The early response to the pandemic was to cease non-essential economic activity, which was, in my humble opinion, the right move. Unfortunately, many states jumped the gun on restarting their economies, which also provided the virus with a path to continue its assault on America. Patience is a virtue that many lack, especially political leaders whose very careers may hang on the performance of the economy. The saddest part is that states such as Florida were on the verge of crushing the spread of the virus in early May. One more month of a complete lockdown might have been enough to prevent further spread of the virus. Yes, the economic pain might have been difficult for many people but the result of opening too soon has been a dramatic spike in cases and a trebling of deaths. More than 7,000 Floridians have now died from COVID-19 and the state is second only to California in the total number of cases. It did not have to be this way.
Nationally, the economy has taken a terrible dive. More Americans are out of work as a result of the mishandling of the pandemic than were out of work when the economy collapsed during the Great Recession from 2007-09. The graphic below shows the unemployment rate for those 16 years of age or older from 2007 to the present.
As you can see, the unemployment rate steadily declined following the Great Recession and had reached what economists refer to as 'full employment' in February of this year. In a nutshell, full employment is a situation where anyone who wants a job can find one. Those who are classified as unemployed are usually either underemployed or transitioning between jobs. That number will always be around 3% of the workforce for a variety of reasons. It may take a year or more before we get anywhere near that number again because many businesses that were forced to shut down in March may never reopen or may downsize when they do reopen.
In addition to the unemployment rate, GDP fell in the 2nd quarter of the year by a whopping 32.9%, which is the worst single-quarter decline in history. The effect of this decline will be with us for quite some time and will disproportionately impact certain industries, such as hospitality and tourism. The loss of income means people won't travel for vacations to places such as Walt Disney World or book cruise vacations (if and when they are allowed to resume operations). Sales at restaurants and hotels will be well below average for a very long time. Airlines will likely suffer as well due to the lack of travelers taking vacations. See below for additional information.
Beyond the impact on consumers is the impact the decline will have on government revenue. Any substantive decline in GDP results in a decline in government revenue, which means the federal, state, and local governments will have to borrow more (or be granted funds from the federal level) to accomplish basic services demanded by citizens. Since 48 of the 50 states have constitutional amendments that require them to balance their budgets each year, the feds will need to step in and help. But where will they get the money? By borrowing against the future, of course. But our national debt is already over $26.5 trillion and rising. Pre-pandemic, the Trump Administration expected to add $4.8 trillion to this total in his first four years and another $3.5 trillion in his second term. Due to the pandemic, that amount is now at $6.8 trillion plus whatever stimulus package emerges from Congress in the next week or so plus the shortfall from the reduction in revenue due to the economic collapse. Needless to say, President Trump is on track to increase the national debt more than any of his predecessors in just four years and leave future generations with the bill.
Why does the debt matter, you might ask? The short answer is that it matters because we must pay interest on it every year. For the current fiscal year, that interest comprises about 10% of the federal budget, or about $405 billion with two full months left in this fiscal year. That's money we cannot use to fund education, infrastructure programs, military improvements, social safety net programs, or anything else. By the end of the fiscal year, the interest on the debt alone may be a record $600 billion! Compare that to the total deficit in President Obama's final year of $672 billion. Trump's total deficit for the year was expected to be about $1.3 trillion pre-pandemic. His post-pandemic total is estimated to hit $3.7 trillion for the year. It will likely be another trillion above that due to the next fiscal package coming from Congress.
The point of this is not to blame the president for the debt or the deficit, though he does deserve some of that to be sure, especially for the massive increase in debt attributed to his 2017 tax cuts and boosts in military spending. The point is that this situation is far worse than it had to be. Competent leadership from Washington at the outset of the pandemic would have allowed us to get through this with far less pain, both in terms of deaths and economic disaster. Consistent messaging from the White House with a focus on masks, physical distancing, and maintaining the shutdowns until we had the virus under control would have lessened the impact. The same can be said about providing testing supplies and especially rapid testing. Tests are useless when the results take 10-14 days to get. Money should have been focused on contact tracing, enforcing self-quarantine rules, etc. Very little of that is being done. Tourists show up on half-empty airplanes one day and are traipsing around Walt Disney World the next.
The bottom line is this: We are in for a lot of pain and heartache in the months (perhaps years) that lay ahead. We have a president that has failed to lead, buried his head in the sand, and when he does speak, lies to the American people about what is really going on. Recently, he suggested postponing the November election due to concerns that voting by mail will result in tremendous levels of fraud. Of course, there is no evidence to support such a claim. Many Republicans, including the Lincoln Project and the founder of the Federalist Society have had enough. They have reached the conclusion that four years of Joe Biden/??? will be more tolerable than another four years of rudderless government under Donald J. Trump. Hopefully, the voters agree with their assessment in November. If there is an election.
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