Will Our Economy Die From Coronavirus?
It will if we keep up our current strategy.
By Paul Romer and Alan M. Garber
Covid-19, the most threatening pandemic of the past century, has precipitated both a health crisis and an economic crisis. The strategies that governments have adopted to deal with each crisis separately are contradictory and risk catastrophic, long-term failure.
Social distancing is an emergency measure that will save lives but brings economic activity to a near-halt. During the worst of the Great Depression, 25 percent of the labor force was out of work. Several days ago, on March 17, Treasury Secretary Steven Mnuchin warned Congress that the unemployment rate could soon reach 20 percent. The economic news since then has been ominous. A growing fraction of the population — about one in four Americans — is under orders to stay home.
Loan guarantees and direct cash transfers will stave off bankruptcy and default on debt, but these measures cannot restore the output that is lost when social distancing keeps people from producing goods and services.
To protect our way of life, we need to shift within a couple of months to a targeted approach that limits the spread of the virus but still lets most people go back to work and resume their daily activities.
This approach uses two complementary strategies. The first relies on tests to target social distancing more precisely. The second relies on protective equipment that prevents the transmission of the virus. Adopting these strategies will require a massive increase in our capacity for coronavirus testing and a surge in the production of personal protective equipment.
Resources, not scientific breakthroughs, are needed to expand our capacity for virus tests. If we commit to this type of expansion, technological innovations will continue to lower the cost and increase the speed of the existing tests. In many locations it has taken days to process SARS-Cov-2 tests. On Saturday, the Food and Drug Administration said it would allow a Silicon Valley company, Cepheid, to start selling a test that provides results in 45 minutes. Other firms and research groups (among them Sherlock Biosciences and the German Center for Infection Research) are working on scalable alternatives. Many hospitals are developing their own tests.
These newer tests could be so much less expensive and so much more convenient that it will be possible to test and retest everyone, not just those with symptoms. Frequent virus tests will let us identify and isolate someone who is infectious days before symptoms develop.
We could start by screening the general public on a weekly basis. It might make sense to test health care and emergency response workers daily. We do not have the capacity to do this now, but all it would take to make this happen is for the federal government to make coronavirus testing an urgent goal and to fund it accordingly.
Tests to detect antibodies to the novel coronavirus are also becoming available. If recovery confers immunity, as seems to be the case for SARS and MERS, these tests will identify individuals who would neither be harmed by exposure to the virus nor expose anyone else to the risk of infection. They would not need additional testing.
Both people with immunity and those who do not have the virus could go back to work and resume their daily activities while minimizing the risk to others.
We must also give protective equipment to anyone who does not have antibodies, because others will pose a risk to them. Few people are at greater risk than the doctors, nurses and first responders who care for infected patients. In the Lombardy region of Italy, 20 percent of health care professionals have been infected.
Widespread testing will help identify patients who are infected, and officials can encourage them to isolate themselves, but some will not obey. Others will be so sick that they need immediate care. Every health worker should have easy access to masks, gloves, gowns and face shields.
For decades, epidemiologists have warned us that we need to build a large national stockpile of such equipment to be ready when the next pandemic strikes. Because we failed to prepare, it will now take a massive surge in production to catch up.
There is a desperate need for full protective equipment, but existing ones are cumbersome — complicated to put on and remove safely. As it boosts production of traditional equipment, the government should also fund a crash program to develop new and better types of protection.
When it becomes available, this protection should be given to essential workers: first those in health care, and then pharmacists, police officers, firefighters and those who maintain public utilities and the supply of food. It should then be offered to everyone.
As long as the risk of infection remains high, we need protective equipment that anyone who works in a grocery store, and anyone who shops there, will be comfortable wearing. Without waiting for the expanded system of tests to come online, we should set an ambitious goal — within two months, a return with protective equipment for 25 percent of all workers, and within four months, 75 percent of the work force.
A conventional fiscal response on the scale we need to avoid a depression will require trillions of dollars of government spending. Investment in protective equipment and tests would be a far less expensive, better way to stimulate the economy than giveaways and transfers.
In a market economy, firms are good at meeting stable demand, but they do not stockpile in anticipation of a crisis. Now that we face a shortage, we would like firms to double or quadruple their daily output of protective equipment. But they would be reluctant to buy machinery that will be idle when the shortage is eliminated and demand returns to normal. Philanthropy like that provided by the Gates Foundation can help, but only the federal government can orchestrate and finance the dramatic industrial mobilization that we need in the face of this crisis.
In the long run, we are likely to have better options — a vaccine perhaps, or effective drug treatments. And at some point, herd immunity, when so many people have immunity that others are unlikely to encounter and fall victim to the virus, will make this coronavirus a far more manageable threat.
But we cannot afford to wait and hope. John Maynard Keynes famously quipped that in the long run, we are all dead. If we keep up our current strategy of suppression based on indiscriminate social distance for 12 to 18 months, most of us will still be alive. It is our economy that will be dead.
Paul M. Romer (@paulmromer), who received the Nobel Prize in Economics in 2018, is a professor at N.Y.U. Alan M. Garber, a physician and economist, is the provost of Harvard University.
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