The authors of this book chapter assessed whether policy actions to contain the spread of the COVID-19 disease reduce the spread of the disease and save lives, and whether mitigation interventions have negative effects on the economic conditions of an average citizen and firm in US states in a study published recently in the Journal of Risk and Financial Management. The scientists found that jurisdictions with higher death rates have tougher legislative constraints in place to prevent the disease from spreading and becoming more severe. While death rates are a key determinant of the severity of state interventions, case rates do not appear to have an impact on the restrictiveness of state mitigation measures. Lockdown methods used in the United States to contain the coronavirus pandemic are effective in reducing illness severity, but they result in severe local economic contraction. Individual behaviour and mobility are the key channels via which state policy interventions have an impact on health and economic outcomes. Similarly, higher testing rates result in large mobility reductions. Reduced disease cases, rather than disease fatalities, are the primary health benefits of tougher policy interventions. Not all state policy measures produce the same results. State restrictions, stay at home, business closures, and gathering bans were identified as the only effective mitigating interventions that helped slow down disease cases among the social distancing measures. In terms of disease fatalities, gathering bans were recognised as the sole state policy measure that was shown to be necessary. Importantly, both health conditions and lockdown measures have an impact on the actual economy, albeit in different ways. In comparison to lockdown measures, which have substantial negative consequences in the immediate term, the direct impact of disease environments on economic growth is less visible in the short run. State limits, for example, cause a 0.46 standard deviation decline in real economic production, whereas sickness cases and deaths cause 0.37 and 0.40 standard deviation drops, respectively. To put it another way, health conditions as measured by changes in coronavirus disease cases and deaths have a considerable negative impact on economic results, but they are unlikely to be the primary cause of the large immediate losses in economic production. Instead, the intensity of state lockdowns and the variability in policymaker responses to the health crisis appear to be the key factors driving state income disparities. On the other side, deteriorating health conditions have a negative impact on labour supply, financial health, and economic production. The severity of disease, for example, has a significant impact on state unemployment and the number of personal and commercial bankruptcies. The authors have also conducted analyses to determine the relative impact of state policy actions vs disease severity in projecting actual economic activity reductions. In particular, a machine learning analysis of the relative strength of coronavirus disease severity and state policy measures to predict real local economic contraction outcomes shows that the disease itself is more predictive than mandatory social distancing policy measures taken by states to slow the disease's spread. In most cases, sickness severity exceeds social distancing measures in predicting real economic conditions when a horse race is held between state policy measures and disease severity. As a result, the negative economic impact of lockdowns outweighed the disease's economic damage, although health conditions better predicted economic contraction results. The impact of disease severity on the real economy is primarily through increased state unemployment and the number of personal and business bankruptcies, according to an analysis of the specific channels through which negative economic outcomes occur either due to disease severity or due to social policy. Social distancing metrics, on the other hand, are important predictors of overall economic activity as assessed by the state coincident index, as well as company earnings and employment in the United States.
Author(S) Details
Ali Gungoraydinoglu
College of Business, Florida International University, 11200 S.W. 8th St., Miami, FL 33199, USA.
Ilke Öztekin
College of Arts, Sciences & Education, Florida International University, 11200 S.W. 8th St., Miami, FL 33199, USA.
Özde Öztekin
College of Business, Florida International University, 11200 S.W. 8th St., Miami, FL 33199, USA.
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