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advice for businesses in dealing with the expanding coronavirus events

Community Spread, Social Distance, and the Economic Gap: More Dramatic Governmental and Institutional Responses to the Coronavirus

March 13, 2020

By Charles A. Patrizia, Michael Spafford, Dina Ellis Rochkind, & Daren Stanaway

Even as criticism of the timing and extent of the federal response to the Coronavirus remains, and financial markets remain extraordinarily volatile, state and local governments and private institutions have dramatically increased their responses, focusing in particular on closures and cancellations as a means to enforce “social distancing,” thereby reducing community transmission of the virus. Those actions will cause significant short-term disruption and economic pain, but likely are essential to avoiding longer-term and higher rates of infection.

The good news:

  • The flexibility and adaptability of the federal system and its diffusion of authority is coming to the fore. While federal responses have been criticized as lacking the immediacy of more centralized systems, state and local governments and private institutions are moving to the fore, allowing different regimens to be tried.

  • Most of those more localized efforts have common themes: barring large gatherings, closing schools, closing cultural and other institutions that would draw crowds, cancelling or postponing athletic games, and urging telework. All of those actions will increase the likelihood that people maintain the recommended “social distance,” reduce community transmission, and thereby slow the spread of the disease. Although controls in China and South Korea were more extensive and deeply enforced, it appears that social distancing is effective in reducing community transmission.

  • Federal actions are gearing up. The FDA has approved a more rapid Coronavirus test, and more test kits are being produced and distributed. Increased testing availability will better identify where hot spots are located and allow resources to be properly directed.

  • Negotiations between congressional leadership and the Administration on a package of programs continue, and appear to be progressing. The details are not yet agreed, and timing of final passage remains unclear, but there will be action on a package that likely will include assurances of some financial assistance to hourly workers and some businesses, assurance of assistance for food programs, and assurances of treatment for the virus regardless of ability to pay.

  • The Federal Reserve and other banking regulators are moving to assure liquidity in the financial markets.

The problems:

  • Experts agree that there will be more cases of infection, likely significantly more, if only because more testing will identify more cases, and community spread has started.

  • “Social distancing” and enforced cancellations of events will have immediate economic impacts—not only the direct impacts on venues, but follow-on effects on service workers in restaurants and bars, tourism-related industries, and retail. While business will return at some point, in many instances those lost revenues cannot be recovered.

  • The economic impact will not be evenly felt; the information and technology sectors of the economy can telework or work remotely and in small groups. Sectors of the economy that are linked to personal contact and services—retail, tourism, and the like—cannot. Social distancing will impact them more. Healthcare may cycle through a period of overwhelming demand, and then return to a more normal level.

  • Financial and business confidence has been shaken, and political leadership has not pulled together.

The bad news:

  • The situation will get worse before it gets better, as it will take time for testing to occur and for the government response to fully execute. Stresses on hospital systems are likely, and market volatility will continue as uncertainty about the virus and its ultimate impact remains.