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The Looming Economic Drag From 5 Democrat-Controlled States

The Looming Economic Drag From 5 Democrat-Controlled States
(Transversospinales/Dreamstime)

By Wednesday, 27 May 2020 12:22 PM Current | Bio | Archive

Finally, the economy is beginning to re-open. Had the national lockdown lasted much longer, the current deep recession would have gotten much worse.

Because the federal government passed three stimulus packages, the recovery should be brisk. It may not be as brisk as we would like, however, because a few large states will be a major drag on the economy.

The current debate centers on when to completely open the economy. Since this is a situation where there will be losses no matter what decision is made, the goal would be to choose the option that minimizes the losses. The consensus view seems to be that opening the economy today likely results in less losses than waiting to open until the risk of spread from the virus was at or near zero.

A near zero risk would mean waiting at least until late this fall or early next year. The economic impact of waiting that long would be devastating which would lead to very poor public health outcomes. Already, one third of Americans are feeling clinically anxiety or depressed.

Eventually a severely depressed economy will lead to chronically high unemployment, increases alcohol and drug abuse, domestic violence, anxiety, depression and suicide.

Americans seem to be saying the possible increase in coronavirus cases results is a smaller loss than the loss from keeping the economy closed much longer. Most Americans except the governors of five key states take that view. In New York, New Jersey, California, Michigan and Illinois, the governors are reluctant to let the economy open.

Those five states account for more than one third of national GDP. The strict lockdown orders have caused the economy in those states to drop dramatically and, so far, not recover. As those states continue their shutdown policy, the national recovery from the recession will be negatively impacted.

Most of the data seems to indicate that the recovery will be robust and likely in a V or at least a U shape. That means the recovery will be quick and economic growth very high.

While the second-quarter GDP growth number will likely show a decline in the 20% range, the third quarter could turn positive, with the fourth quarter and all of 2021 show some of the highest growth numbers ever recorded.

Why are those five states keeping their economy closed?

The stated reason for the continued closure is that the number of new cases of the coronavirus remains high, although in all of those states the numbers are declining. It is interesting to note that each of those states has a Democrat as governor. The hope is that the re-open decision is based “on the data” and not on politics.

The Democrats seem fearful that the economic data will look so good in September and October that voters will give much credit President Trump. That may be enough to carry Trump to victory and perhaps Trump’s coattails will be enough to flip the House of Representatives from a Democratic majority to a Republican majority. The coattails may even be great enough to have the GOP increase their majority in the Senate.

The Dems' fears are well founded. The August, September and October jobs numbers will be extremely strong. In each of those months, millions of new jobs will be created. The unemployment rate which will likely peak above 20% in June, will fall dramatically so the rate could be under 10% by election time. While that is historically a very high number, it will be less than half of what it was in June.

Americans will again feel that the prosperity brought about by Trump’s policies in the first three years, is returning. After months of feeling despair and isolation, Americans will begin to return to a more normal lifestyle albeit with some changes. It remains to be seen what the long term impact of completely shutting down the economy will be. It also remains to be seen how much of a drag those five states will be.

All Americans should disregard politics at this time and concentrate on returning to prosperity. Instead the governors of those five states would rather see Trump lose the election than help the American people. Fortunately the voters get the final say.

Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.

© 2020 Newsmax Finance. All rights reserved.


   
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DrMichaelBuslerPhD
All Americans should disregard politics at this time and concentrate on returning to prosperity. Instead the governors of those five states would rather see Trump lose the election than help the American people. Fortunately the voters get the final say.
coming, economic, drag, new york, new jersey, california, michigan, illinois
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2020-22-27
Wednesday, 27 May 2020 12:22 PM
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