Patrick Watson of Mauldin Economics argues business as usual is not coming back in the US while coronavirus remains a significant health risk

Patrick Watson of Mauldin Economics argues business as usual is not coming back in the US while coronavirus remains a significant health risk
Photo: Pixabay.

By Patrick Watson*

“America will be open for business very soon,” said President Trump on March 23, just a week after local authorities began issuing stay-at-home orders.

At that point, the novel coronavirus had killed a total of 689 Americans. Now, a little over a month later, 689 deaths would be a really good day. And America still isn’t open for business. But the president and some state governors think it should be and are trying to make it so.

Unfortunately, politicians can’t order the economy open again because they didn’t close it. Consumers and businesses began shutting down long before they were forced to, and they won’t re-open just because they legally can.

This is way more complicated than many people think… which means it will take time.

Probably a long time.

Reacting swiftly

The news cycle is moving so fast it’s hard to remember what happened last week, much less last month. So let’s review.

In early March, companies and local officials had already cancelled many conventions and other large events. Then several important things happened on Wednesday, March 11.

  • Actor Tom Hanks and his wife Rita Wilson announced they had tested positive for the virus.
  • The National Basketball Association suspended its season.
  • President Trump, in an Oval Office address to the nation, said risk to most Americans was “very, very low” but also banned travel into the US from much of Europe.

The president’s address, combined with the popular, well-known Hanks becoming ill, and the NBA’s drastic action, suddenly made the coronavirus threat seem “real” to millions.

They reacted swiftly.

  • Disney closed its theme parks on March 12.
  • Colleges told students not to come back from spring break.
  • Churches cancelled services.
  • Restaurants, theaters, and casinos began shutting down.

All this happened before the first mandatory stay-at-home orders, which were in California’s Bay Area on March 16.

The idea that “Big Brother” government closed everything is incorrect. The orders simply codified what was already happening.

Photo: Pxhere.

Viral aversion

The hardest-hit businesses are those that put people in close proximity to unknown others: airlines, restaurants, hotels, retailers, hair and nail salons, etc.

Your odds of encountering an infected person are much higher in those places. Avoiding them is perfectly rational if you want to avoid the virus. That’s why many businesses closed before being ordered.

What will bring customers back?

Well, they need to be convinced that visiting those businesses won’t make them sick. Or, to use economic terms, people must perceive a favorable cost-benefit ratio. The reward has to outweigh the potential harm.

Survey data says most Americans don’t think we are there yet. Here’s a CBS News nationwide poll conducted April 20-22.

Photo: CBS News.

A large majority seem uninterested in venturing out to nonessential places. That probably won’t change until they feel safe.

Now, there are things businesses can do to reassure customers—extra cleaning, temperature checks, and so on. They help, but they also have a cost. Often, it won’t outweigh the additional revenue it generates.

So financially, the smartest things many businesses can do is stay closed until they are confident customers will come back and spend freely. 

Giant quandary

Restaurants and retailers can’t re-open without workers who must be paid. Presently, many of those workers are furloughed and receiving (or hoping to receive soon) unemployment benefits.

Those benefits are now extra-generous, thanks to Congress and President Trump. In some states, they are equivalent to a full-time job at $25/hour. That’s more than many laid-off workers were making before (and more than some “essential workers” are making now).

How, then, is the employer supposed to lure them back? “Come back to work, Joe. You’ll make less money, have to wear a mask all day and might still get the virus and die.” Not very compelling.

Business owners have to think about liability and reputation, too. What if people get the virus in your restaurant? That’s another unknown and only partially controllable cost.

It’s a giant chicken-and-egg quandary. Customers can’t go to a business that’s closed, but the businesses have no reason to open unless they think customers will come, and maybe not even then.

See the problem?

Government isn’t keeping the economy closed. The people who compose the economy are keeping it closed, by their own free choices.

No matter what governors say, no matter what the president says, business as usual is not coming back as long as this coronavirus is still a significant health risk. And it will be until we get effective treatments, a proven vaccine, or herd immunity.

All those are months away, at best. That means economic recovery is also months away, at best, and probably longer.

It could get even worse.

Some states are relaxing the lockdowns. I think most businesses will stay closed, but some will re-open. Some customers will visit them, too.

Two or three weeks later, we may see hospitalizations and deaths jump higher. Then the lockdowns will come back and people will be even more frightened than they are now. The deep recession that was already coming will be even worse.

We’ll know soon if the risk was worth it.

*Patrick Watson is senior economic analyst at Mauldin Economics. This article is from a regular Mauldin Economics series called Connecting the Dots It first appeared here and is used by with permission.

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Phuuih, lucky the NZ & OZ rely on the new back bone, single basket of egg economy giant on this planet.. err.

Yet we have queues down the road for the local McDonald’s. I think most businesses will open when they can (it’s either that or go under), but it might be in a different format.

The US, the core member of Anglo-Saxon world, the recover and guardian of the Caucasian world (the EU, Latin and South America), and once-were the beacon of the world, falls hard and permanently from the pedestal after the COVID-19 pandemic.

China's rejuvenation is one step closer.

Rejuvenation: the action or process of making someone or something look or feel better. It is a pity that it takes the misfortune of others to make you feel young.
Can this be applied to India and Persia and Bantu African countries? I would include Brazil but you may have applied the identity label Caucasian. With a little luck and if the centralised autocratic rule of the CCP is shared with the regions and people of China then probably China can double its wealth per capita and get to where Singapore and Taiwan have been for a while. That is what is so great about China and India - the only way is up.

