators of business fixed investment suggested that investment had generally not begun to recover but that the pace of declines had moderated, on balance, in recent months," they added.

The FOMC meeting came at the end of the second quarter, during which gross domestic product (GDP) dropped by an unprecedented 9.5 percent (an annual rate of 32.9 percent). July also saw COVID-19 cases spike in some states, and many government officials then re-imposed lockdowns that shuttered businesses and cut off paychecks.

"In June, we saw a significant increase in concerns related to reclosures due to rising levels of Coronavirus cases," reports Alignable, a small business network, of a survey of its members. In July, 5 percent of the 5,738 business owners polled said it was their "top concern."

Business owners have good reason to worry about lockdown orders, many of which arbitrarily distinguish between "essential" businesses allowed to function and "nonessential" businesses condemned to closure. At the end of July, Yelp, the crowd-sourced review company, noted that "even as total closures fall, permanent closures increase with 72,842 businesses permanently closed, out of the 132,580 total closed businesses." Permanent closures made up 55 percent of all businesses that closed since March 1.

Numbers like that have a devastating human cost.

"As many as a third of the 230,000 small businesses that populate neighborhood commercial corridors may never reopen," the Partnership for New York City reports of the carnage in that metropolis. Those closed businesses mean "as many as 520,000 jobs were lost from the small business sector."

The loss of jobs is a national phenomenon.

"Through June, only about one-third of the roughly 22 million loss in jobs that occurred over March and April had been offset by subsequent gains," say the FOMC minutes.

Since the July FOMC meeting, the national situation has changed somewhat. The July spike in U.S. COVID-19 cases has subsided, offering hope that people will regain confidence in moving about and engaging in some degree of normal activity. The decline in daily confirmed cases also may nudge government officials towards loosening restrictions so that people can exercise their own judgment about going about their lives, rather than depending on officials' whims.

But initial unemployment claims jumped back above one million last week. Before 2020, the previous peak in claims was 695,000 in October of 1982. That's an indicator that the economic hemorrhaging continues even if there are signs of life and we're (hopefully) past the worst of the pain.

Future spikes in COVID-19 cases—predicted in some quarters—could mean another drop in economic activity. That could result from personal choices by people fearful of infection, and because of draconian restrictions imposed by officials on those who might choose otherwise if left to their own devices.

"Participants observed that uncertainty surrounding the economic outlook remained very elevated, with the path of the economy highly dependent on the course of the virus and the public sector's response to it," the FOMC warns. "The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."

To offset the damage to people's lives, the FOMC promises to use its own monetary policy tools—low interest rates, in other words—and assumes increased government spending. But it also warns that these policy tools are likely to be outweighed by the absence of actual economic activity and "the reactions of many states and localities in slowing or scaling back the reopening of their economies."

Basically, cheap money and government checks aren't a substitute for manufacturing, buying, selling, and employing. Nothing can stand in for productive human interactions.

None of this is to minimize the dangers posed by the pandemic. The virus has extracted a terrible toll in terms of deaths and suffering. People are justified in being wary of COVID-19, relative to their own vulnerability and their personal tolerances for risk.

But the pandemic can't be considered in isolation. It must be balanced against other human needs, such as social interaction, education, and the economic activity that produces the prosperity that makes it possible to fight against health threats. If governments forcibly shut down their societies, they may strangle the virus, but they're just as likely to kill off their own people—or, more likely, drive them to ignore the rules out of necessity.

We're in for a continuing measure of pain from the pandemic no matter what happens. But government officials have the ability to get out of the way of people trying to improve their conditions—or they can make the situation much worse.

NEXT: Tennessee's Lawmakers Respond to Police Reform Protests by Threatening Voting Rights and Gun Rights

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  2. And what happens when young poor people get thrown out of work. They start trashing the place. Robbing businesses and unarmed citizens. Burning and looting. Rioting for months straight.

    This was planned and executed well by the far left democrats. That’s one way to try and win an election. Supported by libertarians.

    1. Was the virus made by Democrats in labs, or is it all a big lie and there is no virus?

      1. Both!

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        2. It’s amusing which side you’ve attached yourself to.

  3. “It must be balanced against… economic activity that produces the prosperity that makes it possible to fight against health threats.”

    Thank you. Thank you for pointing out that the people most at risk from this virus, my grandparents included, owe their longevity and quality of life to a healthy economy. It’s an inconvenient truth that the fear mongers refuse to admit.

    1. Pfft, the only thing capitalism produced is slavery and despair.

      1. Slavery, despair, and depression.

  4. Sorry, the economic impact is solely due to the government actions, not to the virus.

    1. Exactly! It’s the government forcing people not to go to restaurants, forcing the NHL to play to empty stadiums, forcing people not to take flights on all those empty airplanes, and forcing people to continue to work from home! People’s personal decisions have nothing to do with this!

