What are the economic rules of this upside-down world, where opening the economy too soon produces mass death, but shutting it down for too long produces mass suffering?
The question was asked of top economists whose insights were sought amid the onslaught of the coronavirus and its adverse effects. Answers were formulated into a “new playbook for pandemic economics” that became the focus of an article written by Derek Thompson and published recently in The Atlantic.
The insights of renowned economists can be of invaluable help as the Philippines and many other countries grapple with not one but two pandemics – the onslaught of the coronavirus with its escalating death toll, and the effects of the economic devastation from lockdowns that prolong the suffering of the masses.
“We are feeling the anxiety effects of not one pandemic but two. First, there is the COVID-19 pandemic, which makes us anxious because we, or people we love, anywhere in the world, might soon become gravely ill and even die. And, second, there is a pandemic of anxiety about the economic consequences of the first,” according to Nobel laureate in economics and Yale University professor Robert Shiller who aptly described the situation in a recent article for Project Syndicate.
“It is not good news when two pandemics are at work simultaneously. One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease,” Shiller wrote.
Tackling these “two pandemics” can be very challenging but the ultimate goal of saving lives and keeping people healthy ought to be of paramount importance. Thus, worrying about the adverse consequences of lockdowns to the economy should come later, after measures to effectively protect public health are in place.
“Without a healthy population, there can be no healthy economy,” Thompson said in his Atlantic article wherein he put forth the idea that an economic recession is a welcome development at this time when lockdowns and quarantines across the world are in effect.
“We should—as incomprehensible as this may sound—hope for a deep, short recession, caused by a cliff dive in many forms of economic activity. That would be a clear signal that people have gone home and that the face-to-face economy has been shut down to limit the spread of disease,” Thompson explained.
He cited the view of MIT professor and economist Emil Verner who said pandemics are “so disruptive that anything that you can do to mitigate that destructive impact of the pandemic itself is going to be useful.”
Thompson revealed in his article the “four rules that should govern our short-term reaction to the health crisis.” He said that “Rule 1: ‘Save the economy or save lives’ is a false choice” because “early and aggressive interventions both saved lives and triggered faster rebound” when a massive flu outbreak hit in 1918. He argues that the supposed trade-off between people and GDP “doesn’t exist—or, at least, it didn’t in 1918.”
Thompson also cited Northwestern economist Martin Eichenbaum who said: “In a normal recession, you want to boost demand. But we don’t really want to boost demand in the very short run at all, right now. We don’t want United to be flying full planes. We don’t want restaurants serving food to dine-in customers. We want everybody to stay in and hold on.”
Other actions are Rule 2: Pay people a living wage to stop working; Rule 3: Build companies a time machine; and, Rule 4: The business of America is now science.
Economic-relief packages, under Rule 2, would enable suddenly unemployed people and temporarily-closed businesses to cope. As for Rule 3, Thompson cites University of Michigan economist Justine Wolfers who said building companies a “time machine” would entail “anything—including grants, cheap loans, and debt relief—that would allow companies to shift their expenses to the future.”
On Rule 4, the article stressed the need for more tests and sophisticated tracing technology, and “establishing billion-dollar prizes for vaccine and antiviral breakthroughs” to defeat the coronavirus.
The notion that “without a healthy population, there can be no healthy economy” is certainly true. Ensuring Filipinos stay healthy now will pay off at a time when bringing back a healthy economy becomes top priority.