Minnesota’s Economic News — W/E 10/22/21
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Some of the reaction to yesterday’s news that the United States’ Gross Domestic Product (GDP) fell at an annual rate of 32.9 percent in the second quarter of 2020 was plain bizarre. Twitter – almost always a cesspool, admittedly – was full of people saying that the Trump administration was to blame for these horrendous numbers.
Reading such reactions I was struck, as I often am, by how American ‘liberals’, who claim to be so much more worldly than their ‘conservative’ countrymen and women, can be so thoroughly parochial themselves. Covid-19 is an international phenomenon. Indeed, that is why it is a pandemic and not an epidemic. It has killed people and crashed economies around the world.
Today, for example, the European Union released its preliminary estimates of GDP growth (or lack of) for the second quarter of 2020. As I wrote yesterday, the 32.9% rate of decline the U.S. reported yesterday was ‘annualized’, which means that that is how much GDP would decrease by if that rate continued for a full year. The actual decline in GDP in the second quarter was 9.5%: still horrible, but somewhat less scary. Now, as the E.U. reports:
In the second quarter 2020, still marked by COVID-19 containment measures in most Member States, seasonally adjusted GDP decreased by 12.1% in the euro area and by 11.9% in the EU, compared with the previous quarter…These were by far the sharpest declines observed since time series started in 1995.
Figure 1 shows how the decline in U.S. GDP compares to that of several E.U. member nations in the second quarter. In this admittedly grim context, the performance of the U.S. economy looks somewhat less bad. The other G7 members in the group – Germany, Italy, and France – all did worse.
Figure 1: Percentage change in Real Gross Domestic Product, Second Quarter 2020
Source: Eurostat and Bureau of Economic Analysis
Many ‘liberals’ seem to believe that Covid-19 has been a calamity unique to the U.S. owing to the supposed the incompetence/malevolence of the Trump administration. As a result, I wouldn’t expect to see them argue that the relatively less bad economic performance of the U.S. is because of a relatively less bad Covid-19 outbreak here. But, just in case, Figure 2 shows deaths per million of the population for the same countries. We do see some correlation between the severity of the Covid-19 outbreak as measured by deaths and the hit to GDP – the countries with the most per capita deaths tend to be on the same side of the chart as the countries with the worst declines in GDP. But the U.S. is a bit of an outlier. With an outbreak of comparable severity to France, as judged by per capita deaths – 458 to 464 – its economy has weathered much better, a fall of 9.5% compared to France’s 13.8%.
Figure 2: Covid-19 deaths per million
Source: Our World in Data
This is not a defense of the Trump administration’s handling of Covid-19 (neither am I attacking it). But if you want to judge how a government has responded to an international phenomenon like Covid-19, it makes sense to compare that response to that in other countries. Ignoring the evidence of other countries demonstrates parochialism and is likely to lead to sub-optimal policy.
John Phelan is an economist at the Center of the American Experiment.