Most of the economic carnage we see Americans suffer today is the result of measures that federal, state, and local governments have had to adopt to stem the spread of COVID-19—the social distancing, social isolation, and closing of borders and businesses. It follows, then, that the severity of the damage depends largely on how quickly and effectively a country responded the virus’s spread. South Korea moved quickly and dramatically, as did Germany. Here, Donald Trump became the Denier-in-Chief, and the deadly virus burrowed through American communities as the federal government and some governors dithered.
What if we had moved as quickly and decisively as South Korea or Germany? How much of our mounting economic costs could we have been spared as businesses closed down and jobs disappeared? Economic analysis can give us a rough estimate, and it suggests that America could have averted at least 40 percent of these terrible costs and perhaps as much as 86 percent of the economic damage. If President Trump had listened to the early urgent warnings from his experts and advisors starting in early January and taken the right steps, today we would face a mild recession.
The administration’s blindness to the danger began before it took office, when Trump’s transition leaders dismissed warnings by Obama officials that a new pandemic was a serious threat. From that point, the president rolled the dice and bet that it wouldn’t happen on his watch. In 2017, he proposed deep cuts in funding for the NIH and the CDC that even some congressional Republicans rejected. In 2018, his administration disbanded the formal White House pandemic task force, ended maintenance on stockpiled respirators, and reduced stockpiling of protective medical equipment.
Trump’s denial and inaction continued even as his advisors warned that he was losing his bet. In December 2019, the CIA alerted the White House and Pentagon about the potential catastrophe posed by COVID-19, a warning Trump ignored when it was included in his personal daily brief on January 3. Later in January, he also ignored increasingly dire warnings from HHS Secretary Alex Azar, White House adviser Peter Navarro, and a recommendation by the National Security Council that he consider urging Americans to stay at home.
Instead, Trump assured his supporters on February 10 that the virus would disappear soon. Four days later, the NSC and the virus Task Force led by Azar determined to tell the president that the situation was becoming so critical that all public gatherings needed to be limited; that large events and performances should cancelled; and that he should urge states to close schools and advise the public to stay at home. When one of the officials inadvertently publicly issued these warnings before Trump could be briefed, the stock market sank. Trump reacted by canceling the briefing from his advisors and ignoring their recommendations. Trump did not issue social distancing guidelines until March 16—a full month later—when he also predicted they would last just two weeks.
Through those months and since, the president and his administration have failed utterly to implement the only strategy that has succeeded in containing the pandemic’s terrible costs in other countries, early and widespread testing and tracking. The CDC reports that from March 1 to April 4, less than one-half of one percent of our population has been tested. Nearly all of those 1.6 million tests were performed by private companies at the behest of local authorities. As a result, eventually, America’s governors were forced to collectively shut down vast swaths of the U.S. economy.
Once the coronavirus was fully entrenched, the Trump administration, Congress, and the Federal Reserve did take powerful steps to slow the economy’s downward spiral. Had they not done so, the economic costs we face would recall 1929 to 1933, when policy paralysis kept the Depression going for years. Instead, after failing to contain the virus, the president is depending on large infusions of cash (that the government doesn’t have) to avoid a sustained economic collapse.
To appreciate what might have been if our government had acted quickly and correctly, we first have to estimate the coming costs to the economy given how little this administration actually did. The only hard economic data available today to gauge those effects are initial unemployment claims. Even so, they can give us a sense of our actual and prospective job losses, which can be converted into the impact on the overall economy or GDP.
In the final two weeks of March and the first week in April, jobless claims jumped about 17 million. Most of the country is likely to remain shut down for a minimum of another month, which suggests that a comparable number of people could lose their jobs during the rest of this month. This would increase unemployment by some 35 million for a jobless rate of nearly 27 percent. This forecast is midway between a recent estimate by the president of the St. Louis Federal Reserve Bank, who expects to see 40 million unemployed (a 30 percent jobless rate), and the forecast by Trump’s treasury secretary, Steve Mnuchin, that the unemployment report for April will show a total of 30 million new jobless individuals (a 20 percent rate).
We can estimate the broad economic costs associated with such dramatically high unemployment. The Bureau of Labor Statistics reports that in 2019, 150,935,000 working Americans produced the country’s GDP, and according to the Bureau of Economic Analysis, that GDP in 2019 totaled $21,428 billion. So each working person, on average, was responsible directly and indirectly for $141,966 in GDP. If the pandemic costs 35 million working Americans their jobs, GDP should fall by some $4,969 billion, or 23.2 percent on an annual basis – from March 2020 through February 2021. If the collapse in employment lasts from March through August, GDP in that period would fall by $2,485 billion or 11.6 percentage points.
