Joshua Gans - Economics in the Age of COVID-19 (Coronavirus)

MIT Press First Reads

Economics in the Age of COVID-19

Joshua Gans

Joshua Gans

The MIT Press

Cambridge, Massachusetts

London, England

2020 Joshua S. Gans

All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher.

Library of Congress Cataloging-in-Publication Data is available.

ISBN: 978-0-262-36279-5

10 9 8 7 6 5 4 3 2 1

To my economist colleagues who dropped everything to work on COVID-19 issues. They showed the way for our governments to act with unprecedented urgency and fortitude. There are many in society who deserve and have received acclaim, but your work has been more hidden than most. Our good economic management of the crisis (and this book) would not have been possible without you.

We are living in a moment of unprecedented crisis. The international spread of COVID-19 and the measures taken by governments to halt transmission of the virus are happening at a scale unlike anything seen in our lifetimes. As we grapple with the implications of social distancing and the tragic loss of human life, we need resources to help us make sense of this crisis.

The MIT Press mission challenges us to meet the need for reliable information at such a time. In this spirit, we offer the MIT Press First Reads series. These rapidly produced, digital-first titles will provide expert insight to inform matters of urgent local and global consequence.

Our first book of the series is Economics in the Age of COVID-19 by Joshua Gans. In this book, economist Joshua Gans steps back from the short-term chaos to take a clear and systematic look at how economic choices are being made in response to COVID-19. He outlines the phases of the pandemic economy, from containment to reset to recovery and enhancement.

The publication of this book reflects our effort to respond quickly to the need for timely information without sacrificing rigor or editorial quality. This eBook was written in the midst of the unfolding crisis, with input from expert peer reviewers. We plan to publish an updated edition of this book in both print and electronic formats in the fall of 2020, with additional content addressing questions and issues that arise over the next few months, and responding to feedback received from an open peer review process taking place on PubPub, an open access platform for community publishing.

We hope that the information contained here helps you navigate through this uncertain time.

On September 26, 2001, The Onion headline read, Not Knowing What Else to Do, Woman Bakes American-Flag Cake. That was the feeling I had at the onset of the COVID-19 pandemic in March 2020. I found myself unable to get work done and constantly obsessing over news and then data on topics that I knew very little about. I was in self-isolation, having traveled to the United States. Upon reflection, not knowing what else to do, I decided I would do what I was good at: Id write a book. I would endeavor to explain some of the broader economic issues arising from the pandemic to a wide audience.

In this task, I was hampered by two things. First, and this is what every economist writing about this has been saying, I am not an epidemiologist. That meant I was absorbing that material as an amateur and so had to be cautious regarding my own understanding. So, I would be flying well beyond what the usual academic norms would dictate, which meant I had to be careful in making any claims. That said, my goal here was to explain the economic issues of all this, and in that task, I was very experienced. Second, things were moving fast. Policies were changing. Scientists were learning more about the virus and its disease. No one had the information to create an appropriate assessment to evaluate the reasonableness of decisions being made, although everyone (including myself) had opinions they were willing to put all over social media. But if this book was going to be relevant in a month, let alone a years time (as I wanted it to be), I was going to have to refrain from being judgmental. That meant that there would be no politics or even applause for what seemed like the best policies nor distain for what seemed like the worst. For readers looking for that, you will have to get that elsewhere.

In the end, what we have here is a hastily written book that no doubt leaves out citations to many who deserve it. Its purpose is to be an urgent source of clarification and a thoughtful take on the issues. In so doing, I was forecasting what we would potentially take away from this crisis and what we would want to reflect upon beyond the chaos of the first month or so. Im hoping not to be completely wrong about all of that, but if I am, I will be the first one to call it out.

I would like to thank my family with whom I am stuck in a house writing this. They put up with my crazy idea to push out a book when I could be less socially distant, at least inside our household. I would also like to thank Scott Adams, Ajay Agrawal, Pierre Azoulay, Heski Bar-Isaac, Franceso Bova, Kevin Bryan, Eric Budish, Bruce Chapman, Ben Fine, Catherine de Fontenay, Alberto Galasso, Avi Goldfarb, Steve Hamilton, Richard Holden, Chris Joye, Stephen King, Scott Kominers, Mara Lederman, Andrew Leigh, June Ma, Tiff Macklem, Barry Nalebuff, Bob Pindyck, Eric Rasmusen, Paul Romer, Scott Stern, Alex Tabarrok, and Flavio Toxvaerd for helpful comments and discussions. A special thanks for commenters on PubPub (in particular, Patty Steele) with their many suggestions that improved the book. I would also like to thank my constant companion through this#econtwitterwho alerted me to much of the research cited in this book. Finally, I owe a special debt to Emily Taber and the MIT Press team for acting so quickly to get this project out there.

Joshua Gans

April 2020

We know what to do to bring back our economy back to life. What we do not know how to do is to bring people back to life.

His Excellency William Addo Dankwa Nana Akufo-Addo, President of Ghana, March 26, 2020

Everything is awful. The virus is awful. The immediate choices are awful. The future may be even more awful.

We should have been more prepared. For almost a decade, one of the most popular apps was Plague Inc. (120 million downloads and counting). It showed us how diseases broke out and did their damage. When the COVID-19 outbreak hit, the app surged back to number one in China and was promptly banned in the country.

In Plague Inc., you play the virus and your goal is to wipe out humanity. To the extent they have a goal, that isnt the goal of most viruses. Instead, it might be survival of its genetic structure, which would end should it wipe out its hosts. But never mind; from humanitys perspective, we would want to tool up on the tactics for viruses that would lead to extinction.

COVID-19 is not that species-ending virus. But it does have some of the characteristics you would employ in Plague Inc. if you wanted to destroy us all. An inexperienced player normally goes for a highly infectious and deadly disease. But that is not the best course of action. First, because the virus is deadly, human scientists start working extra hard to stop the plague. Second, if you kill people too quickly, you actually slow down the rate of infection. Instead, what you want to do is find a way of infecting many people preferably without any symptoms that would get the infection noticed. Then you want to ramp up the disease after each infected person has spread it around so that you overwhelm health centers before the world shuts down travel. COVID-19 fits that bill. People become infectious, many with no or just mild symptoms, but then there is a deadly movement into pneumonia, which takes some weeks of hospitalization to treat. It would do well but not necessarily win