Interesting piece, though the first argument here is, frankly, bonkers, that there’s no recession here, simply a lockdown.

Let’s consider some counterfactuals... https://twitter.com/jandrewpotter/status/1267215737497751553

Let’s imagine a world where Canada didn’t have a single case of COVID, but the rest of the world stayed the same. There would still be an effect to our economy. Canadian autoparts companies would still have no one to sell to, with US plants closed...

The price of oil would still be substantially lower. Travel to Canada would still be reduced. For some reason, @ctsragan and @jandrewpotter assume that the Canadian economy is closed. I can’t understand why.

Next counterfactual... COVID is here, but no government lockdowns whatsoever, nor any response by firms.

Do we really think consumers wouldn’t change their behaviour at *all*? That there would be no demand response? That we would still go to restaurants at the same rate?

Note: This isn’t a hypothetical counterfactual. This actually happened *before* any lockdowns. Payments data shows, in fact, a drop of many types of purchases before any lockdown.

And one more thing...

There was also the stock market dropping by 20% in late February. Do we really think that that would have no effect on consumption whatsoever? That households would face a substantial decline in wealth and not alter their consumption?

So, yes, there is a supply shock here. Lockdowns did happen.

But to wave away a demand shock, you need to assume:
- Canada is a closed economy
- Consumers don’t change their behaviour in a panademic
- Households just shrug off a 20% crash in the stock market

/thread

All that said, it’s an interesting piece by two very smart authors, with a head scratcher of an assumption that a whole bunch of other smart people are making too.

Also, you need to assume I can spell pandemic.