After the healthcare crisis will come an inevitable economic crisis. Governments and the business community now urgently need to step back and consider the real long-term implications of the COVID-19 pandemic and its economic aftermath—and not be swayed by the deluge of knee-jerk commentary, erroneous information, and political blame-gaming now out there.
Containing the virus and pausing the economy, without letting businesses fail and people lose their jobs, were the necessary first steps. In his new book, Economics in the Age of COVID-19, economist Joshua Gans, Professor of Strategic Management at the Rotman School of Management, considers what next—laying out the economic choices, but without thinking in terms of a ‘trade-off’ between public health and economic health.
As we contend with social distancing and its implications for our lives and businesses, and in many cases grieve over the tragic loss of human life, it is difficult to look ahead of the current uncertainty and chaos. This book helps us to find that longer-term perspective. It takes the reader through the various stages of the pandemic from containment through re-emergence to a re-imagined future, and plots the various choices that need to be made on the way—without making judgements of the choices currently being taken.
Gans first observation is that economists' traditional recipe of making ‘trade-offs’ at the margins—a little more economy for a few more deaths—is unacceptable in the time of a pandemic. And, what’s more, according to his analysis, pursuing public health can be consistent with superior long-run economic performance—so that the choice between prioritising the economy or prioritising public health is really not a hard one.
During the containment phase, buying time to minimise pressure on resources, while at the same time protecting the economy through business loan and furlough schemes, was key. Moving on, with health prioritized, the critical need is to accelerate testing, tracing and isolating, to learn as much as possible about the spread of the disease and monitor its decline, in order to gradually relax restrictions and allow more social and economic activity. All of these measures require intervention by governments and acquiescence from individuals.
Navigating the recession, that is now upon us, will require further intervention and public consent. This is more the case, because whereas the way out of a ‘normal’ recession is to rely on markets, with a pandemic, where availability of resources are constrained, markets are unable to function perfectly. But as Gans observes “At times of crisis, however, we do not let the perfect be the enemy of the good and so comfortably resort to centralized resource allocation and bear the potential productive inefficiency.”
Gans’s penultimate chapter ‘Rallying Innovation’ is about the need for collaboration between governments and the markets to find ways to devote substantial resources to innovation in medicine and elsewhere to deal with COVID-19 and future pandemics, as well as to develop policy tools to stimulate economic recovery. With this in mind and looking to the future Gans uses two analogies from World War II. First that, as the ultra-secure Maginot Line built to protect France after World War I was easily circumvented by an enemy not playing by the expected rules, so a new pandemic crisis may not present itself at all as COVID-19 has.
His second analogy is about the sense of relief after victory is won (at war or over the pandemic) and how this can undermine our resolve to come together to plan how to protect ourselves from future pandemics. “The eye cannot be taken off the ball,” says Gans. “And if you need any guide from history, remember that we did not get the IMF or the United Nations until we had not one but two world wars.”