The other element at work now is that Congress and the administration have authorized about $2 trillion in new spending to help slow the collapse in jobs. It’s far short of a cure. Much of those funds won’t flow into the economy before May and June. Even with additional funds to extend small business loans (read: grants) to employers who preserve jobs, one-quarter or less of the total funds appropriated by Congress are targeted to employment. Let’s assume here that the loans and the other emergency spending are sufficient to enable 10 million furloughed workers to return to their jobs, but the crisis drags on, again, through February 2021. That would leave 25 million additional Americans unemployed, driving down GDP by $3,549 billion, or 16.6 percentage points on an annual basis.
If, somehow, everything returns to normal after six months, the government’s spending will ultimately prove more effective at tiding workers over until the pandemic ends. But GDP losses would still be $1,775 billion or 8.4 percentage points. And that still daunting scenario assumes not only that the flood of government spending turns around the economy, but also that the virus dissipates and we develop treatments to contain any resurgence.
That’s what the U.S. economy faces. But how much better could we have fared if we had contained the outbreak as successfully as South Korea or Germany? Korea may be a special case, because after enduring a deadly and costly MERS coronavirus outbreak in 2015, it was prepared to recognize and respond quickly to the next pandemic. As soon as the first cases of COVID-19 appeared in South Korea, its government instituted the world’s broadest program to test for the infection, including drive-through testing, and a program that aggressively tracked and quarantined anyone who tested positive. With a population of 50 million, the number of new infections in Korea fell from a peak of 909 on February 29 to 74 in mid-March—without widespread business closures and stay at home requirements.
By getting it right, Korea dramatically limited the pandemic’s damage to its economy. Before COVID-19, the South Korean government had a forecast for 2020 growth of 2.3 percent. While its strategy kept most businesses open and people employed, Korea’s economy relies heavily on exports. So with the current global crisis, independent forecasters now foresee Korea’s GDP shrinking by just under 1.0 percent in the first half of this year. The second half of 2020 should be better, because most Korean exports go to countries that appear to have passed the pandemic’s peak (China) or have thus far sidestepped serious damage (Vietnam, Hong Kong, and Japan). Assuming the economic problems in those countries bottom out this summer, it is reasonable to expect that Korea’s growth this year will be roughly zero.
At zero growth, the pandemic will have cost Korean GDP 2.3 percentage-points. Our economy faces a drop in GDP of 8.4 percentage-points at best—assuming the government spending works, and the virus dissipates —and a drop of up to 16.6 percentage points if the virus sticks around. Using Korea as a benchmark, this analysis suggests that the Trump administration’s inept responses to the pandemic are responsible for as much as 72 percent to 86 percent of the expected damage to our economy.
It’s fair to point out that Korea’s political culture and recent history with MERS may make it an outlier. Instead, then, consider Germany. The country, a large and diverse federal polity, resembles us much more, both politically and culturally. Like us, it did not have extensive past experience with coronavirus outbreaks such as MERS.
But unlike the Trump administration, Angela Merkel’s government adopted quick and effective measures that have substantially limited the economic damage. By mid-February—two weeks before Trump called criticism of his responses to the pandemic a “hoax”—Germany launched a COVID-19 public information campaign and began testing and tracking the infections. By mid-March, Germany had closed schools and instituted a nationwide stay-at-home policy. The Merkel government shut down all but essential businesses across the country on March 22 and enacted an assistance package for its economy that is larger than ours as a percentage of GDP.
The German economy is still headed down, but not nearly as badly as the American economy. Before the crisis, the European Commission and the German Council of Economic Experts forecast that Germany’s economy would grow by 1.1 percent in 2020; now the forecasts see Germany’s GDP falling by 5 percent age points. Using Germany as our benchmark, and under the most hopeful scenario, this analysis suggests that 40 percent of the expected damage to the U.S. economy can be tied to how the Trump administration mishandled the crisis. If we’re unlucky—if the virus persists throughout the year (or recurs) and government spending therefore has less of an impact —the comparison with Germany suggest that the administration’s policies are responsible for as much as 70 percent of that damage.
If Trump had performed as well as Germany, much less Korea, it also would have saved thousands of lives. By April 11, the United States had recorded 20,577 deaths from COVID-19, or 65 deaths per-million. By contrast, coronavirus deaths thus far are running 4 deaths per-million in Korea and 35 deaths per-million in Germany. Moreover, those disparities will almost certainly widen, because new cases of the virus, adjusted for population, are rising nearly three times faster here than in Germany and more than 100 times faster here than in Korea.
To be sure, we cannot assume that a different president would have led the United States through this crisis nearly as successfully as in Korea or Germany. A different president also might have put off hard decisions, at least initially. Equally important, a nationwide program to test, track, and quarantine people for COVID-19 is harder, both politically and logistically, to carry out here than in Korea or Germany. In this country, weathering a terrible national crisis reasonably well demands unusual leadership.
That being said, the record and results of other governments dealing with same crisis lead to an inescapable conclusion: It didn’t have to be this bad here. The enormous economic and human costs Americans now face can be traced to both COVID-19 and Donald Trump’s failed leadership.