The Content of the Memos on Economic Effects of the Minnesota Extreme Lockdowns

By June 23, 2020 Commentary

A few days ago I posted on the response of the State of Minnesota to a request for all analyses and data considered by the Dictator in regard to his extreme shutdown orders.  Only two memos were provided, the earliest of which was prepared April 3, several weeks after the orders were issued.  The second was prepared on April 17.  The response to the data practices act request made absolutely clear the complete failure of the Dictator and the state to consider at all the economic or health impacts of those orders.  By the time the first memo was written, the damage was apparent.  The Department of Employment and Economic Development also wrote a cover memo explaining the other memos.  Scott Johnson at the Powerline Blog has posted at least one of these memos.  The April 3 memo is titled “Economic Analysis of Stay at Home”.  In its executive summary, the memo notes that up to 805,665 Minnesotans may lose their jobs, and that 320,000 had already applied for unemployment, if the stay at home order remained in place.  Just for perspective, that is out of a total of only 2.9 million jobs at 174,000 businesses in the state.  The Dictator apparently didn’t blink an eye at creating such a horrendous economic toll.

The memo also notes that absurd effect of the federal law that gave a top-off payment to the unemployed that encouraged them not to work, since they were making more money by being unemployed.  Out of all 286 business sectors, the Dictator deemed 96 to be non-critical.  The memo says that 61 of these sectors could be allowed to go back to work with some social distancing, and that would allow as many as 538,000 people to go back to work, generating $716 million in payroll.  The Dictator kept them shut.  Under the shutdown orders as they existed at that point, the Department was estimating that $1.36 billion in wages would be lost every two weeks, some of which would be made up for, at least temporarily, by unemployment benefits, reducing the projected wage loss to between $782 and $996 million every two weeks.  That would be a staggering loss of income to Minnesotans, primarily low-income persons, which has flow-through effects to the entire economy of the state, but the extra $600 a week top-off payment would eliminate that loss, at least until it runs out in July.  Since unemployment in the state is staying high, and currently according to the Department there have been 800,000 claims, as the memo predicted, the income loss is going to kick in in a few weeks.

This memo also asked “how many businesses might go bankrupt”?  In Minnesota 99.5% of businesses are considered small businesses–they have less than 500 employees.  Other evidence suggested that many of these were vulnerable as they had limited cash reserves.  We know from other research that over 25% of small businesses have likely already gone under, again, with minority-owned ones hit hardest.  (Did I note again that there is no mention in this memo of the disparate impact of job losses and business closures on minorities?)  Finally there is a table listing the hardest hit industries.  There were 173,506 jobs in restaurants, 75% were estimated to be gone.  Hotels, 33,000 jobs, 94% gone.  In total, not the most sophisticated analysis of the economic impact of the extreme shutdown orders, but at least in terms of job loss, fairly accurate as it turned out.  The Dictator, for all his talk about balance, obviously paid no attention at all to the harm he was doing to people.

The April 17 memo is pretty much more of the same.  Now the Department said there would be about 570,000 unemployment applications by April 25, reflecting $3.8 billion in lost wages every two weeks, or a net loss of $450 million in payroll after unemployment benefit payments.  The turnaround to a net loss was likely due to higher income people beginning to be laid off.  Although the memo noted that the federal payroll protection plan was taken up by a number of businesses in Minnesota, it clearly hasn’t been enough to stop the job losses.  The Department now estimated that keeping the shutdowns through May would add 136,000 more job losses, a number that turns out to be an underestimate even though the stay-at-home was lightened up slightly before the end of May.  Businesses were projected to lose a mammoth $6 billion in sales due to continuation of the order.  The memo considered the effect of reopening non-critical office and industrial sectors, partially re-opening customer facing sectors and fully re-opening those sectors, finding that each action would add back employment and sales revenue.  The bottom line was that by April 25, the Department expected a net loss of $450 million in income to Minnesotans.  For May, however, the Department thought the net effect of lost wages and unemployment benefits would actually be a positive, which is hard to understand.  There was no analysis in this memo of business closures.  Many businesses in Minnesota have already given up, meaning the jobs those businesses represented are gone for good.

All-in-all, the memos paint a very grim picture of revenue and job loss, which is currently being largely offset by the federal top-off payments, but which are likely to persist beyond the end of those payments.  None of this information was released to the public by the Dictator, who has continually avoided any discussion of the economic, health or social impacts of his extreme shutdown; a shutdown that will kill more Minnesotans than coronavirus while leaving us with a severely weakened economy and health system, and governments with very limited finances to address these problems.

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