Could Arizona's Economy Withstand Another Shutdown?

By Lauren Gilger
Published: Tuesday, December 8, 2020 - 1:14pm
Updated: Wednesday, December 9, 2020 - 11:52am

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A closed sign on a business
Sky Schaudt/KJZZ
A closed sign on a business in north Phoenix.

GILGER: Gov. Doug Ducey has faced criticism for his handling of the COVID-19 pandemic from all sides — some who see his response as inadequate and others who see his actions as an overreach that should be corrected. While the latter side contemplates scaling back the governor's authority in times of crisis, the former says Ducey must do more now. A second shutdown and stay-at-home order, for example, could be the answer, they say. The COVID modeling team at the University of Arizona has recommended exactly that: A three-week shutdown, among other strict measures like a statewide mask mandate. The researchers say Arizona could be facing a disaster if officials don't take action. In a letter to the state Department of Health Services, they go even so far as to say not taking these steps would be, quote, "akin to making a major — to facing a major forest fire without evacuation orders." Ducey has said another shutdown would be a last resort, citing potential economic damage. But some economists don't see it that way. Not exactly, anyway. I spoke to economist Elliott Pollack and I started by asking him what kind of economic effects would even a short shutdown like three weeks have?

ELLIOTT POLLACK: Well, they'd be dramatic. I'm sure a lot of small businesses would not survive, a lot of individuals would be laid off. It would be a mess. And I really don't think you need to go back to the March playbook. I just don't think that's, that that really makes a lot of sense. And the reason is that if you take a look at studies done on what happened in March, April and May, when there were shutdowns, number of people, number of life years lost was a magnitude higher than the number of lives saved by the treatment of people with COVID. And those, those lost lives were those people who weren't treated by the traditional medical system because they either couldn't get to their regular treatments or were afraid to get their regular treatments. So you lost a lot more life years than you saved. That doesn't even take into account the psychological and other issues related to being unemployed and not being able to get a job, unemployed and after Aug. 1, not being able to support your family. There were more people on drugs. There are people who literally died of loneliness because they're in, they're in facilities where they couldn't get anybody to, to come and see them. There were so many side effects of, of those — being shut down and being homebound that you have to look at as the offset to another round of lockdowns and shutdowns. To me, you have to look at both sides of the issue, and only one I think has been thoroughly addressed.

GILGER: So let me ask you, in terms of the economy, what could it withstand? Like, where do we stand right now in our recovery and how big of a hit — what would it look like if there were to be another shutdown?

POLLACK: Well, through August, I'd say it could handle it. But now you have two things going on. You have a lot of businesses, mainly service businesses, that are literally hanging on by the skin of their teeth. A lot of businesses like restaurants or bars basically are working at a capacity level that does not allow them to be profitable. So it's a question of how long they can last by not being profitable. A complete shutdown would probably do it for a lot of those businesses and those owners would be essentially wiped out. The PPP program was nice, but it did — a lot of people fell through the cracks. There is no PPP program at the moment. You also have a lot of people who are right at the edge because the people who were unemployed because of COVID were in service industries and most — not all — but most service industries have below-median income wages. So these people didn't have a lot of savings. So they're, every day they dig, dig a bigger and bigger hole in terms of "How am I going to pay the rent that I owe? How am I going to pay my car payments that I owe that right now I'm having this, this sort of a moratorium on, but eventually I'm gonna have to pay it. How am I going to pay my, my credit card bill?" And so these people, both real and psychologically, will be dramatically affected at this point in time. They're without a safety net at this point. And all I can say is shame on Congress for letting this happen. But they did let it happen. So this is the reality. If you think that three weeks is enough to totally wipe out COVID, why didn't they do it the first time? And I'm not going to question the U of A's models, but I will say there will be dramatic economic impacts that will worsen it for a group of people who have been already hard hit.

GILGER: Let me ask you about the health effects, though, because at some point the virus itself and the spread of the virus itself will affect the economy inevitably, right? If we do not do more, what would be the right path in your mind, health-wise?

POLLACK: Well, people get it for one of two reasons. Either they are totally ignoring the basics of this thing, which is stay away from crowds, wear your mask, wash your hands and basically act rationally because this thing is dangerous. The bulk of what I have seen suggests that it's being spread because people are acting as if it doesn't exist or it's never going to affect them. So I think that if you're going to enforce anything, you enforce those rules. Secondly, how are you going to make sure that you don't have the same thing that happened in March, April and May happen again? How are you going to ensure that those people get proper medical care so they don't die in the large numbers that they died in in March, April and May? So it's a double-edged sword. I'm not sure which one is right, but I will tell you that you have to bet — vet both sides. And I'm not sure as to how this plays out in terms of which is worse.

GILGER: So, if you're talking about not shutting things down again and going forward without it, what about helping people who are already unemployed? As you mentioned, we've already seen a lot of people dramatically affected by this, like, they're having challenges getting unemployment benefits — our unemployment benefits are very low in the state. What else would need to happen to sort of keep this going if it isn't an either or — if, if we're just going to have to deal with this until a vaccine comes?

POLLACK: Well, what's going to what's going to have to happen is that Congress is going to have to stop being so shameless. Congress essentially played politics with the lives and fortunes of the people of this country, a large percentage of those people, by essentially not having a follow-on to the CARES Act. And what's being talked about in Congress will help, but I'm not sure it will help enough to help those people who are deep in a hole or businesses that are right on the edge. And until you see what that looks like, it's very difficult to make a judgment.

