Pryce Boeye’s Hungry Hobo sandwich shops’ sales on the Iowa side of the Mississippi River have been booming since the state reopened dining rooms in mid-May, while those he owns in still-closed Illinois languish.
The pattern is repeated across the Quad Cities, a river-straddling metro area of around 420,000 that includes Scott and Muscatine counties on the Iowa side, as well as Rock Island and Henry counties in Illinois. The contrasting state reopening policies have created two tracks in what had been a unified economy before the coronavirus pandemic.
The scene is playing out in other border communities around the country where workers and shoppers regularly cross state lines. The relatively stringent lockdown regime in Illinois compared with Iowa has created a clear shift in current spending patterns and potential longer-term consequences.
These are the opening 3 paragraphs of Doug Cameron, “States’ Divergent Virus Rules Create Tale of Two Economies,” Wall Street Journal, June 24 (June 25 print edition).
I often see economists say that the lockdowns didn’t have much effect because a huge percentage of consumers were essentially engaged in their lockdown measures without government regulation.
The evidence in this article, not just anecdotes but 3 graphs of hours worked, businesses open, and employees working, strongly suggests that the lockdowns matter. (There are 3 graphs in the print version and only one in the electronic version.)
To be sure, you have to adjust for the fact that these cities border each other; the effect is therefore exaggerated by the cross-border shopping. So a better test would be Iowa and Illinois cities separated by 50 miles or so. Nevertheless, it’s strong evidence.
I’m catching up on Wall Street Journals during my staycation.
READER COMMENTS
Josh
Jul 13 2020 at 3:02am
Government actions have always tended to lag public sentiment rather than lead it. In a democracy it’s obvious why that will normally be the case.
For lockdowns, that means that at the start of the pandemic, the public will voluntarily lock itself down first and then the government will impose lockdown orders, which means they will have a small effect.
But coming out of the pandemic it means that people will start wanting more economic activity while governments are still imposing lockdowns. This makes them incredibly costly.
Most of the early research on this focused on the imposition of lockdowns and of course found little effect. But it’s the other side that we really need to study if we want to see the damage lockdowns are going to inflict.
Ernie
Jul 13 2020 at 8:43am
Check this working paper.
https://www.nber.org/papers/w27432#fromrss
Basic conclusion, lock downs had a small effect on business activity. However, it did cause a shift from larger businesses to smaller businesses and from non-essential (bars, restaurants) to essential businesses (Groceries).
David Henderson
Jul 13 2020 at 11:17am
Thanks, Ernie. I read this paper shortly after it came out. Notice that their data go only to May 16, which is now 8 weeks ago, and 5 weeks before the WSJ article. Things move quickly and so their data are of limited value for assessing what was happening in late June, when the WSJ news item appeared.
Thomas Hutcheson
Jul 13 2020 at 9:34am
Sure, but how much? What value of transactions did not occur because firms were prohibited from selling to willing buyers?
And, a separate question, what additional value of transactions would have occurred if, instead of just preventing firms from selling, there had been regulations promoting safe transactions — distancing within venues, patrons in masks, air circulation plus investments in TTI that might have actually reduced the spread of the virus?
David Henderson
Jul 13 2020 at 11:18am
I haven’t translated the data into value of transactions. but if you look at the three charts that appear, unfortunately, only in the print version, you’ll see that the data the WSJ does have are quite striking.
dede
Jul 14 2020 at 5:10am
Why on earth would they lock up everybody if people were doing so willingly to the extent that it can make no difference? I sometimes have the feeling that people do not realise that governments decided to make the experiment of halting entire economies (bar the foodchain whenever possible): not a factory, not air travel, but whole countries!
Jon Murphy
Jul 14 2020 at 9:16am
Governments can, and often do, codify things people are already doing. For example, child labor was, for all intents and purposes, non-existent in the US long before it was made illegal.
Governments were instituting lockdowns because they thought it was the right thing to do. In all likelihood, they may not have been aware that many people were already locking down; such local information does not easily nor quickly get transmitted to the legislatures.
The problem, of course, is that these one-size-fits-all solutions cause more harm than good.
Comments are closed.