Not once you've mentioned that 3 nations at least rejected China's BRI (infinite consumerism for the planet, wealth.. NOT Health for sure). Those 3 countries; USA, Japan, India - total populations comrade? 330m+127m+1.3b alone already thwarted China, C'mon comrade.. 2021 every one will start to decouple from China... and tell me what matter most in China? ..Tsai Shen Yeh (God of $), the year of reckoning is one step closer. China need to quickly gather ally, supply more $ for the North Korea & prep up $ more NZ F.I.RE economy, NZ will back up China.

I think you'll find your dog has had its day.

Different mentality in the states which I admire. The people get on and do it and don’t expect the gummit to make every call for them. In NZ we constantly blame and expect the gummit to solve everything in our lives.

Yeah you are right. The US doesn't have leadership, in any coherent meaning of the term. They do have publicly funded corporate employees, that will fleece the public at any opportunity though.

Physical infrastructure-wise they started earlier than us, and applied less to maintenance. So they're in a worse position, not that we're in a particularly good one.

No we don’t. Generalisations.

The USA can close down and Amazon, Google and Facebook will keep bringing in money from overseas. NZ can sell its logs and milk.
Eventually the world will start working again even if it does mean the majority of retirees die in future waves of the epidemic. It has happened in the past and will happen again. This time the virus is taking the elderly (like myself) whereas the Spanish flu took the young and fit. So the main difference will be countries with fewer beneficiaries so the developed countries such as the USA and the EU will end up even wealthier with more money for research and investment.

"The virus is taking the elderly" IN NZ my friend.
Stats are a lot different in UK, USA etc. More likely to die if you get it and are over 75. But plenty of folk under 60 dying who would not have died of flu.
And NZ will have 15% less GDP due to tourism gone and restaurants another 5% probably
And do not suppose that exports will be priced same either.

You underestimate the decline in GDP: remove tourism, the airport, hotels, and many restaurants, international education, public transport and unless emigre Kiwis return our population will shrink (250,000 work visas) so retail and commercial property will be killed and therefore construction too. Councils dependant on high numbers of immigrants will be squeezed financially so eventually they will reduce staff. Then there are all the jobs that depend on the businesses that will collapse. A family member is a tax accountant - currently processing hundreds of clients - next year that will be fewer. If GDP only drops by 20% NZ will be very lucky.
It is sad - NZ handles Covid-19 well and will go into a long recession whereas the USA is making a pigs ear of Covid-19 and after a short recession is capable of bouncing back. It expanded in the early 1920s after Spanish flu left it with a healthier working population. Same could happen again.

I'm certainly no expert on the spanish flu, but didn't in mostly kill the working age? And like 50 million people.

At a guess, this may kill a few million depending upon how things go in places like Africa and India. And it looks like it is killing elderly.

My understanding with the bounce from the Spanish flu was that because there were far less workers (i.e. they had died), then there was a labour shortage and gave workers bargaining rights, pay increases etc. We're going to be left with massive unemployment at the end of this with a labour surplus.

What's up with commenters today,, they got cabin fever? It's not the end of the world for nz imo despite what happens in other countries. Transtasman tourism will come back sometime this year, maybe sooner than later.

An example of how America bounces back from the history of Memphis Yellow Fever outbreak in 1873 ""The population had been roughly 50,000 before the start of the epidemic. Of the 19,000 who stayed in Memphis, 17,000 came down with yellow fever, and 5,150 died."" It even went bankrupt but it bounced back. Modern America is probably resilient too. It will take years not weeks.

Ameen to that, but most reader forgot, China grown to it's population size by product of one child policy, and celebrating this rodent year? just a reminder that CCP already uplift that old legislation of population control - Now, bring on..comrades let's spread the love today and so on.

Are you deliberately writing in pigeon English? Either stop because it’s racist or get a native speaker to proof read your work. Nonsensical.

He always writes like that. I've always chalked it up as weird stream of consciousness writing. Maybe you're just the sort of person who sees imaginary racism everywhere?

Just scroll past his(?) posts.


Impeccable English.

We stand in oar


An interesting commentary. What I have found dealing with Americans of all types is that they are extremely innovative, far more so than I ever anticipated. Its as if the term 'work around' is in their DNA. Ever happy to invest capital (what ever type that maybe, human, physical, cash) into technology particularly, to acheive a different way of doing things in response to the need to change. I think thats why their economy always bounces back faster than ours ever does. NZ Inc doesn't even rate in that regard, its something that will hold us back severely in the challenging years ahead.

When people can see it and experience the daily consequences of the Covid 19 Coronavirus before their eyes and they can see the current statistics as well, then most of them are not going to get involved in the business quite soon. With more than 2 million cases reported and 100K+ deaths, still it's a fear factor for many citizens.

Even though the new cases are getting very low, we have still to deal with more than 1 million active cases in the United States. I'm working in a government Tadbeer agency in Dubai, and here after the strict lockdown the businesses are open but still they can't find many customers to their products or services.

So, it simply tells the fact that even if you open the business activities, you are not going to entertain many customers quite soon as they think and feel comfortable in their homes.

Taslim Hakimi
Business Executive at