• Pandemic Economics
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This is the third in a series on Southwestern faculty perspectives on severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and coronavirus disease 2019 (COVID-19). Part 1 focused on biology, part 2 on mathematics.

In this wearying age of COVID-19, arguments over whether, when, and how to reopen schools, restaurants, and stores have pitted government officials against citizens, employers against employees, and conservatives against progressives. That battle has been represented as one between lives and livelihoods—a weighing of human illness and mortality against an anthropomorphized economy that has been characterized as “dying” or in need of “reviving” or “recovery.”

Yet experts would tell us that the supposed choice between public health and a healthy economy is actually a false dichotomy—that is, we do not have to choose between one or the other because other options and compromises exist.

For Saroj Dhital, assistant professor of economics at Southwestern University, the notion that financial health and human well-being are somehow competing goals is a misperception or a misrepresentation. “As far as balancing economics and public health is concerned, I don’t think there’s a trade-off. Contrary to popular belief, I think what’s best for the public health is also best for the economy,” he explains. “This is a public-health crisis, and we should treat it as such. Fundamentally, there is no systemic issue with the economy … , so any policy that mitigates the virus sooner is the best policy for the economy.”

“As far as balancing economics and public health is concerned, I don’t think there’s a trade-off. … [S]o any policy that mitigates the virus sooner is the best policy for the economy.”

A healthy economy requires a healthy workforce

Dhital’s analysis is bolstered by evidence from various countries.

Norway, for instance, mandated travel restrictions and quarantine and isolation measures soon after SARS-CoV-2 started creeping across the globe. By containing the spread of COVID-19 sooner, the country was able to limit confirmed cases to approximately 9,034 and deaths to 255 (as of this writing)—translating to 4.80 deaths per 100,000 people. Norway also began reopening in mid-April—while nations including the U.S. were still at the beginning of a months-long constant rise of new infections—and enjoyed a smaller impact on their economy, with unemployment currently around 4% and the central bank forecasting a 3.5% contraction of the economy.

Taiwan, meanwhile, has demonstrated that a nation can avoid both draconian lockdown procedures and maintain economic health. Having learned from its previous experiences with SARS in 2002–2003, the island enacted the ideal classic epidemiological response: they tested widely and frequently, isolated those who had tested positive, employed contact tracing, and shared information across healthcare networks by using the country’s agile system of digital medical records. The result? An impressively low (though certainly still unfortunate) 451 confirmed cases and seven mortalities—or 0.03 deaths per 100,000 people—shored up against a 4.1% unemployment rate, similar to that in Norway, but an economy that will grow by 1.5%

By contrast, Sweden elected not to pursue the same lockdown measures as its Scandinavian neighbors, with social distancing encouraged but not required and bars, restaurants, stores, and schools remaining open. The result has been one of the highest per-capita COVID-19 mortality rates in the world—with 78,048 cases and 5,639 deaths, or 55.38 deaths per 100,000 people——but no proportionate economic boost. In fact, the damage to Sweden’s jobless rates and prosperity has been as devastating as that witnessed in countries with much lower pandemic mortality: consumer spending dropped by 25%; unemployment has been hovering near 9%, with forecasts of more lost jobs in coming months; and the central bank predicts the nation’s economy will shrink by 4.5%.

And the U.S.? As Hugh Roy and Lillie Cullen Chair in Economics Dirk Early opines, “One thing that does trouble me is that we do not tend to have a countrywide response to these crises. I think it’s been too much ‘this state wants to do this; this state wants to do that.’ And what we learn is we are all in this together.” With no coordinated, strategic national response to the pandemic, the country has exceeded the number of confirmed cases and deaths in any other country, with 3,830,010 infections and 140,906 deaths, or 43.07 deaths per 100,000 people. The country entered a recession in February, and Goldman Sachs economists are currently forecasting that the U.S. economy will shrink by 4.6%. Meanwhile, unemployment skyrocketed to 14.7% in April—the highest it’s been since the Great Depression and well beyond the peak jobless rate of 10% during the Great Recession of 2007–2008. The unemployment rate dropped to 11.1% in June because some workers were being recalled to their positions as states reopened and those returns to work outstripped new unemployment claims. However, the outlook remains grim: the Bureau of Labor Statistics has revealed that the actual jobless rates for March, April, and May were higher than originally reported, and new unemployment claims remain high despite reopening because employers are eliminating jobs they no longer see as viable. New jobless claims are also occurring because of reopening (or the failure to have closed down in the first place): the lack of sufficient containment has resulted in the continued rise of COVID-19 cases, which has caused many states to return to—or, in some cases, belatedly begin—restrictions that are impacting businesses and resulting in layoffs. And unfortunately, Dhital says, those new unemployment claims are likely “going to last much longer” or will be “even permanent in most cases.”

