Everyone old enough to comprehend the news had to know it was coming. After all, we knew about the more than 25 million added to the nation’s unemployment rolls, the plummeting industrial production index, the collapse of oil and gasoline prices, and the fact that our favorite restaurants were closed for dining in. Most of us probably could not think of many friends or family members who were still working normal hours in their normal location.
But when the Department of Commerce announced -4.8% as the first estimate for 2020’s first-quarter GDP growth, we knew the 2020-2021 “Command Economy Recession” was officially launched. Yes, let’s call it a command economy, because that is what it turned out to be.
When it comes to measuring economic activity, the coronavirus and responses to it delivered about what was expected. The “Goldilocks Economy” was gone “like a vapor in the summer air,” to borrow a phrase from an old song. That happy, just-about-right economic situation that we knew not long ago (with better than 2% positive GDP growth, incredibly low unemployment, and fading poverty rates) has been in a policy-induced coma for nearly two months now.
Most people, though certainly not all people, accept the reasoning. After all, just days before the announcement, some 90% of the population was living under stay-in-place rules. Where you fall on the question should not obscure the fact that we’ve been living under something resembling a command economy.
The speed with which the COVID-19 pandemic changed the economic landscape from prosperity to recession is one of the frightening and amazing aspects of the current saga. Frightening for two reasons: First, the virus kills lots of people and must be countered, and second, to counter it, we the people made the difficult choice to kill off major parts of the economy.
After all, the first U.S. coronavirus case was recorded on January 21, just a bit more than 100 days ago. Now, some three months later, we have witnessed what happens when a burgeoning, relatively free market economy becomes a command economy where, in many locations, ordinary citizens must have state permission to reopen a laundromat, dine-in restaurant, or heaven forbid, organize a choir practice.
A graphic rendering of what has happened is seen in the nearby Philadelphia Fed’s February and March coincident economic indicators maps for the 50 states. There are four variables used statistically to form the indexes: nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements plus proprietors’ income deflated by the consumer price index. Notice the happy, almost totally green shading seen in the February map. Compare that with the rather sick-looking March map, where green-shaded prosperity seems to be disappearing. All in 30 days!
As the shutdown dragged from weeks to months, anyone who reads and listens to the news had to realize that a major recession was in the works and that more bad news would follow, yet this news is still unsettling. Based on what we now know, 2020’s second-quarter GDP growth could look like something dragged from the 1930s. Those who look for a last-half 2020 return to Goldilocks should prepare to be disappointed.
When the economic effects of this unhappy season end, sometime in 2021, we will have learned that it is a whole lot easier to turn off an economy than to turn one on.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
