DETROIT – How severe a blow has the coronavirus pandemic and the resulting near-shutdown been to the Michigan economy?
Worse than you may suspect.
Charles Ballard, a professor of economics at Michigan State University who has spent his career specializing in the state, put it this way. “GDP, the nation’s Gross Domestic Product dropped about 26 percent from 1929 to 1933,” the worst of the Great Depression.
“Moody’s estimated that this year, it had fallen 29 percent in just the first three weeks of the pandemic,” he said. By Moody’s, he meant the highly respected analytics and investor services company.
What’s more, the professor thinks things have gotten even worse since then – and thinks Michigan may have been even harder hit. “You could say this is weird on steroids,” said Ballard, author of the highly praised book Michigan’s Economic Future.
True, in some ways this is not as bad as the Depression. For one thing, there is still a social safety net, things like unemployment insurance and food assistance that did not exist in 1929.
Plus, “when this hit us, we were starting from a much higher level. For Michigan, even after adjusting for inflation, average income was about 5.2 times as high in 2018 as in 1929,” the economist said. Nationally, the difference is even more profound.
“For the entire U.S., average income was about 6.6 times as high,” Ballard noted before adding the sad truth that “Michigan used to be an above-average state. Now, we are below average.”
But nobody can yet know, of course, how long the pandemic or the quarantine will last – or how many more jobs may be lost. All this happened so fast, the economist noted, that all the economic indicators are badly lagging. But when I asked if he had some sense of how high the jobless rate in Michigan really was, he said, “My sense is that the unemployment rate is in the 20s. I’m not quite sure what the second number is, but it is pretty clearly over 20 percent.
What about recovery?
“Everything depends on getting the virus under control,” he said. “Every economic plan flows from that.”
Professor Ballard noted that he was not, by any means, a medical expert. But as someone who knows about logistics, he said as a matter of health policy, “I am still concerned that we really haven’t pulled out all the stops, when it comes to ramping up testing.”
He would like to see the Defense Production Act used much more. “This is different from other wars, but the effect on the economy is very warlike,” he said, comparing the huge budget deficits that are sure to result with the ones during World War II.
“We should plan on living with the virus (as a part of our economic and social life) for a year,” the economist said, adding that he believed that by 2021, we probably would have a vaccine.
The economy, however, can’t wait that long to reopen. But he said the key to opening up America again, from an economic as well as a medical standpoint is testing. “Business leaders, corporate executives, feel we need a hundred times more testing than we are doing. If we have universal testing, that could be almost as good as a vaccine, and we can start opening up the economy again.
“But we will have to be very careful, rely on other things – safety measures – and do it step by step: utilizing masks and social distancing. “Industrial production might be (one sector) you could open up early,” if workers could be stationed a safe distance and other precautions are in effect, such as taking their temperatures.
On the other hand, bars and restaurants may be the last thing that should reopen, “especially bars, where people sit 18 inches apart and breathe each other’s air.”
The effect on the federal deficit and the national debt will be devastating. Prior to this year, the record federal deficit was $1.4 trillion in fiscal 2009, during the so-called Great Recession.
It was on pace to be about a trillion dollars this year, in large part because of the effects of the 2017 tax cuts. But now, economists estimate it is likely to be at least $3.6 trillion.
“I worry about this,” Ballard said, and about its long-term cost to the economy and the taxpayers of the future.
There could come a point where we are overwhelmed by the money we have to pay just in interest on the debt – or worse yet, when other nations no longer see us as a “safe place to park their money.” When this is over, the economist thinks we really need to get serious about lowering our nation’s massive federal deficits.
Nevertheless, Charles Ballard thinks closing down much of the economy was a sound decision. “One study I saw said that if they hadn’t done what they did the deficit could have been $8 trillion,” because of the costs incurred by cases spiraling out of control.
Nobody really knows where and when this will end. But even given that, I asked Professor Ballard the unfair question:
When might life feel normal again?
“That’s hard to say, but if we have a vaccine, in the sense of going to have a meal in a restaurant, maybe by 2021.”
But as for a revived economy that looks something like it used to … maybe, just maybe, we might get there by 2025.
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(Editor’s Note: A version of this column also appeared in the Toledo Blade.)