      1. you’re really fucking ignorant.

      2. In-restaurant dining is banned in locations and heavily limited in many others. Crowd sizes are also heavily limited. These aren’t by personal choice but by government mandate. And if there are few things one can do due to government mandates, why would one fly anywhere and deal with that headache?

    2. People stopped going to movie theaters before they were closed by the government. You are wrong.

      1. Yeah, and they stopped getting their hair cut, too, right?
        Does cherry picking pay well?

    3. THANK YOU

    4. Of course there would have been a negative impact on the economy without government action. Some people would have stopped going to social events out of either due caution (for those in or living with vulnerable groups), or out of irrational fear (for the healthy). People still would have lost productivity due to being ill from the virus.

      Bad flu seasons frequently slow the economy in a measurable way. This virus would have done the same. It just wouldn’t have been nearly as bad. It would have been a pothole instead of a car-eating sink hole.

  5. Biden promises a national lockdown if “scientists” tell him to. And people say Biden doesn’t offer concrete proposals…

    1. And no pushback from Reason on how he doesn’t have that power. Odd.

  6. Bosh! Just work from home.

    1. And learn to code.

  7. “Basically, cheap money and government checks aren’t a substitute for manufacturing, buying, selling, and employing. Nothing can stand in for productive human interactions.”

    You think?

    1. It’s a classic example of “When all you have is a hammer every problem looks like a nail.” All government can do is print money and shut things down. Presto chango that is the solution to all problems.

  8. People are justified in being wary of COVID-19, relative to their own vulnerability and their personal tolerances for risk.

    But of course, governments can’t have people making their own assessments of risk based on their own vulnerability and tolerance for risk. I mean, it’s not like this is a free country or that people have individual liberty or something insane like that. “We’re all in this together and blah, blah, blah” so everyone must be made to OBEY or else.

  9. When you’re looking for the obvious, look to the Fed.

    1. “That thing that we did had the effects everyone predicted it would have. FYI”

  10. The scummy liberal vermin in the government/media complex have created an obscene situation where billionaires like Bezo the Bozo are raking in more money than they ever have in their lives, while small business owners and workers are suffering to an extent that hasn’t been seen in nearly four generations. It’s like a twisted combination of the Gilded Age and the Great Depression, going on the same exact time.

    I’m just going to come out and say it: the people who did this to us all deserve to be shot right in the fucking head and thrown into a woodchipper.

    1. Boy all of a sudden the president and his federal government are toothless, blameless victims now that R’s occupy it.

      1. That’s right, it was scumbags like you at the state and local levels who did this to us.

        Own it, bitch.

        1. So do you hate federalism all of a sudden or so you just think Trump is an incompetent moron?

          1. By the way, I know full well that you think this strategy of holding America hostage through lockdowns is a brilliant one and that what’s going on is hilarious.

            Because you’re pure, unadulterated lowlife scum.

            1. Governors who followed Trump saw their poll numbers crater, and governors who followed science saw them go up. Most people understand that this is a pandemic and not a leftist plot.

              1. Haha. Yeah. Cuomo might not have seen his “poll numbers crater”, but his states tax base, and some 30 odd thousands of its residents cratered nicely!

                Eyes on the prize, tony. You be you.

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              2. Who is this “Science?” You say people follow him – is it like a cult or something? I keep seeing him everywhere, although he contradicts himself a lot. One day Science says “X” and the next day Science says “Not X, it’s Y.”

              3. SD ad a parade in their governor’s honor. And they really didn’t have a “cratering” of their poll numbers. Cuomo’s is laughably high due to the press fellating him on a daily basis, but who doesn’t think Whitmer or Murphy are more than fascistic goons?

          2. Trump is, generally, an incompetent moron. But he didn’t impose any of the lockdowns that have done so much to hurt the economy. He did, or course, sign off on the debt-busting relief package, but this just refers back to my first sentence. Still, the majority of the damage was done by Democratic Governors and mayors throughout the country. Cuomo’s, in particular, handled things about as badly as a sane person could have.

      2. So you opine that the Feds are able to force states to shut down? Is this the new opinion from Dems?

        Man, you must really think Biden has a shot. It’s kinda cute.

    2. ^This is why Mikey is banned from all social media except for the Reason comment section. Censorship everywhere!

  11. I don’t think it’s very libertarian to pile the entire weight of this problem onto doctors and nurses, but libertarians sure seem to.

    Maybe the funeral industry can keep the GDP afloat.

    1. [citation needed]

      1. “Just open up the economy!”

        As if there are no consequences beyond economic growth.

        1. What dies that have to do with doctors and nurses?

          As if there are no consequences to reversing economic growth.

          1. Calls to let the virus run free in the name of economic growth, rank psychopathy, or whatever your reason, necessarily demands a near superhuman effort on the part of hospitals and their employees. They are always left out of the discussion here, as if the simplistic nonsense that removing restrictions automatically means economic recovery weren’t bad enough.

