Experts Think The Economy Would Be Stronger If COVID-19 Lockdowns Had Been More Aggressive

Back in the early days of the coronavirus in the U.S., many economists believed that aggressive lockdowns would be the best long-term solution for managing the pandemic, despite the short-term economic pain they would cause. Six months later, we wanted to know: Did that logic hold up? And what political events could still be in store to alter the course of the country’s ongoing recovery from the current recession?

In this week’s installment of our economic survey, conducted in partnership with the Initiative on Global Markets at the University of Chicago Booth School of Business, FiveThirtyEight polled 32 quantitative macroeconomists about the present and future of the economy. And because we couldn’t resist some Monday-morning quarterbacking, we also asked whether the lockdowns earlier in the year were too aggressive or not aggressive enough.

Out of those surveyed, 74 percent of economists said the U.S. would be in a better economic position now if lockdowns had been more aggressive at the beginning of the crisis. Among that camp, the most commonly cited reason was that early control over the virus would have allowed a smoother and more comprehensive return to economic activity later on. “More aggressive lockdowns would have [gotten] the country in a better position (health wise) as we head into fall and winter,” said Andrew Patton, a professor of economics and finance at Duke University.

“It would also have signaled more clearly to the whole country that we need to take the virus seriously, and work together to get it under control,” Patton said. He paraphrased a quote from Dr. Ashish Jha, dean of Brown University’s School of Public Health, in a recent New York Times piece: “There’s no peeing section in the pool,” meaning you can’t just have some areas locked down while others see looser restrictions — and greater viral spread.

Proponents of tighter lockdowns pointed to Japan and various European countries (such as Germany, Norway and Denmark) as examples of how reducing the virus to extremely low levels early on allowed for a quicker recovery. Others noted that children could have returned to school for in-person learning faster with earlier control over the virus — a major consideration in maximizing the country’s economic power as it bounces back from the pandemic.

Among the 26 percent who thought lockdowns should have been less aggressive, the main theme was that more good could have been done with a targeted approach that protected at-risk populations and stopped potential superspreading events, while allowing more activity overall. Others thought the lockdowns didn’t even matter much, or that most of the reduced activity was due to individual self-regulation rather than government intervention.

“I think the positive effect of more commerce on employment probably would have outweighed the higher infection rates in most places,” said Deborah Lucas, a professor of finance at the MIT Sloan School of Management. “I also think the shutdowns were not very effective.”

“I think [a more aggressive lockdown] would barely make any difference since a large part of the population imposed mobility restrictions on themselves out of precautionary motives,” said Christiane Baumeister, professor of economics at the University of Notre Dame. Baumeister said she chose the less aggressive option in the survey because self-regulation “is not something that can actually be controlled by the authorities.”

In the same vein — but this time, looking forward — we asked the economists to imagine a new shutdown had to occur as the result of a spike in COVID-19 cases. Which activities would they shut down first if they also wanted to minimize economic damage? With the caveat that our panel consists of economic experts — not epidemiologists — they clearly prioritized indoor dining (and to a lesser extent, gyms) to be the first shut down, while outdoor dining and recreation were at the bottom of the list:

What should be shut down to minimize economic damage?

The activities and places that should be shut down first to curtail economic damage if there’s a spike in COVID-19 cases, according to economists

Activity/Place 1st place votes* Avg. Priority Rank
Indoor dining 13 2.3
Gyms 5 3.5
In-person political campaigning 6 4.4
Arts & cultural institutions (museums, theaters) 2 4.5
Universities 1 5.0
Retail stores 0 6.0
Interstate travel 2 7.1
K-12 schools 1 7.1
Day cares 0 8.0
Outdoor dining 0 8.2
Outdoor recreation 0 9.9

*No. of respondents who listed this as the top priority, out of 30 who completed the question.

Source: FIVETHIRTYEIGHT/IGM COVID-19 ECONOMIC SURVEY

Interestingly, most economists did not especially prioritize shutting down schools. Universities and K-12 schools each received one first-priority vote apiece (out of 30 respondents who answered the question), and neither cracked the top four activities to be shut down first. Day care centers were even lower in the shutdown priority order. This does not mean that our panel thought reopening schools was necessarily safer, but it does underscore how much the panel thinks schools — and child care in general — help power the economy, and that shutting them down could have a deleterious economic effect.

