Opinion: It’s the disease, not the government

Along with many states, Indiana is moving slowly away from some restrictions in the stay-at-home or shelter-in-place orders implemented in late March. Over that six-week period, more Hoosiers died of COVID-19 than died in the Vietnam War. The state’s economy experienced unprecedented damage. The next jobs report will be the worst since the Great Depression, even though it will understate the actual share of unemployed by 5.0 percent or more. State tax revenues were more than $1 billion beneath the expected level in April. While part of this reflects payment delays, we clearly face the bleakest government budgets in a lifetime. 

In previous columns, I argued that Indiana’s response to COVID-19 saved lives and was clearly justifiable on economic grounds. As evidence continues to mount, my analysis looks even more right than it did three weeks ago. But, as we move away from the most restrictive shelter in place rules, evaluating the efficacy of those reductions proves more difficult. Both the economics and the epidemiology of the disease is now more complex. With this comes greater uncertainty. 

It is clear Indiana flattened the curve, and so the challenge now is determining what restrictions to loosen or tighten over time. I don’t know enough about the disease to comment on that intelligently. What is clear that the early restrictions likely provided the medical community time to learn and share a broader set of treatment options. That is very valuable. We also know more about the economics of the shelter-in-place. 

A group of economists at Harvard published data on consumer expenditures drawn from near real-time information collected from banks, large retailers and other businesses. The data provide several interesting insights about the economy since January, as well as the role government action played in our economic conditions. 

Beginning in January, household spending in Indiana started to slip beneath that of the nation as a whole. This was true for other Midwestern manufacturing states, but the effect was most pronounced in Indiana. This is consistent with my observation that Indiana’s economy was slowing before COVID-19 reached our state. However, from mid-February until the shelter-in-place order was given, household spending declined by a whopping 32 percent. Spending on entertainment and recreational services dropped by more than 75 percent over the same period. 

The collapse of consumer spending in late February and early March implies that Indiana was already at recession levels of economic activity on March 1, a full three weeks before the stay-at-home order. Indeed, nearly every category of discretionary household spending collapsed from mid-February through mid-March. Transportation spending dropped by 60 percent, apparel and general merchandise spending by 50 percent, healthcare spending by 45 percent, restaurants and hotels by 65 percent. 

The only consumer spending category that rose over that time period was grocery sales. There was a brief spike around March 13, when Hoosier families were spending 47 percent more than average. This is akin to roughly 3.25 million extra people descending into our state to shop for groceries. I can think of few better examples of the miracle of modern free markets than food delivery at the outset of the COVID-19 crisis. We’d have been a lot better off permitting any random large grocery store to supply Coronavirus tests instead of the federal government. And yes, that would have been true even if we’d had a minimally competent federal response, which we did not. 

Aside from the stunning performance of grocers and their supply chains, consumer spending habits across the board were sufficient to plunge us into a deep recession. This happened prior to any formal government action. What is important about that fact is that it surely implies that the disease itself, rather than government orders, is the cause of this downturn. At this point, that fact is abundantly clear. So, it seems probable that economic activity will not return to normal, even as we move to fully re-open the economy. 

In the end, this means that I have very little to offer about the pace of relaxing our stay-at-home orders. If consumers are unwilling to visit restaurants and casinos, as they surely will not, placing extra restrictions on these operations has few direct economic costs or benefits. The issue that matters is whether or not any particular action causes additional morbidity or mortality. This may change of course, but for now, our deep economic woes are a result of COVID-19, not state or local government. 

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.