There are two legitimate concerns when thinking about reopening the country: the physical health and well-being of citizens and the economic health and well-being of citizens. President Trump’s initial hope to see the country reopened by Easter was met with a lot of backlash from healthcare professionals and economists that said it was too soon and would wind up doing more harm than good. While obviously that date has come and gone with no uplifting of shelter-in-place and other social distancing orders, the push to reopen sooner than later is not unfounded. Yesterday, the president announced the ‘Opening Up America Again’ plan aiming for May 1st.
The economy being shut down runs several risks to people’s lives and livelihood. As of April 16th, 22 million Americans have filed for unemployment since the shutdown began.1 Just a couple of months ago we had record lows in unemployment rates, which have now crept up to an approximated 18 percent, the highest it has been since the Great Depression.2 Knowing when to take the shutdown orders further or when to start backing off is all about risk assessment. Author and economist, Allison Schrager, who specializes in risk, has given some insight into the risk assessment associated with this decision.
The first thing to take into consideration is the difference between risk and uncertainty. The 1921 book Risk, Uncertainty and Profit by Frank Knight describes risk as knowing the potential outcomes in advance and possibly knowing the odds in advance, as well, like when rolling a dice. Uncertainty occurs when there are no known possible outcomes in advance.3
So the crucial difference between risk and uncertainty is information. “If you have information, you can take a calculated risk, because you have an idea of how risky something is. If you have little or no information, then you have no idea whether something is risky or not,” says Stacey Vanek Smith, host of The Indicator podcast. Schrager explains, “With uncertainty, it’s impossible to weigh trade-offs, and you can only assume the worst. So you kind of end up having to do the most risk-averse posture possible, and usually that’s also the most expensive and costly.” And that has been the case with COVID-19. We have had a severe lack of reliable data and so many unknowns regarding the severity and safety of the virus. “Of course, taking maximum precautions comes with its own set of risks. Shutting down cities, forcing businesses to close, putting millions of people out of work, that’s risky, too,” says Smith.
Schrager advises “In the short term, you definitely want to go for maximum caution, but the good thing is uncertainty doesn’t usually persist for long. Eventually, we are going to get more data, especially as we ramp up testing and we have more time to see how this plays out, and then you can start weighing trade-offs and not go with maximum posture all the time.” In President Trump’s April 16th announcement, he said, “Based on the latest data, our team of experts agree we can start the next front in our war, which we are calling Opening Up America Again, and that is what we are doing, opening up our country.”4
The guidelines put in place do require states “to demonstrate a downward trajectory of COVID-19 cases over a 14-day period and a “robust” system for testing health care workers before they can proceed to a phased opening.”4
This plan largely puts the decision power in the hands of each state. “Governors will be empowered to tailor an approach that meets the diverse circumstances of their own states. Every state is very different. If they need to remain closed, we will allow them to do that, and if they believe it is time to reopen, we will provide them the freedom and guidance to accomplish that task and very, very quickly,” stated Trump. Dr. Anthony Fauci, an expert on the task force, anticipates Phase 3 of the plan, in which things are essentially back to normal, to be around July or August.
- 22 million Americans have filed for unemployment benefits in the last four weeks – CNN Business
- 22 million have lost their jobs over the past month—real unemployment rate likely nearing 18% - Fortune
- Difference Between Risk and Uncertainty – Business Insider
- Trump unveils ’Opening Up America’ plan, aims for May 1 – New York Post
- Stacey Vanek Smith, host. Cardiff Garcia, host. Allison Schrager, guest. “When Should We Restart the Economy?” The Indicator from Planet Money. 27 Mar. 2020. Retrieved from Apple Podcasts.