Lockdown GDP Decline & Steps for Reopening

Magnitude of Economic Cost

GDP in US dropped 4.8% in 1Q. What GDP contraction in March must have occurred to make 1Q annualized decline 4.8%? In the calculation below, I used the official GDP numbers and based them to 100 for those who’d like to doublecheck my math.

Spreadsheet allowing calculation of GDP decline in March 2020

The GDP decline in March occurred at an annualized rate (which is how GDP numbers are reported) of -26.2%. Since the lockdown was only in place about half of March, a good guess is 50% GDP decline which the lockdown is in effect.

Of course, we all want to lift the lockdown.

Pandemic Status

The best advice is that it’s likely broad outbreaks will be with us until 60-70% of the population has been infected. Currently 10-15% are estimated as potentially infected. There’s a long way to go before the pandemic is quieted into history.

People will continue to get COVID-19, but the goal is to stop the infection spreading in the most at-risk population. Those members will need to bear the brunt of isolation as they are the ones that need to avoid COVID-19.

Initial Steps towards Normality

A few common sense rules that should appeal to people’s wisdom and humanity are below. Social pressure, not by punitive laws, should be the main mechanism for enforcement.

  • All at-risk individuals should continue stay at home as much as possible.
  • Social distancing should guide businesses how completely they can reopen. Mass gatherings bans should be continued.
  • People who can telecommute should continue telecommuting.
  • Household members should recognize their responsibility to at-risk members by restraining contact (touch, masks) until they can wash after outside ventures that expose them potentially to the coronavirus.
  • Members of a households which houses a COVID-19 infectee have multiple concerns. Of course, that person must not go out and expose other people. If they are asymptomatic and wear a N95 mask, perhaps that would be okay.
    • If another member does not have the infection (a daily test would be ideal), they can go to work without fear of giving it to a coworker. They could still acquire it at the workplace.
    • Any household member who has the virus, they must make every effort to isolate from other household members.

Reopening

With the existing lockdown costing up to 50% of our GDP, we are surviving off our savings and what we can borrow from the future. That cannot last indefinitely.

However, the reopening needs to continue the shelter-in-place for at-risk individuals as well as tamping down the curve as our actions so far have helped.

The state governments need to further pick up the slack left by the federal government’s ineptitude on testing and contact tracing. The states also need to define the steps and restraints needed for reopening.

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