In recent days, major fear has been evident in financial markets and elsewhere that the delta variant of the coronavirus will spread widely and be a considerable impediment to continued economic growth: On Monday, the Dow tumbled 700 points, for example.
At least based on trends we’ve seen so far, these fears appear to be unfounded.
It is highly unlikely that the delta variant will lead to shutdowns of major sectors of the economy, of the sort we saw last spring and summer. The basic story is that in the states where the variant is causing the most infections and deaths, governors and other public officials are resistant to taking steps to contain the pandemic, especially if they carry an economic cost. So most economic enterprises will continue to do business, if not always at full capacity.
These states may face a public-health crisis but probably not an economic one. Meanwhile, the states where political leaders have been more responsive to public health concerns have far higher vaccination rates, and therefore the delta variant is not likely to pose a major health threat. Businesses therefore will continue to operate at a brisk pace.
Overall, the recovery has been proceeding rapidly. On average, the economy has added more than 620,000 jobs a month since February. Restaurant dining is almost back to its pre-pandemic levels. Air travel is more than three-quarters of the way back to its pre-pandemic level. Gross domestic product grew at a 6.4 percent annual rate in the first quarter. It is now projected to grow at a 7.6 percent annual rate in the second quarter, putting it above pre-pandemic levels.
We should expect this strong growth to continue (although the 7.6 percent rate is higher than we can expect to be sustained). The increased spread of the pandemic due to delta variant may shave a few tenths of a percentage point off our growth path, but it will not reverse it.
Before looking at the economics more closely, it is worth getting some perspective on the health risk posed by the delta variant, because public health and economics intersect. I am an economist, not an epidemiologist — and much is still subject to debate among the epidemiological experts — but it seems clear that a vaccinated population faces relatively little risk, even from delta.
Israel is often cited as a country where the delta variant has taken over rapidly — which is true, as a proportion of cases. But the death rates there remain nothing like they were at the pandemic’s peak, last winter. While cases have risen from essentially zero per 100,000 citizens in early June to roughly 10 per 100,000 citizens this week, death rates remain low: This week, that rate was .01 to .03 per 100,000, compared with more than 1 death per 100,000 people in mid-January. That’s partly because 60 percent of the population is fully vaccinated
There is a similar story in Britain, where the delta variant has led to an explosion of cases, but a limited uptick in deaths. The country reported .01 deaths per 100,000 citizens on Tuesday, compared with more than 2.5 deaths per 100,000 at the January peak. There is a lag between infections and deaths, so the full picture on deaths may not yet be evident, but vaccines weaken the link between cases and deaths; even when vaccinated people become infected, they rarely get seriously ill or die.
Currently, roughly 250 people are dying in the United States of covid daily — a figure that’s up significantly from two weeks ago. But while there is a huge range of uncertainty, we will almost certainly not see anything like the disaster in January, when we had close to 3,500 deaths a day. We probably will not even see a picture anywhere near as bad as last August, when deaths hit almost 1,200 a day at their peak.
And again, regional disparities are important as we attempt to grasp the economic situation. States such as Vermont and Massachusetts, where more than 80 percent of the population over 18 has received at least one dose, are seeing relatively few infections and deaths. Massachusetts, with a population of 6.9 million, has been averaging just three deaths a day from the pandemic. Each death is a tragedy, but such rates are unlikely to interfere with the state’s economic rebound.
By contrast, states such as Alabama and Louisiana, where just over 50 percent of the adult population has gotten at least one vaccine dose, are seeing cases soar and deaths climb. Alabama, with a population of 4.9 million, has been averaging five deaths a day, double the rate in Massachusetts. Louisiana, with a population of 4.6 million, has been averaging nine a day, roughly four times the Massachusetts rate.
Even without government action — restrictions on capacity and the like, which seem unlikely in the low vaccination states — there will be some economic hit, as people with serious immune issues, or other reasons to fear the pandemic, will avoid going to restaurants and other public places. But this is not going to have a large impact on the economy. Such people constitute a relatively small segment of the population, and such expenses represent a relatively small share of their normal spending. (Rationally, more unvaccinated people should be curtailing some of their activities, to protect themselves. But we are talking about what they are likely to do, not about what they ought to do.)
And of course, there are states that fall between the extremes of Vermont and Louisiana. In New York, for example, the proportion of fully vaccinated adults is 67 percent, with large variations across the state. It is very plausible that, if infection rates grow, New York state or New York City would impose restrictions on some activities such as indoor dining — although even in these cases, we are probably talking about limiting seating, not complete bans. The same could hold for theater and other activities involving indoor crowds. This will pinch parts of the New York economy, but restrictions on theater capacity will have little effect on the national economy.
In short, we have gotten lucky with the delta variant. It seems that our vaccines are largely effective in preventing death and serious illness — which makes a world of difference where the economy is concerned. The unvaccinated population is at greater risk, which is a huge public health issue, but the political leadership in the states where they are concentrated is not likely to take major steps to contain the pandemic — steps that would also hurt the economy.
There is, however, a hugely important point that we should all recognize. While our vaccines may be effective against the delta variant, the more the pandemic is allowed to spread around the world, the greater the risk that we will see a new variant against which they are not effective. That would lead to a whole new round of disease, death and economic shutdowns. Then economic pessimism would be warranted.
We should be mounting a World-War-II-scale, all-out effort to get the world vaccinated as quickly as possible. The humanitarian case for such an effort is overwhelming, but the case is compelling even on narrow self-interested grounds. If we fail to act, and a new strain forces another round of shutdowns, we would have only ourselves to blame for the economic calamity.