Public Health vs. Economic Growth is a False Binary

Date: Jul 06 2020

Jeff Brown, Founder and Managing Partner, Political Economy, LLC

COVID numbers have turned up – for the worse. Given the large spikes in new cases, hospitalizations and positive test rates across the United States, it is difficult to ignore the conflict between economic growth and crushing the pandemic. This tension between economic growth and efforts to stop the virus have been evident since the coronavirus started to hit the US in early March.

Americans have viewed business closures as the driver of the recession and some policymakers and economists argue that they came at too great a cost relative to the benefits provided public health. The Chamber of Commerce estimates that two percent of US businesses will close permanently, and some suggest that 100,000 businesses are already permanently shuttered.

My problem with this tension is that it misses the point and recent data from hotspot states prove my point. In response to surging case counts and rising ICU occupancy, governors in Texas, Arizona and other states reduced permitted activity and extended lockdowns. This has resulted in a decline in hours worked at small businesses relative to recent data. While less pronounced, the same trend is taking hold for the US.

The unprecedented monetary and fiscal stimulus created potential for a strong rebound in activity, which allowed investors to see through the pandemic to recovery. Volatility in the first half of 2020 provided active investors plenty of opportunity to distinguish themselves.

Source: Refinitiv

Americans are paying close attention to COVID and reacting to changing risks. Public opinion researchers observe high recognition of rising case counts in their states and nationally.

Source: Gallup

The surge in COVID infections is also feeding through to consumer behavior. Examining Google search trends provides insight into a combination of actual disease burdens and how individuals are reacting. The trends in states with large outbreaks are forbidding with searches for “symptoms” rising sharply. But the spike in searches for “urgent care” are even more worrisome as they indicate someone is seeking access to health care, a possible leading indicator for hospitalization. Consumer behavior is likely to be affected and is a direct consequence of the disease no being contained nationally or in specific states and cities.

Source: Google

The expansion of testing, contact tracing, and isolation options for those infected have all been maddeningly slow. Testing continues to increase, but so does the nationwide increase in the rate of positive tests. For Americans to feel confident returning to work and school, testing needs to be ubiquitous with experts suggesting that four to five million tests a day will be required this fall.
Also disquieting, hospitalizations are now steadily rising, driven by large increases in Arizona, Texas, and California.

Source: Johns Hopkins University

Case numbers are rising nationally, and the share of states with rising cases and rising positive rates is grinding higher as well. There is some good news – improved treatment protocols and a younger demographic of infected persons relative to March and April mean deaths have not yet surged.

The tension between economic lockdowns and COVID is a false choice. Despite their being 152 vaccines in development, widespread inoculation is perhaps 18-24 months away. In the meantime, consumer confidence needs to be restored for the economy to return to anything like it was in February. That confidence will only return when there is rapid and cheap testing available everywhere, and new cases and hospitalizations are declining. Until then, each new surge will result in another pullback in economic activity.

Source: University of Michigan


Jeff Brown is the founder and managing partner of Political Economy, LLC, a strategic advisory firm focused on the nexus of policy, the global economy and finance. Hear Jeff speak on What Now? The Economy, Investing, and Elections at FOX's 2020 Virtual Global Investment Forum on July 14.