The staggering economic costs of fighting the COVID-19 pandemic are becoming clear as stay-at-home orders in the United States drag on for months and freeze economic activity. Lockdowns have already slashed incomes and wealth for about half of all Americans, according to the University of Texas’s Olivier Coibion, University of California at Berkeley’s Yuriy Gorodnichenko, and Chicago Booth’s Michael Weber.

Analyzing real-time evidence of the pandemic’s economic consequences, the researchers find that people living under lockdown orders feel they have little hope of a speedy recovery. The findings help explain growing impatience among policy makers and the general population in the face of the starkest trade-off most people will ever face, between their lives and their livelihoods.

“The COVID-19 crisis is a grim reminder that economics is a dismal science and that, quite literally, policymakers face a painful trade-off between saving lives and saving the economy,” the researchers write.

Coibion, Gorodnichenko, and Weber used sequential surveys—originally designed to probe consumers’ expectations for inflation—to gauge the effects of COVID-19 lockdowns on Americans’ employment, personal finances, spending patterns, and sentiment about the outlook. They tapped the Nielsen Datasets at Booth’s Kilts Center for Marketing, conducting customized surveys in January, before stay-at-home orders took effect, and in April, after they became widespread.

The researchers based their findings on 18,344 responses to the January survey and 13,771 responses to the April sounding. The average household income was $68,000, or a little higher than the US median, and the average household size was 2.6, or about the same as the national figure.

They find that employment rates fell by 5 percentage points between the two surveys, or more than the drop during and after the Great Recession. In addition, 44 percent of the population experienced a decline in earnings and 54 percent experienced a decrease in savings. This had a domino effect on spending as average monthly consumption plunged from $4,000 before the crisis to $3,000 by April.

The responses suggest a slow and difficult recovery—far from the V-shaped upswing the US experienced in the early ’90s.

The staggered introduction of lockdowns allowed the researchers to observe the impact of specific policies. People living in counties with shelter-in-place orders were almost 3 percent less likely to be employed than those elsewhere and to cut their spending more than the average, they find. Survey participants under lockdown orders had a dark view of the future, expecting unemployment to remain high over the next five years, and were less likely to plan future big purchases, the research demonstrates. 

Lockdowns were more to blame than the virus itself, Weber says. Google tracking data show that traffic through retail outlets plummeted only after lockdowns were introduced, not in response to the initial appearance of coronavirus cases, he says.  

The surveys offer grim news for mortgage lenders, as respondents indicated that debt repayments were some of the first expenditures they cut. “Because of the regulatory changes of the past 10 years, banks have a substantially higher cushion to deal with defaults, but nontraditional mortgage lenders have increased their loans in that time, and they could be in trouble,” Weber says. 

More generally, the responses suggest a slow and difficult recovery—far from the V-shaped upswing the US experienced in the early ’90s following the 1990 oil price shock, or the roughly U-shaped curve after the Great Recession, the researchers find.

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As for policy responses, the researchers argue that Americans’ negative expectations suggest one-off tax breaks or cash-relief payments such as the $1,200 checks issued by the federal government in April are unlikely to bolster the economy in the way that unemployment benefits do. People spend jobless benefits quickly because they know the money will keep coming for a while. With one-time relief checks, people are more likely to try to save the money as a hedge against hardship to come, they say.

Consequently, a smarter way to bolster the economy might be to offer ongoing support in the form of unemployment pay or credit lines, Weber says.

Of course, lifting the lockdowns is another possible policy response, as some politicians and protesters argue.

“One trade-off is the value of life,” Weber says. “The benefit of lockdowns is protecting lives, and economics has little to say about this. But while right now the public debate is largely dominated by epidemiologists, at some point we have to slowly take into account the cost of the lockdowns, and this is where economists can weigh in.”

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