Economics Q&A with U of Mary School of Business Dean, Dr. Colin Knapp

As the COVID-19 pandemic began, the focus on individual case count began conversations and judged progress towards recovery. Now, another number is being watched - unemployment registrations. Individuals who are being furloughed or laid off due to direct virus impacts are applying for assistance. Daily registrations count into the thousands. Weekly numbers are breaking previously set monthly record totals. The impacts of the virus has gone beyond public health and are seeping into the economy.

GNDC recently visited with Dr. Colin Knapp has been the dean of the Gary Tharaldson School of Business at the University of Mary. Prior to joining the faculty, he taught economics at Penn State, the University of Florida, and the U.S. Air Force Academy. Dr. Knapp completed his Ph.D. at the University of Florida in 2010. 
 
GNDC: What are your initial thoughts on COVID–19’s effects on the state and national economy?
Dr. Knapp: This has the potential to cause a more abrupt and deeper recession than the financial crisis of 2007 and 2008. Hopefully, the demand-side nature of this event will also allow for a quicker and steeper rebound as the effects of the pandemic subside. It has made us reevaluate which services are truly essential and presented unique challenges in how we provide a safety net to those providing such services. 
 
How would the effects on the national economy differ from impacts that North Dakota will face?
I have seen two arguments on how North Dakota’s rural footprint might affect the spread of the virus. One states that we will not face as great a threat from community spread because our population is not as dense as other parts of the country. This would give us an advantage over the parts of the country that will have to restrict personal interactions more aggressively. The other argument suggests that North Dakota might have to deal with the virus for longer because it will take longer for the virus to get here and work its way through our communities. This might put North Dakota at a disadvantage relative to other parts of the country as they might rebound sooner as a result.   
 
Along with COVID-19, the oil markets are also seeing significant downturn. Which of these events will impact North Dakota’s economy more and why?
I see the price of oil as the more concerning issue. The decision to practice social distancing is one born of local control.  We are choosing the current set of policies and social norms because we value our health and that of our neighbors more than we value the economic activity we are forgoing. Once the health crisis subsides, local policies will change and economic activity will pick up quickly. The price of oil is being affected by an international disagreement between Russia and Saudi Arabia. The decisions we make in North Dakota will have little effect on that issue. That puts us at greater risk since we cannot directly control the outcome.
 
Due to COVID-19 what is your estimated economic downturn timeline?
Our recovery from the pandemic-related effects of the downturn will match up fairly well with our ability to get the number of new cases under control. China is just now starting to reopen their factories in the areas that were most affected by the virus. Once they started “flattening the curve”, it took about six weeks to get to the point they could start releasing workers from quarantine and increasing production. I don’t see much reason to assume we will be able to do it any quicker. This is a bit presumptuous because it is not clear that the U.S. has started to effectively contain the number of cases. It could take several more weeks to get to that point. Add on six or more weeks for the virus to be reasonably well contained and we are looking at the possibility of at least two more months of severely restricted economic activity.
 
What can North Dakota businesses expect to see in the next 3/6/9 months?
The next couple of months will be tough on businesses that are already restricted. Until the virus is under control, I don’t see much hope that the restrictions will be lifted. Once we get the virus under control, business should rebound aggressively. There are far fewer structural imbalances at play than there were during the financial crisis. This should allow the economy to pick up much more quickly than after the last recession.  
 
In the past few weeks congress passed 3 phases of Coronavirus relief, do you see any obvious gaps in these relief packages that will need to be addressed at the state level (we are assuming phase 3 will pass by next Tuesday)?
I was trained as an economist during an era of financial contagion. While we are fortunate that the financial sector is stronger today and can absorb some of the trauma from this crisis, there is a limit to that ability. I think there is still work to be done in making sure households and firms are capable of paying their debts throughout the crisis. 
 
There is a lot of discussion whether direct payments to citizens will have the desired positive impact to the nation's economy. What is your opinion on this?
Studies have shown that one-time payments are simply not that effective at changing consumer habits. Long-term changes to the level of public assistance and taxes have greater effects.  Given the uncertainty with knowing how long the pandemic will last, I think our focus should be on backstopping families throughout the crisis. Making sure people can pay rent, keep the lights on, and put food on the table for the duration will do more to prevent transmission of the crisis to other areas of the economy than any of the one-time payments I have seen discussed.
 
Anything you want to share with the business community?    
I recently participated in a webinar about the effects the pandemic was having on higher education. One of the speakers advised the audience to view this crisis as an opportunity to strategically reinvest resources. This applies to businesses throughout the state. Change is inevitable. Making those changes with a plan in mind will differentiate the businesses that rebound from the crisis and those that don’t.