Will and compulsion in a pandemic

Adi Kumar: You and Chad Syverson recently published a paper with the National Bureau of Economic Research called, Fear, lockdown, and diversion: Comparing drivers of pandemic economic decline 2020. ¹ There you attribute most of the drop in business activity in the United States to people’s own decisions to stay at home, rather than government-imposed restrictions. Can you explain your hypothesis and its implications for policy makers grappling with strategies to reopen the economy?

Austan Goolsbee: We looked at phone records that tracked the locations of 2.3 million businesses around the country. These were mostly retail and services, the kinds of places people physically visit. When we plotted business activity against lockdown timelines through the pandemic, we found that consumer behavior was not aligning with lockdown orders. The visits had trailed off before these were imposed.

We began asking whether government orders drive behavior or not. It’s the classic “identification problem” in economist language—was it causation or just correlation? The disease triggered fear and led people to stop going outside. Then authorities passed laws requiring that they stay at home. So it’s important to figure out how much of what happened next—the sharp fall-off in consumer activity—came from individual choice and how much from public policy.

Our basic idea is to compare places where policies are different on either side of a state border. In Illinois we had shutdown orders, but across the border in Iowa they didn’t. Several metro areas span that border and we have 110 different industries. Take barber shops as an example. If the policies were driving the activity, then we should have seen people still getting haircuts in Iowa but not in Illinois. But that didn’t happen. In the same week, everyone stopped getting their hair cut by similar amounts. That kind of evidence leads to the conclusion that the 60 percent drop in consumer activity from pre-COVID-19 times to the depths of the pandemic was more about individuals’ own decision to stay home. We found that only about 7 percent of the fall-off was due to the policy. Everything else we attribute to other factors, mostly fear.

In the United States, these findings are relevant to the debate about reopening. As we say, the virus is the boss. Slowing the spread of the virus, lowering the likelihood that people will catch it if they come to your business, helping them feel more comfortable and less fearful—those will be the key elements in bringing the economy back.

The frustrating thing about the United States right now is that most of the other rich countries have figured this out. Without vaccines or treatments, Germany, New Zealand, Japan, and other countries have stopped the rampant spread of the disease and are coming out of lockdown. Children are returning to school; people are returning to work. In the US, we had half-measures; we did not bite the bullet at the beginning.