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Symptoms of COVID-19 include fever, fatigue, respiratory distress-and increasingly, economic anxiety

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Mark Wangrin | April 2, 2020

white printer poster of stock market

While health care professionals deal with the physical toll of COVID-19, politicians and economists are left to negotiate the financial fallout.

Dr. Todd Jewell, professor of finance and economics at the McCoy College of Business Administration, has studied the economic effects of the pandemic on the United States.

He throws around words and terms like “historic,” “once in a century” and “incomprehensible.” 

They are not enough.

“This is not only historic in terms of the size of what’s happening, but in the speed of which it’s happening,” Jewell says. “We were chugging along pretty well. Unemployment was the lowest it’s been in a long time, everybody was feeling really good about things and then – talk about throwing on the brakes.

“We lost 3 million jobs in one week. I was absolutely shocked. ‘Historical’ doesn’t even do it justice. That’s a number that might as well be infinity, based on the numbers we normally see week to week.”

Jewell says the relative suddenness of the virus spread, the economy being shut down by government action and not underlying economic reasons and the breadth of the shutdown all create more uncharted territory. 

“All kinds of aspects of this are unprecedented,” Jewell says.

There are four events in U.S. history, Jewell says, that can lend some context and perspective to what’s happening and what a recovery will look like:

  • The influenza (H1N1) pandemic of 1918 infected about 500 million people – one-third of the world’s population – and killed at least 50 million, including about 675,000 in the United States.
  • The stock market crash of 1929 was the result of unsustainable stock prices, high interest rates and previous recessions. The ensuing Great Depression, which lasted about 10 years, was marked by drastically reduced spending. It radically changed the role of government in the economy, including more financial regulation and the creation of the Federal Deposit Insurance Corporation (FDIC).
  • World War II caused the government to dictate behavior, but it also mobilized the country and stimulated the economy. About 419,400 Americans were killed and more than 670,000 wounded.
  • The financial crisis of 2008-09 resulted from federal banking and lending deregulation and unsustainable housing mortgages. Nearly $8 trillion in stock market value was wiped out between late 2007 and 2009, home values sank, retirement savings disappeared and unemployment peaked at 10%.

Jewell says lockdowns were used in 1919, but were localized and on a much smaller scale. World War II caused the government to mandate economic behavior and the conversion of private industry to produce military supplies.

“In terms of the amount – we have locked down not just people but economic activity in this country. It is just unprecedented,” he says. “In that way it’s kind of like wartime, but instead of the government telling us what to do, everybody has to make tanks and airplanes, they’ve done exactly the opposite and said nobody can do anything.

“We’ve never seen the government shut down the economic engines so fast, and with such dramatic effect.”

The crash of ’29 is more useful to analyze, Jewell says, in that the reaction to it is what should help ease the effects of the COVID-19 pandemic.

For one thing, the Federal Reserve is now doing the opposite of what it did after the ’29 crash – cut off financial liquidity to banks, causing many to fail.

“Now, when there are problems the Fed always responds by injecting liquidity into the system, to make certain there is enough money out there for the banks to lend and people and businesses to borrow,” he says.

In the financial crisis of 2008-09, the government used the lessons of the ’29 crash and the tools it spawned to lessen the impact. That included the American Recovery and Reinvestment Act of 2009, a stimulus package that pumped $831 billion into the economy to assist the unemployed and create and preserve jobs, among other things.

Last week, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, containing an unprecedented $2.2 trillion in total financial relief for businesses, public institutions and individuals.

“They’re worried about what’s happening right now, but they’re also worried about what’s going to happen going forward,” Jewell says. “They’re worried about people losing their jobs. They’re worried about small businesses going out of business. They’re worried about large businesses going out of business. They’re thinking about the right sorts of things. 

“But it isn’t easy at this point to analyze whether what they’re doing is correct. It’s much easier to look at it in hindsight. Within the confines of what the political system allows us to do, they’re trying to do what they can. They’re trying to stimulate spending, but more importantly, they’re trying to make sure businesses don’t fail.”

How the stock market performs over the next few months will be a good indicator of the effects, Jewell says.

“I’m optimistic that the stock market will continue to grow, because that would be a sign that sophisticated investors, those that understand the economy, think that this thing is coming back and it might not be such a horrendous outcome,” he says.

Jewell said he wouldn’t be surprised if the market has at least one more big dip, if news worsens.

“But I’m hoping some of the other things we’re doing, which are more public health oriented, are really going to slow down the speed with which people get infected,” he says.

Jewell says the best-case scenario is the economy settles down by June.

“If within the next couple of weeks, we start seeing infection rates peak in the U.S. and things start slowing down, that gets us to the middle of April,” Jewell says. “Then another couple of months to clean stuff up. And then things can get back to ‘normal.’”

Worst-case scenario, Jewell says, is the pandemic lasts into the summer and comes back again strong in the fall.

“It might be something that we can come back from quickly, because there’s no underlying problem in the economy. We’re not being shut down because the economy was going into a recession. So that’s something to be optimistic about, except we just don’t know what happens next. We’ve never had to restart the economy after shutting it down for three months.”

For more information, contact University Communications:

Jayme Blaschke, 512-245-2555

Sandy Pantlik, 512-245-2922