‘The Cost of Shutting Down This Virus Is Recession’

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The director of the Northwest Economic Research Center discusses how Oregon’s economy will take a hit during COVID-19, and what the economic recovery could look like.

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How times change quickly. Last year the Northwest Economic Research Center, an economic research division that is part of Portland State University, held its annual economic forecast conference in Portland.

At the time, Tom Potiowsky, director of the center, presented the findings of the forecast, which pointed to a bright economic future for the region for Oregon and Washington.

This year the conference, scheduled to be held in Walla Walla, Washington, was canceled due to the outbreak of coronavirus.

RELATED STORY: Ten Takeaways From Oregon’s Economic Forecast

With the conference officially off, Potiowsky discusses what industries will need the most help to recover from the impacts of coronavirus and how to tell when the economic downturn could be coming to an end.

The interview has been edited for length and clarity.

Where do you expect the impact of COVID-19 to be felt most significantly?

Leisure and hospitality are going to be the hardest hit. There is going to be such a slowdown in these areas that I expect a lot of people who are operating on the margin to go under. But everyone is going to be affected.

We haven’t faced anything this bad since the Spanish flu in 1918. We’ve had the avian flu and the swine flu, but nothing that has made the entire economy slow down, or keep massive amounts of people away from work.

Do you think the actions taken by the Federal Reserve, such as lowering interest rates and injecting liquidity into the market, will help to solve the COVID-19 damage?

John Maynard Keynes [a British economist] said that when a government tries to solve non-monetary problems with monetary policy, it’s like pushing on a string.

A factor here is what’s called the wealth effect, which states people will spend more money the wealthier they feel. Mortgage rates are the lowest they’ve been, but even if the Federal Reserve cuts mortgage rates to 0% people won’t start buying houses because they don’t feel wealthy during this outbreak.

What can the state and federal government do to help?

I think the government is doing the right thing. The Small Business Administration has come out with some very low interest loans that are going to help the liquidity aspect of getting businesses through the downturn. But the $200 million amount is probably insufficient, especially when it comes to boutique hospitality businesses. Who is going to get the money? Will it be first come, first serve?

I think the best thing the administration can do is with fiscal policy, not monetary policy. What they should do is say that anybody who comes out with a vaccine won’t have to worry about selling it, because they are going to buy it all.

When this whole thing started there was this belief that it would be like the swine flu and it would just go away after a while. I think what was surprising about this was the rate of infection. We were a little behind the ball when this all started, but now we are catching up, slowly but surely.

The fact is, the cost of shutting down this virus is going to be a recession.

To what extent will are Oregon employees able to work from home? 

The problem is not everyone can afford to do it. Only about 15% of full-time workers have the ability to work from home and only about 7% of part-time employees. But that number might be higher when push comes to shove.

The ability to work from home varies by sector. Maybe half of office workers are able to accomplish what they need to from home, but not a lot of workers in the manufacturing industry can do the same.

What are other factors could mitigate the economic fallout?

In some ways, the trade war with China has helped a little bit because people were already looking for other supply chains. American firms are going to be a little ahead of the curve because they were already looking for new suppliers, although the impact is still going to be really bad.

I saw a report that said 75% of companies are having their supply chains affected.

There also aren’t enough shipping containers coming here from China; so even though there are goods to export, they aren’t making it to the market.

RELATED STORY: Coronavirus: How Will Oregon’s Economy Fare?

Could any companies actually benefit from the virus?

If you’re not going out in public and you are at home, I think cable companies and streaming services might actually benefit. Maybe people who don’t have Netflix will subscribe. Possibly Purell might see a boost, but they’re being scalped; people are buying it up and then selling it at an increased price.

How can businesses look for signs the economic damage from the virus is slowing down or is coming to an end?

The first thing to look for will be the rate of infection leveling out. That’s not to say people are going to stop getting sick, but the rate of infection flattens out. The other place I would look is PDX airport and the rates of travel.

The interesting thing about the end of a virus, as opposed to the end of other disasters, is that there’s not going to be a big rebuilding period with lots of construction and people being hired.

You go down economically, but there’s not necessarily going to be a big push back up.

What can businesses and governments learn from this virus?

One lesson we’ve learned is that even though we’ve had all these advancements of science, we’re still as vulnerable to outbreaks as we were in the Middle Ages.

You need shelters that are always going to be ready to go. There needs to be increased access to hospital beds.

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