April 5, 2020
Long-Term Changes from COVID-19
The nation’s monthly jobs report published earlier this week was jarring. I write before its publication, but expect the unemployment rate to more than double. Monthly job losses are sure to crush the previous record of September 1945. Despite this, it is worth noting that September 1945 was surely the most welcomed month in all of human history, marking the end of World War II. We would be wise to view the unemployment rate and other short-term economic data as imperfect measures of human flourishing.
Last week, Dr. Fauci, a man who no longer requires introduction, predicted 100,000 to 200,000 deaths from COVID-19. This eye-popping figure accounts for the extreme measures now being taken in many parts of the nation. Business as usual would’ve likely resulted in a tenfold loss of life. Faced with these large numbers, we need to place a more personal context on this tragedy, and muse upon the potential change this will lead to in our economic lives.
At the top range, Dr. Fauci’s estimates are more than five times the annual American deaths from automobile accidents. This means that by late April, nearly every adult will know someone who has died of COVID-19, and someone in every neighborhood, school and place of work will have been sick with it. Such suffering cannot fail to have broad effect on the structure of our economy.
Like Americans in the Civil War and World Wars, the COVID-19 imposes sacrifice upon nearly everyone. This is far different from 9/11, or other recent shocks. Today, we face weeks, if not months, of home isolation. The risk of spreading the disease will influence matters great and small in all our lives. As economist, I see several things open to meaningful change.
Federalism has been too ignored in American politics and budgeting. I’ve long argued that state and local governments are more critical to securing the general welfare than is the federal government. This crisis makes that clear. Likewise, the role of the presidency has grown too strong, and must be limited by Congress. Whatever else his flaws, Mr. Trump provides a singularly exquisite example why we need to devolve power away from the federal government and place more limits on the presidency.
Our wisdom on state and local budgets will also evolve. Many state and municipal governments pursued low tax rates as a source of enduring prosperity. Places with large, unfounded pension debts, like Illinois and specifically Chicago, are viewed as especially imprudent. COVID-19 reveals new unfunded liabilities in state and local governments who believed in error that their low tax rates marked them as fiscally responsible. Today, millions of students nationwide are out of school with no meaningful instructional alternative. Their schools don’t own sufficient computers for use at home and faculty don’t have the software for instruction.
The inability to meet Constitutional requirements of public education is a more damaging unfunded liability than a grossly underfunded government pension system. Moreover, the students least likely to have instructional material are more likely to face other economic and educational challenges. The aftermath of this disease will necessitate tough choices on both higher taxes and unpopular cost-cutting in education.
COVID-19 will influence how we perceive the rural and urban divides. Rural places will be short on key infrastructure, like broadband internet, but urban places are likely to bear the brunt of economic dislocation. The most ‘at risk’ sectors are clustered in cities. This is a very different turn of events from the Great Recession and will alter the political economy of government interventions.
Much of this seems like ‘bigger government,’ but I suspect the reaction will be more nuanced. The CARES Act has many deep flaws that will unroll over the coming weeks. The bill does far too little for the most disrupted workers, small to medium-sized companies and state budgets. It is bad enough that this might be the relief bill that influences all future relief bills. I predict Americans are about to be incensed over bail-outs to highly profitable not-for-profit hospitals and tourism industries, while Main Street business disappear in droves.
COVID-19 also uncovered more than usual bureaucratic problems. The Food and Drug Administration is an agency begging to be entirely reworked, preferably into a not-for-profit like Underwriters Laboratories. Likewise, states now scramble to undue licensing restrictions on healthcare workers and foreign physicians. These should be permanently undone. We can find other ways to ensure provider quality without building tools for anti-competitive labor markets.
We will also find that many neglected social institutions matter more deeply to our lives than most of us expected. The disoriented feeling that grips so many of us today is nearly identical to what I felt as a young soldier heading to war. My comrades and I had only days to prepare, possessed little idea of what to expect and had no idea when it would end. We depended on one another, more than at any time in our lives. Strong social institutions haven’t been this important to the well-being of Americans in almost 80 years.
I have been watching COVID-19 since early January as it threatened domestic manufacturing production. The only enduring feature of the past three months is that the outlook worsens every day. As that continues, nearly every institution, every government, every business and every family will be affected. One day the outlook will be better, and we can look forward past these tough days. Then, we must be introspective. The changes this disease brings will be crafted by us, for good or ill.
About the Author
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