“I wish we were a country that were more proactive—[that said,] ‘We’re all in this together, so let’s work together to solve problems quickly,’” Early says wistfully, “but I think this is going to be stretched out a lot longer than it needs to be because we had this kind of slow response.”

COVID-19 Economics Graphic

The importance of data and communication in a pandemic

Dhital, who specializes in applied macroeconomics, monetary and fiscal policies, and economic development and inequality, agrees that responses to the outbreak across the globe could have been better, especially in terms of sharing information across and within borders. “Countries around the world could’ve received timely information to plan the containment more effectively,” he explains. But the U.S. in particular has demonstrated how not to respond to a pandemic, in more ways than one: it has manifested worst-case scenarios in both public health and economics, and it has done so specifically by not responding—that is, doing far less too late. “I believe the response of the U.S. has been slow and ineffective, especially in the first couple of months,” says Dhital. “When faced with a novel crisis, gathering and conveying as much information as possible is the best approach. The U.S. government’s initial response was antithesis to gathering more information. Widespread testing was necessary from the very beginning to understand the scope of the virus and make appropriate plans to combat it. We lacked the information about the scope of the virus due to the failure to develop and scale testing in a timely manner.”

The twin plagues of COVID-19 and lack of information continue to be a concern for economists and public-health experts alike: the current administration has reportedly prevented public-health experts from testifying in Congress or attempted to prevent them from speaking with the media, and critics have side-eyed the recent decision to reroute the reporting of hospitalizations, the availability of intensive-care beds, and the inventory of personal protective equipment (PPE) from the CDC to the Department of Health and Human Services through a private contractor. 

South Korea, by contrast, is another country that successfully responded to the pandemic by disseminating information early and rapidly. They developed and tested more people early on during the pandemic, used big data to carry out contact tracing, and implemented a clear communications campaign that resulted in most citizens voluntarily committing to social distancing. The information gained from testing alone, says Dhital, “was vital as it allowed them to make better-informed decisions to combat the crisis.” And the impact on the fourth largest economy in Asia has been small compared with that of the U.S. and other countries that have failed to contain COVID-19: 4.3% unemployment, with the economy growing in the first quarter of 2020 but predicted by the International Monetary Fund to ultimately shrink by 2.1% this year.

“As an economist, I can’t stress the importance of information enough. Lack of information creates uncertainty, which can have a significant effect on day-to-day life and the economy as a whole. The economic impact of an uncertainty about the future generally tends to be more than that of the actual event causing the downturn.”

Dhital adds that there might not be a one-size-fits-all strategy when it comes to responding to a novel pandemic, but South Korea’s comparative success in controlling both the outbreak and the economic fallout certainly suggests one model the U.S. could have benefited from if it had only been implemented here. “The argument I’m making is the importance of information,” he says. “As an economist, I can’t stress the importance of information enough. Lack of information creates uncertainty, which can have a significant effect on day-to-day life and the economy as a whole. The economic impact of an uncertainty about the future generally tends to be more than that of the actual event causing the downturn.”

Lack of universal healthcare deepens the public-health and economic crisis in the U.S.

The COVID-19 crisis has been exacerbated in the U.S. not just by the lack of information sharing but also by the lack of federal leadership in equipping frontline healthcare workers with medical supplies. “We were also inefficient in producing and distributing the equipment necessary to test and treat the patients,” Dhital says. “A centralized effort to facilitate production and distribution of equipment was necessary.”

Moreover, as Early points out, the U.S. faces an additional financial burden: it is the only wealthy industrialized nation that does not provide universal healthcare, so Americans’ access to medical care mostly depends on their employment—although not all employers offer their workers health insurance. “Another issue that we deal with here is that for a lot of people, healthcare is tied to their jobs,” Early comments. “So all of a sudden, they’re laid off or fired, and their healthcare doesn’t exist.” The New York Times, for example, reports that 5.4 million people lost their health coverage between February and May because of layoffs.

