The United States has been forced into a historic gamble in shutting down millions of businesses and telling tens of millions of workers to stay home.
If the bet pays off, all, or mostly all, the work put on pause will return to normal once the coronavirus is contained, perhaps weeks or months from now.
If it goes wrong, however, the livelihoods of a significant fraction of the population will be left destroyed, an unthinkable disaster on the scale of the Great Depression, or worse.
“I’m sure there will be huge disruptions, and there will be people thrown out of work that may not return to their jobs,” said Susan Houseman, director of research at the W.E. Upjohn Institute for Employment Research.
Already, at least 10 million people have applied for new unemployment benefits in the past two weeks, far more than ever before, and likely many more have lost work. Unemployment is likely higher than it was in the worst days of the Great Recession and set to rise.
Economists interviewed by the Washington Examiner were unanimous that the economic disruptions caused by state-at-home orders were justified to curb the pandemic and warned that they could become permanent in many cases.
The shutdown is like a medically induced coma, an extreme measure that causes significant harm to the patient, but that is necessary to keep him alive. Ideally, the patient is revived and returns to health, but the procedure entails its own risks.
And the longer the intervention lasts, the greater the risk becomes. One in four small businesses say they are less than eight weeks away from closing permanently, according to polling released Friday by the U.S. Chamber of Commerce.
“We don’t want to see any small business go under, that’s the goal,” said Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce. “Like any natural disaster or pandemic like this, though, we know some businesses will not make it through.”
Businesses and workers face incoming bills even as many industries, especially in leisure and hospitality, have seen a total cutoff in income. To try to tide those businesses over, the federal government has enacted trillions of dollars worth of emergency tax rebates, extra unemployment insurance benefits, and business loans and grants.
The best-case scenario is that many companies are able to keep payrolls intact throughout the shutdowns or rehire laid-off workers and that the workers who were laid off are able to rely on unemployment benefits and tax rebates to stay afloat in the meantime.
“We want to keep the economy intact,” Federal Reserve Bank of St. Louis President James Bullard said Wednesday on Fox Business. “All ready to go once the virus goes away, we’ll move back into full production. But for now, we’re telling everybody to not produce, to go home.”
The worst-case scenario is that those businesses are not able to hold on and go bankrupt, meaning that they are not in a position to rehire people to work in their old roles — that the web of financial, logistical, and social arrangements that supports jobs becomes not just strained but torn.
“I think a bigger concern actually with the restart of the economy is making sure that not too many businesses go out of business; that we don’t have too many bankruptcies during this period,” said Pamela Loprest, a senior fellow at the Urban Institute.
A major threat is that businesses and workers don’t know how long they need to hold out. The pandemic is set to worsen in the days ahead before the mitigation measures reduce the number of cases, and the Trump administration is not yet in a position to spell out how it might create the kind of safeguards necessary to allow for more people to return to work without exacerbating the outbreak. Only in recent days have economists started to discuss ways that might be accomplished.
The eventual return to work is likely to be slow and staggered no matter what governors and mayors decide, Loprest said.
“Another scenario is that we start to build up our immunity, but it’s not 100%, and a lot of people may still be nervous about going out and doing things. That could put back the economy for some time until we have a fail-safe vaccine,” she said.
The uncertainty is a major problem for businesses trying to hold on, said Ryan Nunn, policy director for the Hamilton Project.
Beyond eight weeks, Nunn said, employees might start giving up on returning to their former employer and take whatever work might be available.
“It really is a costly process for workers and firms to form new matches,” he said. “It’s costly, and it’s slow.”
