This week’s second-quarter advance estimate of GDP showing the most severe projected contraction on record has led to speculation as to what exactly made the United States economy contract so much, and if this contraction was avoidable. The two obvious effects analysts would like to tease out are the relative impacts of voluntary and involuntary reductions in consumption and production, particularly in the service industry.
A significant voluntary reduction in consumption–people staying home, shifting to remote work, and taking their kids out of school—occurred before the cascade of shelter-in-place orders and restrictions on assembly and certain businesses. Will Luther has written on the voluntary reduction in consumption and production prior to the institution of lockdowns, and in states where there were no lockdowns. Additionally, many businesses and particularly services temporarily closed shop—ceased production—before the lockdown orders.
But it’s obvious that if you restrict and ban certain businesses, they will suffer for it. Some business owners who made it through the first wave of lockdowns are saying their businesses won’t be able to survive another. This isn’t rocket science. Perhaps businesses do need to adapt to better serve their customers during this time, but they cannot do so if they are restricted or banned from operation completely and indefinitely. They can keep paying their fixed costs—rent and bills and taxes—until they can’t, anymore. Most small businesses in particular don’t have the kind of generous margins to last through one lockdown, let alone two or more.
We also don’t know how businesses might have adapted to keep themselves afloat while harmonizing their services with the safety needs of their customers absent lockdowns. Now that the economy has been largely open since the beginning of June, we’ve seen many adaptations: social distancing is the new norm, as is mask-wearing, particularly by employees in the absence of a mask mandate. Many businesses also require their employees undergo fever checks, and New York University stated recently that it will require its employees to submit negative results of a COVID test before being allowed back on campus.
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