That’s an unnerving thought considering that treatment for patients with milder forms of COVID-19 can cost several thousand dollars and hospitalization for serious cases can incur tens of thousands of dollars in direct costs. One Washington state patient, who required a 42-day stay in the ICU as well as 29 days on a ventilator, received a bill for well over $1.12 million—a statement that did not include the cost of weeks spent in a rehabilitation facility, any follow-up care, or future treatment for the long-term physiological effects of the disease (e.g., damage to the lungs, heart, kidneys, digestive tract, and/or brain) that researchers are just starting to learn about. Among the 28 million Americans who are uninsured and the 44 million who are underinsured, those who are infected with COVID-19 might be covered—but only partially—by reimbursements from the Coronavirus Aid, Relief, and Economy Security (CARES) Act passed in March, and those with health insurance may see coverage as low as 60% of a hospital bill. 

So the uninsured, underinsured, and insured survivors alike are likely to be left with hefty out-of-pocket expenses, some of which can be catastrophic for those who are in lower economic brackets.

“I would imagine that low-income households are going to be hit pretty hard by this because they don’t have access to healthcare,” says Early, whose research focuses on housing costs, housing discrimination, and homelessness. “Without a doubt, those with the least are hit the hardest.” That can mean a double or triple whammy for Black, American Indian, or Latinx workers, who the CDC reports are more likely to be hospitalized or die from COVID-19 than those from other racial groups. Whereas white and wealthier Americans are more likely able to work from home, Black, American Indian, and Latinx employees are more likely to be classified as essential, and some rely on public transit to commute to work—both factors increasing their likelihood of being exposed to SARS-CoV-2. If they get sick and are unable to work, they are also more likely to be laid off, which means they could be in the vulnerable position of suffering from a disease without access to healthcare. 

The importance of debt relief 

Unable to collect a paycheck because of either sickness or unemployment, many American workers are seeing their bills piling up, from credit cards to utilities and rent. And without paying customers, many business owners—especially proprietors of locally owned restaurants and stores—are accruing debt and regretfully furloughing or laying off employees. The debt cycle, it’s clear, is a vicious one. And the formidable problem of debt, Dhital says, has only been accelerated by the pandemic. 

“The U.S. economy was experiencing a private-sector debt issue before the outbreak. The outbreak has made the issue worse,” he says. “I do believe we would’ve faced the debt issue in a few years, but … the outbreak has made the issue a pressing one. The government has done a decent job of assisting firms and individuals during the crisis, but I think more needs to be done.” 

The $2 trillion CARES Act passed in March was a start, Dhital says. He also applauds the response of the Federal Reserves (the Fed), which, he reveals, “offered loans not only to financial institutions but also directly to firms” even though that “is traditionally not the role of the Fed.” The U.S. central bank also purchased loans from banks and sold them to small businesses that otherwise would not have been able to get the loans. And in what Dhital characterizes as “a historic move,” the Fed offered loans to local governments. “The Fed’s outlay on this policy was $2 trillion and will likely be more,” he continues.

Early agrees that the CARES stimulus package was necessary “to try to shore up areas we [knew would] be hard hit.” He adds that “if the federal government was not willing to step in, without a doubt, this would be a very dark, severe, and prolonged recession.” However, as the COVID-19 crisis drags on, the federal government will need to provide even more assistance to its citizens, says Dhital. “Even with slowly opening the economy, [businesses] are unlikely to generate enough revenue to stay afloat on their own,” he predicts. Because both individuals and private firms will emerge from the pandemic with significantly higher debt, he’d like to see the government forgive a portion of private-sector debt to avoid a second economic fallout. He also hopes that Congress will consider adding to their next stimulus package a component that was omitted from the CARES Act: paid sick leave. “The policy insures that people won’t take unnecessary risk to go to work and infect others in the process. Also, healthy workers can be confident that sick workers will not be coming to work.”

Of course, such relief efforts will take their toll on the deficit. Dhital believes that the government will eventually need to rectify its own debt, which was already at a historic level before the crisis and has only deepened throughout the first half of 2020. “A general prescription for the government is to lower the debt during an expansionary phase (i.e., the last decade), but we failed to do so. The public-debt crisis will eventually be realized in the near future if we let it grow unchecked. However, now is not the time to prioritize it given we have more pressing needs.” 

Any way you calculate it, COVID-19 is going to be costly.

The economic novelties of a novel virus

Both Early and Dhital remark that comparing the COVID-19 crisis to other pandemics is difficult: after all, Dhital reflects, pandemics are rare, and both scholars point out that the current situation cannot be fairly measured against the astronomical death toll and war economy of, say, the 1918 flu pandemic. Even comparing COVID-19 with earlier coronavirus disease outbreaks, such as the SARS epidemic of the early 2000s and the MERS outbreak eight years ago, proves challenging because those diseases had different infection and mortality rates and durations—and therefore different impacts on the economy.

