How COVID-19 Lockdowns Destroy Small Businesses, Aggravate Income Inequality

November 26, 2021 Updated: November 29, 2021


A new study shows that COVID-19 lockdowns have hurt the economy, sharpened inequality, and disproportionately harmed minorities and the poor.

The study, “Unequal Opportunites, Unequal Outcomes: The COVID-19 Recession in Colorado,” was authored by Paul Prentice and research intern Jim Royal and published by the Independence Institute in Denver (Disclosure: I’m an Independence Institute senior fellow. I had no connection with this project). Despite the name, the study’s findings extend far beyond Colorado.

Prentice and Royal confirmed what other researchers have found: Although some mandates stem the spread of COVID-19—such as those shutting places of mass assembly and requiring social distancing and masks—economic lockdowns don’t.

The authors displayed a chart (pdf) that illustrates this point. On the horizontal axis are the 50 states, ranked by a “stringency index,” a system developed at Oxford University for measuring the severity of each state’s lockdown. On the vertical axis is the number of COVID-19 deaths in each state per 100,000 people. The scattered results show almost no connection between the severity of lockdowns and COVID-19 mortality.

During the Spanish Flu pandemic of 1919, officials often required social distancing, masks, modifications of business hours, and the closure of places of mass assembly. But they refused to close down the economy. The ineffectiveness of the COVID-19 lockdowns suggests that the public health officials of 1919 got it right. More people died in the Spanish Flu epidemic, but that was due to the greater severity of the disease and the lack of pharmaceuticals.

Although the COVID-19 lockdowns provided few (if any) health benefits, they did enormous damage to the economy. States with “progressive” governors issued particularly harsh orders. Prentice and Royal show that the more stringent the lockdown, the worse the economic harm.

Like other “progressive” governors, Colorado’s Jared Polis issued sweeping shutdown orders. Some of these decrees were contradictory, confusing, and unconstitutional, but he extended them repeatedly. Yet, even Polis’s edicts weren’t as harsh as those imposed by some other Democratic governors. For example, he didn’t discriminate against houses of worship.

As a result, the Oxford index ranks Colorado near the middle among states for lockdown severity. So, what happened in Colorado helps us understand what happened across the United States.

Prentice and Royal’s research shows that within a few months after Polis’s first order, Colorado’s gross domestic product dropped by more than 8 percent and employment plummeted by nearly 15 percent. And the burden wasn’t borne equally. It was much harder on small businesses, racial minorities, and the relatively poor than on big business, Caucasians, or the relatively rich.

Small Businesses Close, Big Corporations Prosper

Consider first the disparate effects on business enterprises: Small firms in Colorado suffered greatly and many closed.

“According to data compiled by the Opportunity Insights Economic Tracker, the number of small businesses open in Colorado in June 2021 was an astounding 43.2% lower than the pre-pandemic level in January 2020,” the study reads.

On the other hand, big businesses in the state prospered.

“During the same period, stock prices increased by an average of 61.4% among the Fortune 500 companies headquartered in Colorado,” the study reads. “Both nationally and in Colorado, larger businesses are enjoying rapid increases in profits and share price as small businesses are shuttered.”

These are deeply disturbing results: First, because they are so unjust; second, because of the devastating effect on hard-working families; and third, because more innovation comes from small firms than from larger ones. The loss of so many small businesses is likely to prove devastating to future innovation—and therefore to future American life.

Minorities Were Particularly Hurt by Lockdowns

The Prentice–Royal study also found that the burden of the Colorado lockdown fell overwhelmingly on minorities and the poor. Specifically:

  • Among Colorado’s four largest economic sectors, the most damaged by far was “leisure and hospitality”—precisely the sector paying the lowest wages and employing the largest percentage of Hispanic workers. It’s also the sector recovering most slowly from the lockdown.
  • In the weeks after the lockdown was imposed, workers making less than $40,000 annually made up more than 38 percent of all layoffs.
  • While employment held up fairly well among households earning more than $75,000 annually, “the percentage of Coloradans with a household income under $75,000 who were working dropped sharply to less than 50% in the spring of 2020.”
  • The lockdown was marred by a stunning increase in drug overdoses, particularly among Hispanics and African Americans.
  • Spikes in anxiety and depression were the largest among the poor.
  • Early on during the lockdown, poorer and wealthier Coloradans postponed medical procedures at about the same rate. But, as the lockdown progressed, poorer people had to postpone medical procedures much more than wealthier people.
  • Among racial groups, whites initially postponed medical procedures more than blacks and Hispanics. As the lockdown proceeded, this trend reversed. By May and June, blacks and Hispanics postponed at double the rate of whites.
  • Educational outcomes dropped for all groups, but disproportionately among the poor and disadvantaged.

‘Progressives’ Hurt Those They Claim to Help

Behind the tragedy of these events, there’s an irony: “Progressive” politicians say that they care about economic inequality. However, their policies foster inequality, and their political careers thrive on it as well. According to one liberal think tank, the deep blue states of New York, Connecticut, Nevada, Massachusetts, California, New Jersey, and Illinois make up seven of the top 10 states for income inequality. If deep blue Washington, D.C., were a state, it would rank 11th.

Despite the fact that “progressives” demagogue interminably against “big corporations” and “the rich,” their policies tend to favor both. Why? Because an economy dominated by just a few actors is easier to control. It’s also easier and more profitable to shake down the rich than to win political support from those of moderate means.

Prentice and Royal highlighted some of the political distortions in the “progressive’s” lockdown orders. As Justice Neil Gorsuch has observed (pdf), those decrees were permeated with other political distortions as well: Many small enterprises (whose owners tend to be conservative) were forced to close, but the offices of lawyers (who tend to be more liberal) were allowed to stay open. Pot shops (mostly left-leaning) remained open, but tobacco stores (mostly conservative) were closed. Media outlets (mostly liberal) could continue in business, but houses of worship (a more varied clientele) were shuttered. Teachers and government bureaucrats (mostly liberal) received time off with full pay, while restaurant workers figuratively starved.

Many say that “progressives” want to make the United States more like Europe. Not true. They want to make the United States more like corrupt and dysfunctional Third World countries—places of great social inequalities, where life is dominated by what Ayn Rand called “the aristocracy of pull.”

COVID-19 offered leftist politicos a way to advance toward their goals. Their lockdowns crippled U.S. economic power, increased the gap between rich and poor, and benefited their friends while punishing their opponents. And then, they purported to compensate by distributing government handouts.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Rob Natelson
Robert G. Natelson, a former constitutional law professor, is senior fellow in constitutional jurisprudence at the Independence Institute in Denver.