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Shot in the arm: US economy gets boost from release of vaccines

FG Trade / iStock.com

The release of vaccines for the COVID-19 virus is the most important step towards helping the U.S. economy heal and return to what it was prior to the pandemic, according to economics professors from the College of Liberal Arts.

“Vaccines are absolutely, 100 percent the answer to economic challenges imposed by the pandemic,” 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.”

According to the National Bureau of Economic Research in February 2020, U.S. employment and gross domestic product (GDP) at the end of 2019 were at the highest recorded level since 1854. Less than two months later, with the official announcement of the coronavirus pandemic, employment declined 85 percent and 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,” economics professor Dennis Jansen explained. “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 has the vaccine aided in the rising real GDP levels, but the vaccine has stimulated the economy in other ways, helping businesses to open up, travel to increase, and increase the number of people who 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 shared. “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 that contribute to the rise in economic activity are government-issued stimulus checks being distributed in the hopes of goading individuals to increase economic activity. Due to these stimulus checks and since the beginning of the pandemic, 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.”