Economics In The Time Of Corona

The impact of a global outbreak of disease has been discussed by academics as far back as 2016. But how do we minimise the economic fallout of a global pandemic?

There is little doubt that the world is headed towards a corona-induced recession. We are rich because we live interdependent lives, specialising in the things we do best and trading away our surpluses. When that trade is prohibited – when we cannot buy the things we do not produce ourselves – we return to the independent but impoverished worlds our ancestors inhabited.

Just how much poorer we will be after the crisis is difficult to estimate. There are many factors at play. Premature deaths reduce the size of the labour force, and illness lowers productivity. Resources that could have been used productively will now flow to treatment and control measures. Attempts to reduce the spread of the disease, like travel bans and self-isolation, can further disrupt economic activity. Some industries will feel the effects immediately, like logistics and tourism, but all will eventually suffer, from mining to manufacturing to insurance.

It is not only the costs of lost income that matters, though. The intrinsic value of lives prematurely lost – as economists unemotionally label the human suffering attached to losing loved ones – may be far greater than a mere decline in GDP. Put differently: People care much more about the psychological pain and anxiety of pandemics than they care about a fall in their standard of living.