I will first note the article "National coronavirus response: a roadmap to reopening" by Scott Gottlieb. As a card-carrying crypto-Keynesian, I don't normally cite the AEI very much, but I could not spot anything I disagree with after scanning the article. Although the section header says "state-by-state reopening," the text discusses the reality that re-opening may be more regional in nature -- which I think is the optimal course.
A regional strategy is already taking place in Québec, where eight outlying regions are being cut off from non-essential travel (Montreal Gazette article link). These regions have very few cases, and the province wants to keep it that way.
The big challenge is setting the criteria for reopening. The Canadian provinces have always taken responsibility for health care, and the free market war on state capacity is much less advanced here. The provinces have the administrative capacity to make their own decisions -- and the legal authority to take actions like freeze intra-provincial travel. The situation is less clear in the United States, where states are not particularly responsible for health care -- and if there are problems, they blame the other party. Meanwhile, there is an extreme partisan gap on the seriousness of the virus. Ideally, the Federal Government would act like the grownup in the room, setting a national standard, and regions would follow a stance tied to that standard.
This national standard appears to be the main potential area of political warfare, as I would argue that otherwise there is a consensus among non-extremist economists about these principles.
What Does Society Need?We need to throw GDP out the window, and start from scratch. What do we need right now?
The minimal answer is something like:
- Medical care, medical research, and production of pharmaceuticals and tests.
- Production of personal protective equipment (PPE).
- Keep grocery stores and pharmacies stocked for the population stuck at home.
This immediately creates a chain of other activities.
- Electrical, natural gas, internet, and phone grids.
- Emergency services (ambulance, fire, police).
- Gasoline and refineries.
- Infrastructure repairs (winter does a good job demolishing road networks in Canada).
The list grows rapidly. We can survive a couple week shut down, as happened in Montreal during the 1998 Ice Storm. However, we run through inventories, and activity will have to resume. And it is not as if production ceased completely -- grocery stores and the associated supply chains have been running full tilt.
North America's Low Density Planning Comes in Handy
The main necessities are goods of various sorts. The evolution of North American cities has moved goods production to low density areas, unless it absolutely cannot be relocated. (For example, Montreal is a port, and the port is smack next to the extremely trendy area Old Montreal. Great place to visit in the summer whenever travel ever comes back.) I doubt that a high percentage of North America factory workers take public transit; they drive to work.
Small towns (outside of some ski areas) were not a major destination of the globe trotters who were the initial transmission vector of the novel coronavirus. Other than a few unlucky ones, an initial lockdown will have flushed out whatever cases exist, and the town would likely be relatively safe. A return to mask-wearing (masks were common in the Spanish Flu era), physical distancing, and the shutdown of "super-spreader" venues would allow these towns to approximate the success of places like Japan. Given that most industries have a certain amount of excess capacity, the production of essential goods could ramp up again, and essentials supplied.
The prospects for the larger cities (like Montreal) is less optimistic. Suburbs are low density, and some might be able to return to closer to normal functioning. However, places reliant on public transit will be facing greater restrictions.
Mothballing Non-Essential Firms
It is going to be a lot easier to identify non-essential firms and activities than essential ones. But if consumer-facing non-essential firms are mothballed, their suppliers will have no customers. Market forces will fill in for government planning.
The key is that governments need to offer a financial incentive for firms (and workers) to go into suspended animation. The non-essential ones will take the government up on their offer, or work around restrictions (like working from home). If I am in a generous mood, announced government policies approximate this ideal situation. Governments will have time to tailor a longer-term framework in the coming weeks.
My Annoyance with the Anti-Panickers
Finally, I want to vent my annoyance with the know-it-alls who have popped up to say that all these actions are panicked over-reactions. This is a worthless, content-free stance being offered by people with no skin in the game (to channel my inner Taleb).
If they are right, they will run around saying "I told you so." If they are wrong, they will just delete their more deranged tweets, and say "Well, it was an eight sigma event [or the equivalent], nobody could have predicted that!"
Policymakers and society faced a situation where cases are growing exponentially, with no sign that growth is slowing in the absence of hard containment measures. North American policy makers waited until the last possible minute -- probably too late -- to bring in the only available policy option: lockdown. Delaying in the face of uncertainty was no longer an option, and the consequences of being wrong are massive.
(c) Brian Romanchuk 2020