If we look to historical epidemics, such as the bubonic plagues or cholera outbreaks of the 18th, 19th, and 20th centuries, we can at least say that widespread, virulent infectious diseases—not necessarily the strategies used to contain them—have a tendency to initiate, hasten, or amplify economic woes: widespread illness, consumer anxiety, and mass mortality have depleted labor forces, disrupted production, increased supply shortages (e.g., from panic buying), and reduced trade and tourism. Hindsight years from now will help us understand the fuller picture of COVID-19, but as it stands now, the numbers suggest that the current pandemic was bound to take its toll on any national economy. However, rapid, coordinated, strategic responses to the novel coronavirus have so far not just mitigated contagion and death tolls but also lessened the impacts on national economies—or have resulted in similar economic consequences but with far fewer infections and deaths.

What we can measure the current circumstances against, Dhital explains, is previous economic downturns. “In a purely theoretical sense, we can compare this crisis to the Great Recession of 2007–2008,” he shares. “The Great Recession is the only crisis that fundamentally changed the structure of the economy. The financial system that was built over the decades completely collapsed, and the channels and mechanisms of flow of funds were severely impaired—permanently in some cases. The decline in the long-term wealth of individuals, and hence the economy, due to the housing crisis led to a very slow recovery.” To put that into perspective, Dhital continues, “As severe as the Great Depression was, it did not change the fundamentals of the economy. The reason I’m comparing the current crisis with the Great Recession is because I believe the economy will fundamentally change going forward.”

The potentially permanent impacts of a novel pandemic

Dhital asserts that the difference between the 2020 crisis and the Great Recession is that the 2007–2008 downturn deteriorated the supply side of the economy whereas the current crisis, he believes, will deteriorate the demand side. He explains, “Since the U.S. is primarily based on the service industry”—think entertainment, media, transportation, and technology—“major changes in the industry are to be expected.” For example, large swathes of the population have restricted their social interactions, both voluntarily and because of local or state lockdowns, but because the service sector relies on such socializing, businesses such as movie theaters and restaurants have suffered. In addition, travel and tourism have taken an enormous hit, with airlines, cruise lines, hotels, B&Bs, and amusement parks struggling through travel restrictions and decreased bookings by wary vacationers.

In other words, consumer demand for services (except for, say, arts and entertainment) is low, which, in turn, has led to widespread layoffs. “It could take a few years for that employment to come back,” Dhital says, “so I believe the economy could take a few years to recover—hence the comparison to the Great Recession.”

In addition to significant changes in the service sector, Dhital predicts that the U.S. will likely experience a paradigm shift in consumer behavior thanks to online shopping. E-commerce has been snowballing since 2000, but the pandemic has resulted in massive growth in online spending in the past several months, with Memorial Day sales increasing 75% this year, from $2 billion in 2019 to $3.5 billion in 2020. “Consumer behavior is very important in economics as it drives the consumption decisions of the public,” Dhital clarifies. He notes that e-commerce has been on the rise during the pandemic, and many of us can attest that we’ve turned to the Internet for needed goods as well as for consumer therapy during self-quarantines and stay-at-home mandates. Shoppers who have newly acclimated to digital commerce may continue shopping online long after COVID-19 is corralled, which means “we will likely see a significant decline in offline retail,” Dhital says. However, that change may still take time because consumers will need time to adapt. More importantly, because of “slower recovery in employment, consumer spending as a whole will likely take time to recover.” 

Technology has also enabled a fundamental change in how we work. Many employers have started to recognize the cost savings and improved productivity of remote work during the COVID-19 crisis, just as employees have enjoyed the opportunity to avoid stressful commutes, lessen their carbon footprint, and spend more time with family members. Some industry giants, such as financial institutions JPMorgan, Morgan Stanley, and Capital One and tech companies Twitter, Facebook, Amazon, Microsoft, and PayPal, have already extended work from home and remote work through the fall, indefinitely, and even permanently.

Such significant changes in how we shop and how we work—and the psychological, environmental, and, yes, economic benefits that come of such shifts—may, eventually or ultimately, promise a much-needed renewal. Indeed, despite the failures that have intensified the trauma of a public-health crisis and led to large-scale and possibly long-term unemployment for millions, Dhital manages to conjure hope. “It may take a while for the economy and society to fully adapt to the change,” he admits. But, the economist adds, “As bad as the effect of the outbreak is, I think the innovations that were born out of necessity will lead to future growth.”

Bibliography and further reading