By Cristy Lytal
Contrary to what the name suggests, terrorism is not the sole research focus of the National Center for Risk and Economic Analysis of Terrorism Events (CREATE). As a research center housed in the USC Viterbi School of Engineering and the USC Price School of Public Policy and funded, in part, by the U.S. Department of Homeland Security (DHS), CREATE is also advancing our understanding of the disproportional impacts of the novel coronavirus on the U.S. economy.
“CREATE’s name includes the word terrorism, but we’re what’s called an ‘all hazards center,’ which means we deal with all disasters,” said Director Adam Rose, who is also a research professor at USC Price and a senior research fellow at the USC Schaeffer Center for Health Policy and Economics. “And COVID-19 is a disaster, especially in terms of its economic consequences.”
As soon as the U.S. began imposing mandatory business closures in response to the pandemic, DHS’s Center for Accelerating Operational Efficiency (CAOE) charged CREATE with performing a short-term economic analysis, the first part of which dealt with mandatory closures, was recently published in the journal Applied Economics Letters.
To perform this study, Rose teamed up with CREATE researchers Terrie Louise Walmsley and Dan Wei. They simulated the closures that had been declared as of April 7 in the U.S. as well as similar closures in China and in the rest of the world. Their models predicted devastating economic impacts in the U.S., which produces a relatively large share of non-essential goods and services, compared to China and the rest of the world. In the U.S., their simulation revealed that a three-month closure could result in an over 20% decline both in GDP and in employment, and a six-month closure could more than double these impacts.
The authors considered this to be a worst-case scenario, since their analysis didn’t factor in mitigation measures, such as breakthroughs in developing vaccines and treatments for the virus, or countervailing policies such as economic stimulus packages.
The DHS CAOE also contracted CREATE to perform a comprehensive long-term analysis of the overall impacts of the coronavirus on the U.S. economy. For the year-long study, Walmsley, Rose and Wei will rely on surveys and interviews, as well as government data. The study will not only account for loss of GDP and health care costs, but also anticipate sources of resilience and adverse behavioral responses.
“Resilience adjustments tend to offset and dampen the negative hit,” said Rose. “There are also behavioral linkages, and these behavioral effects typically work in the other direction. And so it turns out in COVID-19, both of these factors are relevant.”
So, while the virus is very directly sickening and killing the workforce, it’s also impacting the economy by changing people’s behavior in terms of avoidance of public gatherings, transportation, workplaces and schools, as well as vaccination. At the same time, the economy can also draw on significant sources of resilience, such as telework and pent-up demand.
“The pent-up demand is an important factor to consider in our ability to recover from this severe downturn and to help boost the economy once the pandemic is over,” said Wei, a research associate professor at USC Price.
The researchers have performed a preliminary analysis based on secondary data while they prepare to collect primary dtaa through their surveys and interviews. Instead of attempting to predict the duration or severity of the pandemic, the researchers simulated three scenarios: one optimistic, one pessimistic, and one somewhere in-between. None of these scenarios are expected to perfectly match reality, but taken together, they demonstrate a reasonable range of potential economic impacts.
“Fortunately, the pandemic and disruption has not been as severe as our two worst case scenarios, and businesses have shown significant resilience, adapting quickly to the new way of doing business,” said Walmsley, an adjunct assistant professor of the practice of economics at the USC Dornsife College of Letters, Arts and Sciences.
However, in some ways, the pandemic has already proven to be more severe than the most optimistic of the three scenarios, which assumes full reopening of the economy after three months and no “second wave” of infections and mandatory closures. And even in this most optimistic scenario, the model predicts a 15 percent decline in U.S. GDP—which amounts to $3.2 trillion in one year.
“That’s a bigger hit on the U.S. economy than the Great Recession, which is more on the order of 12 percent annually,” said Rose.
CREATE is also taking a close look at one of the hardest hit sectors: the airline industry. With funding from the Centers for Disease Control and Prevention (CDC), Rose and his colleagues are examining the economic impact of improved contact tracing of people entering the U.S. on international flights.
In addition, Rose and his former Price School PhD grad, Noah Dormady, now an Associate Professor at The Ohio State University, recently developed a free Business Resilience Calculator. This decision-support spoftware tool is an outgrowth of research funded by the Critical Infrastructure Resilience Institute (CIRI) at the University of Illinois and is intended to help businesses minimize losses during this and future disasters.
Rose shared his team’s COVID-19 research during a plenary lecture at this year’s conference of the International Society for Integrated Disaster Risk Management (IDRiM), where he was also given the Aniello Amendola Outstanding Service Award, in part for serving as the past president of the organization. In addition, Rose frequently serves as an advisor on the topic of disaster risk management for the United Nations, World Bank, Federal Emergency Management Administration, National Institute of Building Sciences, and U.S. Geological Survey.
Rose hopes that through his extensive contributions to public service and research, he can inform policies and approaches that maximize resilience during the COVID-19 recession and recovery—as well as other disasters.
“The origin of resilience is the Latin root resilio, which means to bounce back,” said Rose. “And when there’s a disaster, people don’t just passively stand by and say, ‘Oh, woe is me. All is lost.’ They find ways to rally and bounce back.”