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Understanding the Impact Between Lockdowns and the Economy – Press Telegram

Over the past year, much of my economic research has been devoted to analyzing COVID-19 death rates. I’ve been trying to answer questions like why New Jersey has the highest COVID death rate while another like Hawaii has the lowest. An article of mine published in the Journal of Bioeconomics showed that factors like higher density and higher poverty rates lead to higher COVID death rates. I also found that larger government interventions, as measured by Oxford University’s Stringency Index, significantly reduced COVID death rates.

In a follow-up study published in COVID Economics, I showed that stricter government strictness lowered death rates from COVID-19, but also caused significant economic costs in the form of job losses and a lower real GDP.

Imagine my surprise when I read the article by UCLA Anderson Forecast Director Jerry Nickelsburg in this newspaper a few weeks ago. Instead of concluding, as I did, that greater rigor leads to less economic activity, he concluded that “countries with more stringent interventions had, on average, better economic outcomes”.

To explain our conflicting conclusions, I examined the same sample of states used by Nickelsburg and classified them into two groups based on their stringency. The first group with lower strict measures had an average job loss of 5.5%. The countries with higher stringency values ​​had a significantly higher average job loss of -7.3%. These empirical results provide strong statistical support for my view that interventions lead to weaker, not “better” economic outcomes, as Nickelsburg concludes.

In addition to jobs, I also looked at the impact of interventions on what economists generally consider to be the most comprehensive measure of economic performance – real gross national product. I found that states in the lower half of the stringency values ​​recorded a loss of -3.3% of real gross national product. The states in the top half recorded a significantly higher loss of -4.3%. These results also supported my view that states that intervened more aggressively suffered greater economic losses.

I’ve also used correlation coefficients to more accurately measure how close two variables are moving together. This stricter measure led to the same results, namely that greater rigor leads to both greater job losses and lower economic performance. Statistical measurements have shown that my probability of error in this conclusion is less than one percent.

Why my results differ so radically from Nickelsburg is a mystery to me. I suggest that an independent economist look at each of our calculations to investigate where and why a mistake was made.

However, I believe Nickelsburg makes a more obvious mistake at the beginning of his article. He begins his analysis by examining eleven states that “performed better economically than the United States as a whole”. He then analyzes each of these 11 states and their severity and their economic performance. In the first state he studied, Nickelsburg points out that Washington state is doing better economically than any other state despite having “above-average COVID restrictions.”

While I agree with this statement, I can pick a state like West Virginia, which had almost the same stringency as Washington, and point out that it had the worst economic performance of any state. If one examines Washington State, as Nickelsburg does, one might conclude that higher stringency increases economic performance. But if you look at a state like West Virginia, you get exactly the opposite. What gives?

The answer to that question is that Washington State and West Virginia’s economies had little to do with stringency and much more to do with another factor that came in at the same time, namely that Washington’s underlying economy as a whole is much stronger than West Virginia’s . In 2019, the year before the COVID outbreak, Washington real gross national product growth was the second highest at a robust + 4.6% compared to West Virginia’s economy, which was the third lowest at a meager + 0.7%.

Washington State has done well economically, not because its stringency was above average, but because its technology-driven booming economy was better able to withstand the negative forces of the COVID recession.

There are many moving parts of an economy. Each of these moving parts affects an economy. It is misleading to look at just one of these moving parts as stringency and ascribe the efficiency of a state to it. It is for this reason that scientists use statistical techniques such as regression analysis to identify the most important of these moving parts.

For both jobs and real gross national product, I used regression tests to determine that the severity of the 2020 COVID recession was explained in the order of importance by these three variables:

1) The underlying strength of an economy measured in terms of job growth and real gross national product in 2019,

2) State interventions measured by the average stringency in 2020 and

3) The percentage of jobs and gross national product in this sector hardest hit by the COVID recession – leisure and hospitality, and arts and entertainment.

When I used all three variables to measure a state’s economic performance, I found that Washington State’s outstanding economic performance and West Virginia’s disastrous economic performance are no longer secrets. They are practically fully explained by the three factors identified above that explain economic performance.

The identification of these factors shows not only the complexity of scientific research, but also the efficiency of economic and statistical analysis.

James Doti is President Emeritus and Professor of Economics at Chapman University.

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