GILGER: All right. That is Elliott Pollack, the CEO of Elliott D. Pollack and Company in Scottsdale. Elliott, thank you so much for joining us to talk this through. I appreciate it.

POLLACK: All right. Thank you.

The Show also spoke with economist Jim Rounds of Rounds Consulting for his take on how a short shutdown would impact Arizona's economy.

JIM ROUNDS: The question really should be, can the Arizona economy survive? And also, will there be a negative impact if we close? And the answer is yes on both. Some businesses are hanging on by a thread and some of them potentially could shut down before this recession is over. The recession ends when we have wide distribution of the vaccine to the general public. And so we're looking at that ending in the first quarter. But some businesses, you know, have had to stretch their finances and it's difficult, but it by no means is going to derail the entire Arizona economy. Lots of things make the economy tick. And we've been one of the more resilient states over the last few months. We've been top three in terms of maintaining our employment counts, and we're moving in the right direction. We have good fiscal safeguards because of some wise political planning by the governor's office and some lawmakers. And so, yes, it could be hard on some businesses, but no, it's not going to derail the state's economy anywhere near a recession.

GILGER: And this is a short-term shutdown we're talking about. At what point does it become unsustainable, especially without assuming Congress continues to not pass another aid package?

ROUNDS: So you see, that's, that's the key. If we end up having a two or three-week shutdown, which I'm not advocating for, but based on the economic impact talking about, it'll be a little bit different. Back in the spring, we had a situation where the economy completely shut down, and we didn't know when it was going to reopen. People were panicking. They weren't able to get their basic goods at the grocery store. It was just a different time. Right now, if the signal was that it was going to be two or three weeks, a lot of businesses would not be laying off workers because it's more costly to lay them off and then hire them back later than it would be to try to maintain operations over a short period of time. But how you get through that is to provide an additional moderate stimulus to these small businesses so that they can get through maybe the next couple of months. And if the COVID spread gets much worse, I mean, that could have negative economic implications as well. So we have to be looking at both sides.

GILGER: So, as you know, we spoke to economist Elliott Pollack on The Show yesterday and he argued that any shutdown would be devastating, both in terms of business and sort of the human loss that comes with it. Do you see a clear way around a shutdown at this point, one that could sort of balance both of those interests, as you say?

ROUNDS: Well, you know, Elliott, my former mentor, is very concerned about the economy in a shutdown, possibly longer than just a short period of time, which would have a more dramatic impact. And you don't want to see a lot of small businesses fail. So some of those arguments are valid. In terms of what we can do, I think the financing is part of it, but I think we have to be more careful and we have to stop denying that masks are irrelevant. We have to stop denying that it's OK to go out and shake hands with people in a large group setting or go to a gathering. We just have to figure out a way now, though, to bridge this gap, because there's a light at the end of the tunnel. We have to get to the end of the tunnel, and we have to be smart about it. And that includes being careful with the spread of COVID and only shutting down the economy if things are bad enough to warrant it. But again, it's not going to crush the economy because it would be short term, but it wouldn't be good. And from an individual business's perspective, if I owned a business that went under because of a shutdown, I would feel like that was pretty devastating. So I think the arguments are fair. I just think they're not quite as extreme as what some folks are arguing.

GILGER: All right. Let's take a quick turn and talk for a few minutes also about the continuing sort of drama around the election and Joe Biden's win in Arizona, continued court challenges, etc. Here you have actually said that that is posing an economic threat to the state going forward, right? Tell us, tell us more about your position there.

ROUNDS: So in the past, we got through a lot of troubling economic times because of some bad public policy. And right now, unfortunately, we're unraveling some of the gains that we've accomplished in terms of better marketing the state, people seeing Arizona as one of the most favorable places to locate. And so this really kind of gets back to negative marketing and whether or not a business may want to locate here when they're seeing this kind of news. And talking to site selector buddy of mine, I know for a fact that people are discussing this issue, and it's because it's become so extreme here. Now, the only thing it's helping us is that there are some pretty extreme discussions around the country. And it's not just isolated to Arizona, but we really are stepping it up in terms of the crazy talk again. And what I want to point out to people is that very small changes in economic activity have dramatic impacts on tax collections. Well, if something like this continued for a longer period of time, it's going to have a similar negative impact. And again, very small changes, small changes like the rate of growth going from 1.7 to 1.6%. That's a half a billion dollars in tax collections over a 10 year period. So we have to be very careful with what we do. And what I'm worried about is every time we see some nutty tweets or articles or interviews, it costs us jobs. And they need to start being held accountable for their impact on the economy. Most of these people are very much advocates of economic growth, yet they're stifling it right now.

GILGER: Are you thinking back to the days and the long economic impacts that we saw from SB 1070?

ROUNDS: Yeah, we had multiple provisions back then. 1070 had an impact. We did some analysis of it, but it ended up being short term. But it was short-term because the Great Recession woke us up and we really had to start dealing with public policy and economic development and investment in the economy in a different way. And so what I'm thinking is that we're going to kind of go through that again. We have this very difficult recession with COVID that's going to be much more short-lived. And then we have the political controversy. But this is also a call to action to try to implement some policies that are going to help the economy move forward. And so, on occasion, you have to get knocked down on the mat to get back up and then you're stronger for it. And I think this could be another example. But it's an opportunity. It's a risk, but it's an opportunity for the state to really step up.

GILGER: All right. That is economist Jim Rounds of Rounds Consulting, joining us to talk more about this. Jim, thank you so much for coming on.

ROUNDS: Thanks a lot.

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