A new paper from a group of Virginia Tech economists puts a shocking dollar figure on the GDP hit from the first four weeks of the COVID-19 national lockdown: $1.2 trillion.
This represents a 26 percent drop in total U.S. output from the same period in 2019, according to the paper from Kwok Ping ‘Byron’ Tsang and Shaowen Luo, two assistant professors of economics in the Virginia Tech College of Science, and fourth-year grad student Zichao Yang.
The loss per person is estimated at $3,521 for the March 19-April 15 period, which would be the fastest, deepest plunge in GDP since the calculation index was started in 1944.
The group also calculated the hypothetical number of infections if no such stay-at-home orders were imposed.
Using that number and comparing it with the output loss, they calculated the “cost per infection reduced” to be about $150,000.
The numbers are starting to add up in a horror movie scary way. Congress and President Trump have already appropriated $2.7 trillion toward programs to help businesses, employees and the healthcare system navigate through the lockdown, pushing the projected budget deficit for the current fiscal year toward the $4 trillion range.
And now we’re getting a deeper sense from the Virginia Tech team as to the impact on economic output, which, yikes.
In the paper, which is now undergoing peer review before publication, the Virginia Tech team used first-quarter 2019 totals (in current dollars) totals of $21,099 billion, divided by 90 days for a GDP per day estimate of $234 billion for the estimated 34-day period from March 19 to April 15. The GDP includes all 50 U.S. states and the city of Washington, D.C.
Tsang calls the estimates “conservative,” and indicates actual GDP losses are deeper. First, to keep their analysis simple, the team focused on supply and did not consider demand-side adjustments. Second, for employees who have moved to work-from-home status, it is highly unlikely that labor input remains at 100 percent.
Employees also must juggle child care, home school, and more stressors. “Both limitations suggest that the estimates we provide in this paper are likely to be biased downward,” the team wrote.
The team found, not surprisingly, that the entertainment, leisure and hospitality sector was hardest hit, followed by the manufacturing and retail trade sectors.
In identifying essential jobs, Tsang, Lao, and Zang followed federal guidelines, which are more restrictive than what states actually consider.
“In response to the spread of coronavirus, different kinds of restrictions on activities are imposed in a large number of countries,” the authors wrote. “Either encouraged or required, people keep social distance and work from home, businesses that involve face-to-face interactions are closed down, air travel is reduced, and some ‘nonessential’ economic activities are put on hold. Clearly, such voluntary or compulsory actions have dire consequences for the economy.”
Story by Chris Graham
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