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Trump says not to be 'afraid' of Covid-19 — but economists disagree

"There are a heck of a lot of winners in this — but there is also carnage in the other direction," said one economist.
Image: U.S. President Donald Trump departs Walter Reed National Military Medical Center in Bethesda, Maryland
President Donald Trump makes a fist as a Secret Service agent holds the door of his SUV open for him as he departs Walter Reed National Military Medical Center in Bethesda, Md., after treatment for the coronavirus on Monday.Jonathan Ernst / Reuters

President Donald Trump downplayed the severity of the coronavirus after leaving the hospital Monday afternoon, tweeting: "Don't be afraid of Covid. Don't let it dominate your life." But economists stressed that the course of the virus will dictate the course of the economy — and that the U.S. is still very far from being back to business as usual.

"STOCK MARKET UP BIG, 466 Points! 28,149. Great News for America. Jobs, Jobs, Jobs!" Trump tweeted later Monday.

But the economy has largely faltered under the Trump administration's push to reopen the economy while dismissing the use of masks and social distancing to stem coronavirus infections. The unemployment rate hovers at just under 8 percent. The country's gross domestic product, or the economy's total output of goods and services, fell by an annualized rate of 31 percent in the three months that ended in June. Meanwhile, coronavirus cases are on the rise in nearly two dozen states, threatening another period of slow economic growth.

With less than a month until Election Day, Trump's coronavirus diagnosis could have a significant impact on voters' views of how effective the administration's public health policy has been through the pandemic, said Maury Obstfeld, an economics professor at the University of California, Berkeley, and former chief economist at the International Monetary Fund.

"We're not going to fully get the economy back on track until we bring the virus better under control, and [Trump's diagnosis] illustrates that it's very hard to insulate yourself from possibility of infection if you're outside and active," Obstfeld said. "We certainly don't want to lock down the entire economy again, particularly since that was not terribly effective last time — but we do have to proceed with caution and not just open up willy-nilly trying to boost the economic numbers."

Full coverage of the coronavirus outbreak

The White House's rush to reopen the economy has resulted in two very different economic pictures on Wall Street and Main Street. Wall Street stocks have soared over the summer as companies closed a striking $496 billion in mergers and acquisitions. Meanwhile, more than 211,000 people in the United States have died from the coronavirus, and more than 7 million people have been reported to have tested positive.

For Wall Street, news of Trump's departure from Walter Reed National Military Medical Center provides a level of certainty for investors. But Main Street is still waiting for extended unemployment assistance as lawmakers debate an additional round in bonus unemployment benefits as bills come due for millions of families.

"People need help," said Sandra Black, a member of the Council of Economic Advisers in the administration of President Barack Obama. "Congress needs to provide money for families — through programs such as expanded unemployment insurance, cash to households and money to state and local governments. The pandemic has exposed all the weaknesses of our social safety net, and the federal government needs to step in."

Consumer spending, which accounts for more than two-thirds of the country's economic output, could soar among higher-income earners as extended lockdowns end and recovery begins. But it could be offset by lower spending among low-income workers without additional unemployment benefits, according to an August report by Christopher D. Carroll of Johns Hopkins University.

The result is what some economists are describing as a "K-shaped" recovery, in which the economy gets back on track in opposing directions, said Liz Ann Sonders, chief investment strategist with Charles Schwab.

"It's an environment of haves and have-nots," she said. "There are a heck of a lot of winners in this, but there is also carnage in the other direction."

Wall Street stocks rebounded Monday from their slip Friday on news that Trump had tested positive for Covid-19. But the diagnosis still exposed the country's weakness to another wave of infections that could lead to more restrictions around business activity, Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients in a note Friday.

Gus Faucher, chief economist with PNC, said in an emailed statement: "The announcement that President Trump has the coronavirus has added further uncertainty to an already chaotic environment. A surge in coronavirus cases in late 2020 could lead to further business closures."

A look at how other countries have fared after reopening their economies as the virus continued its spread is daunting for the United States, Obstfeld said. France is closing bars in Paris this week as part of a "maximum alert" to stem rising numbers of infections. Restaurants in the capital will be allowed to stay open only under stricter safety regulations and requirements to take the names and addresses of patrons. Spain took similar steps in Madrid, capping social gatherings at six people, among other measures.

"International experience shows it's clearly possible to do better — but our performance puts us in the category of countries like Brazil and Mexico, rather than New Zealand or Germany," which have reported rising infection rates, Obstfeld said. "It's definitely possible to do better, but until we have very effective treatment — and, more importantly, an effective vaccine — it's going to be hard to get fully back to normal."