Banking and Finance

Can Coronavirus Lockdowns Be Beneficial to the Economy?

July 27, 2021

Currently, 90% of Americans are under stay-at-home orders from their local state governments. While the United States hasn’t issued a full nationwide lockdown, most states are clearly taking measures to slow the spread of coronavirus. 

With a total of 38 states (plus Washington, DC and Puerto Rico) issuing orders to their residents to stay at home and try to flatten the curve, it begs the question: can coronavirus lockdowns be beneficial to the economy?

At first glance, the answer is a massive no. Last week, over 6 million Americans filed for unemployment and even large corporations such as Hilton and American Airlines have had to let employees go. But, lockdowns still actually might be beneficial, at least in a few ways.

Understanding the Economic Impact of the 1918 Spanish Flu

Last time the world experienced a pandemic of this size was back in 1918 when the Spanish flu killed between 20 to 40 million people. It has been declared as the most devastating epidemic in recorded world history. And, thankfully, it doesn’t look like we’ll reach that level of intensity with COVID-19.

Advancements in technology and healthcare are helping us to fight the spread of coronavirus. And, mass media and social media platforms are ensuring that everybody is staying informed enough to know when they need to stay home to help flatten the curve. However, there’s more to learn from the 1918 influenza pandemic.

Economists Sergio Correia, Stephan Luck, and Emil Verner performed a study centered around the economic impact of the 1918 Spanish flu pandemic in the United States. And, while they found that cities all over the country certainly did experience economic losses, those that were quick to implement social distancing measures saw faster economic turnarounds.

Is a Lockdown Beneficial for the Economy?

So, the question remains, is a lockdown beneficial for the economy? On a local level, yes, they can be. Despite major drops in the stock market and oil prices that continue to fluctuate, the study found that cities that implemented strict social distancing policies back in 1918 either eight days earlier or maintained them for 46 days longer than other cities say higher rates of economic prosperity after the pandemic was over.

Cities that took drastic measures to lock down their area and encourage their citizens to stay at home saw between a 4 to 6% increase in post-pandemic manufacturing. The study also found that faster and longer-lasting distancing measures were associated with higher post-pandemic banking activity.

This comes off the heels of statements made by President Trump surrounding the easing up of social distancing measures. The “lives versus economy” debate isn’t as clear-cut as it might have been back in 1918, but studies do show that the net economic impact of enforcing strick lockdown measures appears to have been positive in the long-run.

What About Oil Prices During the Coronavirus Crisis?

Oil prices have less to do with lockdowns and more to do with the overall state of the global economy during the pandemic. However, as more and more people are ordered to shelter in place, far fewer people are on the roads, meaning that oil companies are experiencing a steep decline in demand.

The price of oil directly affects the costs of other production and manufacturing activities all over the United States. Because the United States has traditionally imported oil, lower prices are better for our national economy. And, as you can imagine, a drop in fuel prices means lower transport costs for companies all over the country.

Again, the drop in oil prices is less about lockdowns than it is about the pandemic in general. However, you’ll notice that the lockdown is adding to the economic impact of oil prices. As consumers are forced to shelter in place, they’re spending less on gas and therefore having an effect on prices in the long-run.

The Bottom Line: Are Lockdowns Beneficial?

There’s absolutely no denying that lockdowns are beneficial and necessary in stopping the spread of COVID-19. Every citizen should be practicing social distancing whether or not their state has ordered an official lockdown. However, the question remains: are lockdowns good for the economy specifically?

Studies seem to suggest that if local governments react quickly (which was, to say, a few weeks ago) in shutting down public spaces and ordering people to stay at home, it can have a bit of a positive effect on the local economy after the pandemic is over. It’s unclear whether those same models will apply to the way in which our current economy works. It’s all much more complex than it was back in 1918 and the virus is different.

Can You Save During a Lockdown?

Regardless of what happens with the economy, you should still be thinking about different ways to save during the coronavirus crisis. From seeking financial assistance to learning how to manage your finances, there are more than a few ways to ensure you come out on the other side of the pandemic financially healthy.

One of the best ways? Signing up for a debit card that’s optimized with your savings in mind. Our 100% free Cheese Debit Card offers users lots of great opportunities for more savings by saving bonuses and cashback.

Interested in learning more? Sign up today to get started unlocking savings that’ll help you get through this pandemic.