As States Re-Close Businesses, Is A Second Great Depression Avoidable?

On Monday, amidst soaring coronavirus infections, Arizona Governor Doug Ducey ordered the closing of bars, gyms, movie theaters, and waterparks across the state for at least 30 days. In doing so, Arizona joined Texas and 14 other U.S. states rolling back reopening plans in response to the relentless pandemic. But as the United States, and the world, reels from a surge of coronavirus infections, a key question is emerging:

Is an economic depression now unavoidable?

For a nation that was told earlier shutdowns would stem the spread of the deadly virus and forestall even greater economic pain, recent developments in the United States are troubling. Over 2.5 million cases of coronavirus have been reported in the United States, and there have been over 126,100 American deaths since the outbreak began. These numbers, as well as the current pace of the pandemic’s spread, rank the United States as one of the hardest hit countries in the world, dwarfing many nations that have successfully maintained a slow growth of infections.

The U.S. economy has also been hard hit, with unemployment numbers soaring to peaks not seen in a century. And with many Americans fundamentally changing their spending habits after lengthy shelter-in-place orders this spring, the nation’s economy has sputtered into a recession that threatens to get worse.

It was the fear of further economic damage that incentivized many states to reopen quickly, and according to many health experts, prematurely. Now, as many Americans are disregarding health directives to wear masks and avoid gathering in groups, those aggressive reopening plans are being thrown in disarray. This past weekend, California Governor Gavin Newsom re-closed bars in seven counties and is considering additional directives to slow the spread of the virus. Texas ceased on-premise alcohol consumption, and beaches in south Florida are being re-closed ahead of the holiday weekend.

In total, forty eight states are seeing increases in coronavirus cases, with only New Jersey and Rhode Island reporting declining numbers. That means the types of rollbacks in Arizona, California, Florida, and Texas are will likely also begin to spread across the country.

Which begs the question, can new lockdowns be avoided?

Perhaps. As many governors are confronting the deepening health crises in their states, they are beginning to change their messaging regarding health measures. Several governors, like Georgia Governor Brian Kemp, are now more forcefully encouraging residents to wear masks, even as they avoid issuing statewide orders to do so. Other state leaders are reexamining their phased reopenings and encouraging residents to continue to minimize social interactions that can be avoided. But as the case curve climbs, public health officials are worried that the window of controlling the virus is closing fast.

While a second wave of infections has always been expected, it was not anticipated until this fall, and ideally after the country has had a chance to mentally and financially catch its breath. But that may no longer be the case. As hospitals begin to fill and the first waves of federal stimulus funds dry up, businesses may be facing challenging decisions about their future. Consumers too are likely impacted, as rent and mortgages abatements that were scheduled to end in June may forces many Americans to suddenly find themselves in personal financial crises. With Goldman Sachs estimating that over 25% of Americans live in a state that has reintroduced restrictive orders on business, overall consumer confidence may soon be strained as well.

So is a new Great Depression unavoidable? Not necessarily.

Many economists believe that the United States, along with other leading countries, will weather the current economic storm and rapidly adapt to the “new normal” of business during the pandemic. In prepared testimony delivered to Congress on Tuesday, Federal Reserve Chair Jerome Powell suggested the U.S. economic recovery is swifter than the central bank economists predicted. Additionally, Treasury Secretary Steve Mnuchin touted economic growth models that are excepted to substantially tick up over the remaining financial quarters of 2020. With all that in mind, while the likelihood of a swift recovery or rapid drop in unemployment is unlikely, many believe the economy will continue to slowly regain its footing over the summer and fall months.

All of that, however, depends on one variable that seems to be sorely missing over the past several months – leadership. While some local and state leaders, like New York Governor Andrew Cuomo and Atlanta’s Mayor Keisha Lance Bottoms, are rising to the occasion in helping their residents navigate the unfolding crisis, many others, like Florida Governor Ron DeSantis, are stumbling badly. In between, the balance of the nation continues to struggle with new demands and dimensions of a pandemic that many predicted, but few prepared for.

In the end, the United States can likely avoid a second Great Depression, but only if its leaders, and their fellow Americans, heed the advice of medical experts and others who caution for restraint. Absent a sense of responsibility and resolve, Lockdown 2.0 might follow, and with it the prospects of a speedy economic recovery may be locked out as well.

Let’s hope that isn’t the case.

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