According to economics professors from the Texas A&M University College of Liberal Arts, the rollout of COVID-19 vaccines is the most important step toward healing the United States’ economy and returning it to its pre-pandemic state.
“Vaccines are absolutely, 100 percent the answer to economic challenges imposed by the pandemic,” said economics professor Jonathan Meer said. “The only way to get back to normal life, to have people doing the things they want to do, spending money on the things they want to spend money on, to have businesses being able to hire the way they want and serve people the way they want, is with vaccines.”
Per the National Bureau of Economic Research, the U.S. employment rate and gross domestic product (GDP) at the end of 2019 were at their highest recorded levels since 1854. Less than two months later, with the official announcement of the coronavirus pandemic, employment declined 85 percent and the GDP to 90 percent, shutting down the economy and causing the unemployment rate to skyrocket.
The recession that immediately followed the outbreak of the pandemic was the worst ever recorded in post-World War II history, with real GDP falling about 10 percent. However, in just six months following the recession, real GDP rose to be just 4 percent below that previous peak.
“It doesn’t sound like much, but 4 percent is still a pretty big recession, since it’s about two years of typical growth,” said economics professor Dennis Jansen. “If we were just growing at our usual rate, it would take us two years to get us back to where we were a year ago from where we are now.”
But according to Jansen, the vaccine accelerates economic growth because it encourages the public to return to normal behavior.
“There’s a release by the International Monetary Fund forecasting GDP growth, and in January they thought GDP growth for this year would be around 5 percent. That’s a lot,” Jansen said. “But on April 6, they released a new forecast and predicted it was going to grow 6.4 percent, and that’s because of the vaccine and increased vaccinations.”
Not only have vaccinations aided in the rising real GDP levels, they’ve also stimulated the economy in other ways, helping businesses to reopen, increasing travel, and helping people feel safe enough to resume normal everyday activities.
“Continued vaccination efforts will influence the economy moving forward because people are feeling safe enough to do what they did before the pandemic,” Meer said. “There are two potentially positive spillover effects of this pandemic on the economy: One, the realization that some jobs can be done from home, which would save everyone a lot of money and make people happier; and two, hopefully, people will wear a mask and stay home when they’re sick.”
Along with the vaccine, other factors the experts say contribute to the rise in economic activity are government-issued stimulus checks being distributed in the hopes that people will to increase their spending. As a result, personal income in the aggregate is up.
“During a recession, people get laid off, they quit working, they have less money, personal income falls. It certainly doesn’t rise, because people have less money,” Jansen said. “However, this recession is different. On average, personal income in this recession has gone up and it’s gone up with these checks being mailed out. The other thing that’s gone up is personal savings. So people get these checks and they count as income, and on average, they don’t spend them. This too will contribute to the recovery and return of economic activity as it was in the past since there could be a big burst of spending or inflation due to the money that some people are sitting on.”
According to both Jansen and Meer, it’s important to understand the influence of the pandemic on the economy in case it happens again. Meer said one of the things we’ve learned is that there is almost no sum of money too great to spend on ending the pandemic, which also suggests large amounts of money should be invested in preparation of future pandemics.
“We’re going to learn how effective or ineffective our various policies are that we pursue during this time,” Jansen said. “It’s hard to tease out the effects of these policies because we’re basically enacting all kinds of things from mailing checks to having fed policies and we did them all nearly simultaneously all while we’re facing this novel pandemic. We’ll learn something about how the economy responds just as the public health people learn how the virus can be contained or not contained by various public health policies.”