U.S. GDP fell during the pandemic due to COVID-19 lockdowns and resulted in trillions of dollars in losses in these past years, a consequence mainly driven by mandatory business closure policies, according to a study by researchers from the University of Southern California (USC).
By the end of 2022, the pandemic had cut $12.2 trillion from U.S. GDP, the study published in Economic Modelling journal estimates. Researchers expect total losses to hit $14 trillion by the end of 2023. The study blamed involuntary business closures as the “leading cause” for the massive decline in America’s GDP during this period.
“I’m still amazed at how powerful a negative impact COVID is projected to have on the U.S. economy compared to previous man-made and natural disasters,” said study co-author Adam Rose, a research professor at the USC Price School and senior research fellow at the USC Center for Risk and Economic Analysis of Threats and Emergencies (CREATE), according to a news release on Jan. 25.
“COVID’s impact on GDP is estimated to be nearly 100 times more than the previous largest disaster of the 21st century—the September 11, 2001, World Trade Center attacks.”
While the Trump administration’s stimulus spending eased economic losses during the pandemic, the Biden administration’s $1.9 trillion spending did not have such an effect, according to the study.
Instead, federal government spending had the “opposite effect by crowding out private investment and the requirement to repay businesses loans.” The “crowding out” economic theory argues that private-sector spending declines with rising public-sector spending.
Pandemic Decline Factors, States With Fewer Restrictions Perform Better
The study blamed three factors for America’s economic decline during the pandemic: deaths and illnesses, mandatory business closures, and voluntary avoidance of activities that stimulate the economy but prevent infection.
Of these three, the study found mandatory business closures had the “greatest impact” on the U.S. economy. During the first six months of the pandemic, business closures accounted for a 26.3 percent decline in GDP, while work avoidance only made up 12.2 percent of the decline.
Illnesses and deaths were found to have had the least impact as individuals who were unable to work were replaced by those who could.
Though the economy showed growth in late 2020 when businesses began to reopen, it dipped in early 2021 as certain mandatory business closures were once more implemented.
A study published by the Beacon Center of Tennessee in August 2021 looked into how state policies regarding COVID-19 affected their economies and health. The report analyzed four states, identifying Kentucky and Michigan as states that imposed more economic restrictions as compared to Tennessee and Georgia.
The study found that the economies of Georgia and Tennessee were “less impacted” and lost fewer jobs during the pandemic compared to Michigan and Kentucky.
“The biggest difference was in labor force participation rates, with Kentucky and Michigan experiencing a drop in labor force participation roughly four times greater than Tennessee and Georgia,” the report said.
“Tennessee and Georgia did not experience a signiﬁcant change in new COVID-19 cases after reopening their economies.”
Pandemic and Unemployment
The COVID-19 lockdowns are also responsible for creating “chaos” in U.S. labor markets, according to Jeffrey A. Tucker, the founder and president of the Brownstone Institute.
In a write-up at The Epoch Times in July 2022, Tucker pointed out that it was the working-class population with no college degrees who were most affected by the unemployment created as a result of pandemic policies.
This demographic experienced “an incredible” 17.5 percent unemployment rate following the lockdowns, he noted, while adding that the professional-class population experienced “far less pain and suffering” in these circumstances. As a result of COVID-19 policies, the labor force participation rate crashed.
By July, the labor force participation rate was only “back to low levels that we haven’t seen in 1977, nearly a decade before more than half of the population of women with children entered the workforce. Forty years of labor inclusion wiped out with policies wholly approved by the political left,” he wrote.