The High Cost of Reopening Too Soon

The High Cost of Reopening Too Soon

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Plus, what's 'worse than telling people to drink bleach’
Friday, May 1, 2020

Opening Too Early Could Cost Many Thousands of Lives: Analysis

The number of coronavirus-related deaths and the severity of the blow to the economy could vary widely depending on how the U.S. reopens in the coming weeks, according to a new analysis by researchers at the Penn Wharton Budget Model.

Taking into account measures of social distancing, GDP growth and changes in employment, researchers analyzed what would happen under three scenarios: status quo (states maintain all restrictions currently in place until June 30), partial reopening (lifting emergency declarations, stay-at-home orders and school closures) and full reopening (also lifting restrictions on the operation of businesses and restaurants). Here’s what they found:

  • Status quo is estimated to result in around 117,000 total coronavirus-related deaths by the end of June. The economy would be about 11.6% smaller compared to a year ago, and roughly 18.6 million jobs would be lost in May and June.
  • Partial reopening is projected to cause 45,000 additional deaths by the end of June, for a total of 162,000. The economy would be slightly larger than in the status quo case, but still smaller than the same period last year by 10.7%. Roughly 14 million jobs would be lost — about 4.4 million less than under the status quo.
  • Full reopening would cause an additional 233,000 deaths by June 30 compared to the status quo, for a total of 350,000. The economy would be 1.5 percentage points larger relative to the status quo, and there would be almost no additional job losses over the next two months.

The researchers said the results of the analysis vary depending on individual behavior. For example, if people see the full reopening as a return to normal and cease all social distancing in their personal lives, total deaths would come to 950,000 by June 30. Job losses would turn into gains, with a net growth of 4.1 million jobs relative to the April 30 level.

“If states fully reopen, that could be the worst-case number, using currently available models,” Wharton professor Kent Smetters said.

A warning from Fauci: On Thursday evening, Dr. Anthony Fauci, director of the National Institutes of Allergy and Infectious Diseases and one of President Trump’s top health advisers, warned states and cities about opening too early, citing federal guidelines that call for waiting for a decrease in cases over a 14-day period, among other things. "There are some states, some cities ... kind of leapfrogging over the first checkpoint. And, I mean, obviously you could get away with that, but you are making a really significant risk," Fauci told CNN. "I hope they can actually handle any rebound that they see."

Try the Penn Wharton Budget Model coronavirus policy response simulator here.

Why Canceling Debt Held by China Would Be ‘Worse Than Telling People to Drink Bleach’

As President Trump and his administration have ramped up criticisms of Beijing’s response to the coronavirus pandemic, The Washington Post reported Thursday evening that senior government officials across multiple agencies are looking into ways to punish or extract financial payback from China.

Among the ideas that have come up at this preliminary stage, according to the Post, is a dangerous one: “Some administration officials have also discussed having the United States cancel part of its debt obligations to China, two people with knowledge of internal conversations said. It was not known if the president has backed this idea.”

When asked about it on Thursday, President Trump seemed to shoot down the possibility, saying that canceling debt could undermine the “sanctity of the dollar” and that he “can do the same thing, but even for more money just by putting on tariffs.”

‘Circulating in the right-wing media echo chamber’: The Post’s Tory Newmyer reports that the idea of canceling debt held by China “has been circulating in the right-wing media echo chamber for weeks” and that Fox News host Sean Hannity “mentioned it in nine different April broadcasts, repeatedly endorsing the move.” On Hannity’s show, Republican Sens. Marsha Blackburn, Tom Cotton and Lindsey Graham reportedly backed the idea.

Why canceling debt would be dangerous: At Politico’s Morning Money, Ben White explains why canceling debt held by China would be playing with fire:

“The Chinese own around $1 trillion in U.S. Treasury securities. … Any move to ‘cancel’ debt held by China — i.e. default on it — would destroy the full faith and credit of the U.S., send U.S. interest rates soaring and could ignite a global financial catastrophe. … The Chinese know we (almost certainly) won't do this. But just saying it out loud at least raises some risk they would start dumping U.S. debt which would be ... really bad for the U.S.”

And Peterson Institute for International Economics President Adam Posen tells Newmyer that trying to cancel debt held by China would lead to a selling spree by other foreign holders of U.S. debt — and a costly spike in interest rates. “In economic terms, this is worse than telling people to drink bleach for what ails them,” Posen said.

Trump advisors say no way: The risks involved in even floating the idea are likely why top White House economic officials quickly shot down the possibility of canceling debt. “The full faith and credit of U.S. debt obligations is sacrosanct. Period. Full stop,” White House economic adviser Larry Kudlow said. Senior economic adviser Kevin Hassett likewise told Politico that he would “never entertain any default on U.S. debt.”

Chart of the Week

President Trump, Senate Majority Leader Mitch McConnell and other Republicans are wary of providing more aid to rescue what they call “poorly run” blue states with profligate public pension systems. But as Bloomberg Businessweek reports — and illustrates with the chart below — “the fiscal challenges that states now face aren’t limited to the blue ones and go well beyond pension obligations.”

More from Bloomberg’s Danielle Moran: “Moody’s Analytics projects a fiscal shock to states of $158 billion to $203 billion through the end of the fiscal year ending in June 2021, resulting in almost half of states having to fill a budget gap of at least 10%. (Their ability to weather the impact will depend in part on the amount in their reserves.) Under Moody’s most severe scenario, Louisiana, North Dakota, and West Virginia—all red states—are projected to lose more than 39% of their revenue. Another Republican stronghold, Alaska, is poised to see the largest loss, potentially as much as 79.6% of its general fund. That’s because the state gets much of its revenue from the oil and gas industry, and prices have crashed.”

Number of the Day: $1 Billion

Nearly 300 publicly traded companies have gotten more than $1 billion in Paycheck Protection Program funds meant for small businesses, according to a new analysis by The Washington Post. The recipients include 43 companies with more than 500 workers as well as a number of businesses “prosperous enough to pay executives $2 million or more.”

As the backlash has grown over larger businesses, or those with other ways to access capital, taking the forgivable loans, public companies have reported returning more than $125 million as of Thursday, the Post said.

Quote of the Day

President Trump said Friday that the rising national debt bothers him and he would like to address it if he wins another term, though he provided no details on how he would do so, Reuters reports.

Asked if he has a plan to reduce the debt, Trump told conservative radio host Dan Bongino, “I do, I do. That bothers me too, but we’re going to get out of it.”

The president also noted that the United States is borrowing at ultralow interest rates: “We’re replacing debt with really long term good debt, zero, you know, which is a beautiful thing.”

As a presidential candidate in 2016, Trump said he would be able to eliminate the national debt “over a period of eight years.” The debt has risen by nearly $5 trillion since Trump took office.

Your Prize for Making It Through the Week

Two bits of cuteness to send you into the weekend: A three-year-old sheep handler and a blue baby octopus.

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