Examining the Impacts of COVID-19 Lockdowns by Drake Goodman '24
On October 23, the United States experienced the most new cases of coronavirus in a single day since the pandemic began. That being said, the U.S. is not the only country experiencing surges in cases. Globally, Spain, France, Armenia, and the United Kingdom have all enacted national lockdowns, some of which are spanning for at least one month. As governments scramble to prevent cases from rising, what are the economic implications of their actions? What would have been the economic implications if they took different courses of action?
Between April and June, the U.S. Gross Domestic Product (GDP) shrunk by 32.1 percent, its worst quarter since World War II. To understand the gravity of the situation, during the worst quarter in the Financial Crisis of 2008 to 2009, the GDP shrank by 8.4 percent. Since we started recording GDP, the worst contraction prior to the coronavirus pandemic was ten percent in 1958. Why is this pandemic so much more impactful on the economy than previous recessions? One main difference between today and any previous recession or even depression is that the federal and state governments are mandating business closures, halting multiple streams of capital. Even with expensive stimulus packages, the fiscal support for citizens and businesses are just temporary, which only has short term benefits as many of the negative effects due to the prolonged delay in economic activity is proving to be permanent.
There were reasons behind the government’s decision to enact regional lockdowns and limit travel. There were several unknowns to scientists about the coronavirus early on, and its spread and effects on the respiratory system have caused there to be 50.6 million cases and 1.26 millions deaths worldwide. Additionally, 74 percent of economists in a survey conducted by FiveThirtyEight believe that the U.S. would be in a better position now economically had we pursued more aggressive lockdowns early in the process. The main reason for this is that we would have had better control over the virus early on, allowing us to return to near similar economic activity sooner. According to Duke Professor of Economics and Finance Andrew Patton, “More aggressive lockdowns would have [gotten] the country in a better position [health wise] as we head[ed] into fall and winter.”
In a global context, how did other countries fare when navigating their response to the virus outbreak, and how did their economies react? Compared to the U.S.’s projected four percent contraction in GDP in 2020, South Korea’s one percent contraction is miniscule. Additionally, unlike many European countries, they never had to enact a strict lockdown. So, what did South Korea do that differed from so many other countries? First, they provided a large number of tests and built several screening clinics early in the process to detect who had the virus in the country. Additionally, they installed strict quarantine policies to contain the virus. They also acted quickly in providing fiscal stimulus to their citizens and businesses, and are still providing stimuluses, launching four packages to date. However, even with their relative success, there are renewed concerns of a breakout looming.
Meanwhile, as a result of national lockdowns, several European economies suffered dramatically. Across the European Union, economic contraction was 11.9 percent, the largest decrease since they began recording these figures. However, during the third quarter, there was plenty of optimism as several countries experienced record growth as they rebounded from the first round of lockdowns, but with these new rounds of lockdowns, that optimism was short lived. Essentially, despite pursuing aggressive lockdowns early in the process, these countries find themselves in similar predicaments to the U.S. who did not pursue an aggressive shutdown of activities.
It’s important to analyze why the economic implications are so vital. In the U.S., at the height of layoffs and furloughs during the pandemic, nearly four out of five job losses were temporary of the 18 million people unemployed. However, permanent job loss is rising despite monthly unemployment levels decreasing with nearly five million permanent job losses in September. The implications of these permanent job losses are grave considering the detrimental effects of poverty.
According to the World Health Organization, the world’s biggest killer is poverty due to the fact money buys the basic necessities to survive. Before the pandemic, 4 out of 10 Americans did not have enough savings to cover a $400 emergency. With millions of Americans lacking health insurance or having it tied to the jobs they were recently fired from due to the pandemic, the cost of infection is being weighed against the cost of not working. According to the Urban Institute, long-term unemployed workers in the US are much more likely to struggle with getting the basic food, shelter, and healthcare necessary to sustain job hunting and working.
As we enter a new wave of national lockdowns across the world, we must brace ourselves for further economic damage and continued suffering as a result of these policies. Examining how to improve national strategies based on observations from other nations is critical to minimizing the ongoing situation and preparing for possible future pandemics. That being said, on November 9, Pfizer, one of the pharmaceutical companies developing a coronavirus vaccine, announced that their vaccine was 90 percent effective, offering a glimmer of hope to a world waiting to return to normalcy.
Drake Goodman is a freshman in the Huntsman Program in International Studies and Business; in the Wharton School, he is planning to concentrate in Finance and Management; in the College of Arts and Sciences, he is majoring in International Studies. He is also involved in 180 Degrees Consulting, Wharton Global Research and Consulting, Scholars of Finance, Wharton Undergraduates in Public Policy, and is in the Penn Social Entrepreneurship’s SPIRE accelerator. Additionally, he is interested in international and domestic economic affairs, societal development, and political processes. In his free time, he plays golf and hikes.