buyer's market

Only You Can Reopen the Economy

Come on in – if you dare. Photo: David Gannon/AFP via Getty Images

There has been an ongoing argument over who can reopen the economy and about whether public officials should reopen the economy. Despite the president’s periodic assertions, the authority to lift orders restricting economic activity lies with state and local officials. But even governors cannot reopen the economy. Governors can permit the economy to reopen, but only the people can reopen the economy. Commerce will only happen if people agree to engage in it, and they will continue to engage in much less of it as usual so long as they feel it is not safe to go out in public. And businesses are unlikely to reopen if they don’t think they will have enough customers (or staff) to make business profitable.

Consider, for example, Georgia Governor Brian Kemp’s controversial order permitting various kinds of businesses in the state, including movie theaters, to reopen over the next few days. Movie theaters, for example, can open on Monday of next week. Does that mean we should expect movie theaters in Georgia to actually be open? Consider Sweden, which has taken an unusually hands-off approach to the crisis, including allowing theaters to stay open. Most Swedish theaters are closed anyway due to a lack of customer demand and a lack of films to show.

Even in Seoul, one of the major world cities most often discussed as a shining example of how to squash the epidemic without totally shutting down the economy, business is light. An upbeat Bloomberg report about the city’s popular cafes and reopened Apple Store also notes that many shops have closed up, with for-rent signs in the windows, and that stores that have reopened often report that sales are way down from precrisis levels.

Adam Ozimek, the chief economist at Upwork, has provided a useful chart of OpenTable data on restaurant attendance across U.S. cities as the coronavirus crisis intensified. What the data show is that restaurant attendance was already declining sharply before governments ordered restaurants to close. Of course, quite a few people were still going to restaurants before the closures, so I’m not saying demand was zero. But the choice to reopen is a bigger hump than the choice to stay open — restaurants will be in a position of choosing to staff up and pay the expenses associated with reopening — and as the daily national COVID-19 death rate continues to rise, I would not assume restaurant owners will assume the public is more eager to dine out than it was a month ago. The public still appears very concerned about the risks of what used to be normal consumer behavior: An NBC-Wall Street Journal poll last week found only 18 percent of Americans surveyed thought the economy was ready to go back to normal or would be within the next few weeks.

So how would you, as a restaurant owner, make a choice about whether to reopen? The first question might be whether you feel safe doing so. But even if you do feel safe, you’ll have to think about how your employees and customers will feel. Will the employees come back to work? Some of them surely would like the income. But for the time being, expanded eligibility for unemployment benefits will give many of them more leverage than usual to decide to stay out of work. Will the customers come back? And even if your staff is willing to come back and there is heavy demand for restaurant dining, regulations that are likely to stay in place — reduced seating density, for example — will prevent you from running at full capacity anyway.

I lay out this analysis because I think it shows how another part of the the president’s implicit economic analysis is wrong. He believes that an early reopening date will significantly increase economic output. He also believes an early reopening date will significantly improve states’ fiscal standing — if he worries that federal aid to states will encourage them to stay closed longer, presumably that means he thinks reopening earlier will help them collect more taxes and need less fiscal assistance. But even a state with a “reopened” economy will see dismal sales tax revenues if consumers remain reluctant to participate in the economy. And if a premature reopening causes a second-wave outbreak (I am not saying reopening will have no effect on social behavior, just that it will have a more muted one than the president seems to expect and it could well still be enough to kick up the infection rate), that could lead to a necessarily longer period of economic disruption and make members of the public even less inclined to trust public officials who say it’s fine to go out and open the economy up the next time around.

The economy does need to be reopened in due course. But that will only be possible when the broad public feels it is safe to do so. So if the president really wants the economy reopened, he needs to create the conditions that cause people to feel safe reopening it. This is why, when the president set up a call with bank CEOs in hopes of getting support for his reopening agenda, he instead got an earful about the need for more testing. A competent epidemiological response won’t just save lives, it will save the economy. It’s a step the president will not just be able to skip.

Only You Can Reopen the Economy