Key Highlights

  • Blockbuster study from group of economists led by Harvard’s University Raj Chetty focuses on economic impact of COVID-19 and government response
  • Group assembled data sets from private companies, national payroll companies and credit/debit card processors
  • Study offers insights about consumer spending, jobs and geographic impact of COVID pandemic crisis

Raj Chetty, the lead economist among many gathered together by Harvard University to understand the economic impacts of the COVID-19 pandemic, is considered to be the Michael Jordan of policy wonks. When Chetty writes and speaks, people pay attention.

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Chetty did speak at a Zoom webinar sponsored by Princeton University’s Bendheim Center for Finance on the day this study was released last week. (We covered the study’s release briefly last week.) Chetty zeroed in on four major impacts of the pandemic on the economy so let’s take them one by one.

Consumer Spending

Usually, recessions are defined by a drop in spending on large durable goods such as washing machines and automobiles. This COVID-recession is defined by a decline in spending at in-person services such as restaurants, hotels and bars in primarily wealthy ZIP codes.

Wealthy ZIP codes have seen a -70% drop in consumer spending; less wealthy and poorer zip codes have seen a -30% drop in consumer spending.


The -70% decline in consumer spending in wealthy ZIP codes has resulted in a -70% drop of jobs/employees in those wealthy ZIP codes. Most of these employees are low-wage earners. Businesses in poorer ZIP codes laid off approximately 30% of their employees.

Chetty’s bottom line: “…reductions in spending by the rich have led to job losses for mostly low-income individuals working in affluent areas.”

Government Rescue Efforts

Chetty and his colleagues find that the government’s rescue efforts in the face of the COVID pandemic have “mostly failed.” The $500B Paycheck Protection Program designed to offer small businesses (less than 500 employees) forgivable loans has done little to save jobs. Stimulus checks cut and distributed to most people in the US didn’t do much to “stimulate” the economy because most of those checks went to behemoths like Amazon and Walmart for basic necessities. Those checks did NOT go into in-person service businesses in rich ZIP codes where help for service businesses and service jobs was needed.

State-Permitted Re-openings

Looking at spending patterns in re-opening states, it’s clear there has been no economic boost as originally intended. Chetty said, “The fundamental reason that people seem to be spending less is not because of state-imposed restrictions. It’s because high-income folks are able to work remotely, are choosing to self-isolate and are being cautious given health concerns.”

Chetty’s bottom line: Rich people are scared of the COVID virus. As long as rich people are scared, they are not and will not go out and spend. The result? Service job workers will continue to suffer particularly in areas where in-person services are focused on rich people.

Overall, Chetty and his team concluded that traditional tools of economic policy, such as tax cuts and spending increases to spur demand, have not and will not save the unemployed nor the economy. Rather, Chetty and his team encourage policy makers to concentrate on two things:

  • Spur public health efforts in order to calm COVID fears and convince consumers, particularly rich consumers, that it’s safe to go out and spend again
  • Extend unemployment benefits and provide assistance to help low-income workers who are continuing to struggle in this service-sector, pandemic economy.


Thanks to National Public Radio’s Planet Money Team.

Also read: Could Pandemic Crisis Squash Push for More, Dense, Affordable Housing?, Economy Shrinks -4.8% in Q1 – Likely Just “Tip of the Iceberg”, Will These Zip Codes Hold in 2020?

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