            1. all hospitals remain standing and staffed.

              1. None were ever over-filled.

                And I’d feel bad for the doctors and nurses et al…if not for their open support for BLM protests. Apparently, THOSE were peachy. Not people trying to feed themselves and their families.

        2. If it’s true that one can get reinfected after only a few months it doesn’t bode well for herd immunity or a vaccine.

          https://www.washingtonpost.com/health/2020/08/24/coronavirus-reinfection-hong-kong/

          1. Just means this will be another cold in 10 years

            1. Remember when you people bitched that doctors were slaves if they took government money?

              This is the first time in my life I’ve seen the entire profession beg policy makers to do something so they can see their children again. For people who care about doctors not being able to call the shots of their own profession, you sure do want to put the entire social burden of this crisis on them.

              1. What do you mean “you people”? And I don’t mean that as a joke.

                1. He means “you people” who don’t bow down to neurotic hyperbole about the potential perils of being human by demanding to be told what to do.

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  12. And the minutes serve as a reminder that, as dangerous as the novel coronavirus is, public health measures have the potential to do at least as much harm as viruses.

    We now know that 99.5 percent of the people who contract this virus survive it. it’s dangerous to a very small percentage of people, a percentage that can easily shelter at home since they are mostly elderly retired folks.

    The July spike in U.S. COVID-19 cases has subsided, offering hope that people will regain confidence in moving about and engaging in some degree of normal activity. The decline in daily confirmed cases also may nudge government officials towards loosening restrictions so that people can exercise their own judgment about going about their lives, rather than depending on officials’ whims.

    Hold on right there. There are a slew of governors who are going to continue to keep businesses shut down and people scared to death until there is a vaccine. And people by all accounts are accepting it.

  13. Of course there is huge economic pain and lingering effects. It is about 20 to 30%, and eventually up to 50% of small businesses will be gone when this is all over.

    The ones who didn’t insulate themselves with corporations might lose everything they own. That’s a sad thing.

    In the end the small businesses that survive will be stronger, and future business creators will be faster and more agile.

    Big business will fill in the niches that small businesses did but people still want and they can do.

    A massive purge of weaker businesses will be hard, but America survived the Great depression, and went on after WWII to dominate the world economically for a long time.

    We’ll grow and be stronger from this too. Americans are too damn eager, just the right amount of greedy, and innovative to be down forever. Everyone who says so, is a fool. People will find a way to thrive. They always do.

    1. In the meantime, the unemployed can either suck from the rapidly-running-dry well of public assistance, or end up in a tent city.

    2. The millions who did or will lose everything take little solace in you pep talk.

    3. Wouldn’t creative destruction be so much better and easier if it didn’t leave millions of people in extreme poverty? People who advocate a safety net do so in part so that capitalism can work more loosely and at a higher level. And so people don’t grab pitchforks and tear it down.

      1. “People who advocate a safety net do so….”

        Because they believe that they have a right to have the government force other people to pay for their basic needs.

        So that capitalism can work? Haha. Wow.

  14. Unless you live in an old folks home, the novel coronavirus isn’t particularly dangerous.

  15. the Fed *is* lingering economic pain.

  16. Someone should send this article to Gov Cuomo, Gov Wolf, Gov Murphy, and De Blasio, just to name a few. Not that any of them would get the point since they seem to have tunnel vision for limitless power and political ambition. Congress can’t negotiate a stimulus bill. In major cities across the country violent crime and property destruction are at levels unseen in decades. The BLM activists in Wisconsin actually threatened that they would continue burning and destroying public property until the officer involved in yesterday’s shooting is fired because they are too angry to wait for an investigation. Parts of NY and Philly have become open air homeless shelters. Philly has the second highest homicide rate in the country, just behind Chicago. The people in charge can’t even manage garbage pickup, let alone deal with any of the major problems confronting millions of Americans, such as increasing poverty, homelessness, and prolonged unemployment.

    Wolf won’t even talk with business owners. Cuomo is too busy planning his book tour and begging rich people to come back to New York. De Blasio is making a list of thousands of people to lay off, likely not to include anyone on his wife’s dozen person staff. And Murphy is telling NJ residents and business owners if they don’t like his rules, they can leave. Government is not the cure, it’s the disease.

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    1. Government is now the opiate of the people.

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  21. The lockdowns will go down as the biggest mistake in modern history.

    No reason or science to back it up.

    Just good old fashioned mass hysteria.

    1. Mistake?

      You misspelled “fraud” pretty badly.

      The reaction to CV is the biggest fraud in American History.

  22. “The Fed Sees Lingering Economic Pain From the Pandemic and the Lockdowns”

    In other news, bears defecate in the woods and Cartman wants a Cheezy Poofs.

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