Why a failed opening today may lead to a slower recovery when the epidemic has faded

Matt Yglesias has a good piece up explaining why “opening” the economy now won’t save the economy.  The reason is that people will continue to avoid contact with others until the epidemic is brought under control.  Simply allowing restaurants, theaters, and workplaces to open will not change this basic fact.  Indeed, airlines are still open for business, but the demand for air travel has nosedived as people (understandably) avoid being sealed in a poorly ventilated metal tube for several hours with dozens or hundreds of potentially infected fellow travelers.

In fact, a failed opening now may make it harder for the economy to recover after the epidemic is under control.  Right now, many people probably expect a V-shaped recovery, with rapid growth when the virus is contained.  All else equal, this belief will tend to produce a quicker recovery when social distancing ends by giving consumers confidence to spend and businesses confidence to gear up production.  By making people doubt that the economy will rebound sharply when the virus is contained, failed attempts to open the economy now may lead to self-fulfilling expectations of a prolonged depression.