In terms of future policy effects, we also included a longer-term version of a question we posed to the panel about a month ago: Which developments in the world of COVID-19 or the political world would cause economists’ GDP growth predictions to change for the better (or worse)? Again, schools are a big economic engine.1

What would make the economy look better or worse in 2021?

Share of economists who predicted that certain scenarios would increase or decrease GDP growth between the fourth quarters of 2020 and 2021

In this scenario, 2021 growth will be…
Scenario Substantially Lower about the same Substantially Higher
Vaccine approved by Election Day 0% 50% 50%
Democrats control Presidency + Congress 0 53 47
K-12 classes are taught in person 3 50 47
Biden wins; Congress stays same 6 94 0
K-12 classes are taught virtually 31 66 3
Trump wins; Congress stays same 41 59 0
Election viewed as illegitimate 47 50 3
No additional stimulus by November 59 38 3

The survey of 32 economists was conducted Sep. 18-21.

Source: FIVETHIRTYEIGHT/IGM COVID-19 ECONOMIC SURVEY

The results also bring into focus how the economists are viewing the election results and overall political climate. We’ve written many times that they believe an infusion of additional money from Congress — whether in the form of enhanced federal unemployment insurance or another series of stimulus payments — is paramount to stabilize the economy through the recovery. According to our survey results, the biggest economic risk for 2021 is the possibility that no additional stimulus is passed by November 2020. And the economists see Democrats’ control of Congress as having a significant effect on growth potential in 2021, likely because they have been much more willing to pass government spending bills. (Note that even if Joe Biden wins the presidency but the Senate doesn’t flip to the Democrats, 94 percent of our panelists said their outlook for 2021 would remain essentially the same as it is now.)

“I think that failing to pass fiscal stimulus is the biggest downside risk,” said Jonathan Wright, an economist at Johns Hopkins University who has been consulting with FiveThirtyEight on the survey. “And that’s probably made more likely by the RBG fight.”

And of course, the possibility of rapid vaccine development is the single highest-upside scenario in the results above, while a situation where the election is viewed as illegitimate — a real possibility — was another of the worst-case scenarios, according to the panel.

Yet no matter what happens, we can probably expect the stock market to pull through with minimal damage. As I wrote about in June, the markets have not reflected the recession at large, with the S&P 500 recovering practically all of its losses since late February (even after a shaky start to September). To get more clarity on why this is happening, we gave the experts a series of explanations for the seeming disconnect between the stock market and the rest of the economy, asking them to assign each option an importance rating from 0 to 1, where 1 was the most important.

Why is the stock market doing so well in a recession?

Leading explanations for the stock market’s continued growth, even as the rest of the economy is in a recession

Explanation Weight
Expansionary policies by the Federal Reserve 0.35
Some companies (e.g., tech) are benefiting from the pandemic 0.18
Savings has increased among the wealthy, who then invest 0.12
It’s irrational, and the bubble will eventually burst 0.12
It’s normal for the market to not correlate with the larger economy 0.11
Investors are optimistic about post-pandemic growth 0.10
Other 0.02

Respondents were asked to assign each category a weight from 0 to 1, and all responses had to sum to 1.

Source: FIVETHIRTYEIGHT/IGM COVID-19 ECONOMIC SURVEY

Although some credence was given to the notion that surging tech companies were keeping the market afloat, economists clearly think the Federal Reserve bears the single-most responsibility for the stock market’s rally. “Clearly, the panel believes that the ultra-low interest rates and targeted injections of liquidity into the economy have had a major effect on the stock market,” said Allan Timmermann, an economist at the University of California, San Diego who has also been consulting with FiveThirtyEight on the survey.

There was also a small — though not nonexistent — weight given to the possibility that this is all just an irrational bubble in prices, poised to burst.

Perhaps it is telling, however, that the lowest-weighted option available was genuine optimism on the part of investors. As we’ve said, the stock market is not the economy.

Looking at the whole picture, most economists think the U.S. could have done a better job at initially controlling the virus through more aggressive lockdowns, which in turn would have landed the country in a better economic place. Lawmakers also still have choices that can materially affect the economy’s trajectory throughout 2021 — and so do voters. Just how much we second-guess those decisions, though, remains to be seen.