There’s good reason to believe that fear of infection hurt the economy more than stay-at-home orders

Noah Smith, Tribune News Service

Until recently, it seemed like the contentious debate over lockdowns was over. By the end of May, many states were defying the warnings of public health experts, reopening restaurants, retail and public spaces. The huge protests against police brutality and racism reinforced the notion that keeping Americans confined to their homes was a lost cause. Now, even San Francisco, one of the first cities to issue a stay-at-home order, is proceeding with a phased reopening of businesses and public spaces.

But reopening always came with a question mark. With the coronavirus still out there, would cases rise if stay-at-home orders were lifted? And if that happened, would lockdowns have to come back?

Unfortunately, while the hard-hit Northeast has mostly gotten its outbreak under control, almost half of the states, largely in the South and Southwest, are seeing a rise in new cases. In states such as Texas, South Carolina, North Carolina, Florida and Arizona, positive test ratios are rising, suggesting that a wave of new infections, rather than increased testing, is behind the increase. This has some experts asking which states will be the first to re-instate lockdown.

The arguments for new localized lockdowns are strong. After all, the disease is the same as it was in March, so if lockdowns made sense then, why not now? And epidemiological evidence does show that stay-at-home orders were effective in suppressing the disease in the US, reducing a county’s death rate by about 60% after three weeks. The easiest way to see the difference is simply to compare Sweden, which famously refused to implement a lockdown, to its Nordic neighbours, all of which made the opposite decision.

Despite this surge of deaths, Sweden still hasn’t reached herd immunity, meaning more infections and loss of life are on the way. The epidemiologist who designed the country’s strategy now says he regrets his choice.

But what about the economic damage? Sweden’s economy is set to suffer a sharp contraction, but less than that of most other European countries. With the federal government considering whether to curtail the flow of relief money after the end of July, states and cities that shut down again might risk economic devastation.

There’s good reason, though, to believe that most of the economic damage from the lockdowns weren’t due to stay-at-home orders, but because of public fear of the virus. For example, people started avoiding restaurants before lockdowns began in late March.

More rigorous evidence confirms the finding. A recent paper by economists Lisa Kahn, Fabian Lange and David Wiczer uses data from a job-vacancy website, together with unemployment claims, to measure the precise timing of coronavirus’ economic toll. They found that lockdowns had very little to do with it:

The labour market collapsed at the same time across the US irrespective of the state-level policies imposed. There is very little evidence that labour markets in states...that imposed stay-at-home orders earlier were differentially affected.

State lockdowns also didn’t affect credit-card spending very much. Even in Scandinavia, economists estimate that lockdowns accounted for only a modest fraction of Denmark’s economic underperformance relative to Sweden.

It might seem strange that lockdowns can be both effective at protecting people from coronavirus and yet not have a big impact on the economy. But it’s definitely not impossible. There’s growing scientific evidence that COVID-19 spreads primarily through prolonged indoor personal contact. By forcing people to work from home and socialize over the internet instead of filling crowded offices and social gatherings, lockdowns could protect public health without doing too much harm to the economy.

This suggests that new lockdowns need not be as restrictive as the ones in March to protect the public. Instead of mandating that everyone stay at home, they could simply ban large indoor social gatherings and indoor restaurant and bar seating, while requiring that companies continue work-from-home policies. Everything else — indoor retail, outdoor gatherings, small indoor social interactions — could be allowed, with the additional requirement that masks be worn in stores or at outdoor events.

This sort of lockdown-lite might achieve the best of both worlds for states and cities experiencing coronavirus spikes. Together, this toolkit — masks, testing and tracing and targeted lockdown-lite — can control the virus until a treatment or vaccine arrives, while causing minimal damage to the economy.