For a long time, as health spending accounted for an ever-larger share of US GDP, I would joke that health economists were becoming macroeconomists, and that macroeconomists needed to become health economists. Sadly, the joke is now reality. The US and the global economy are in the deepest contraction since the Great Depression, owing to lockdowns to mitigate the spread of Covid-19 and prevent hospitals from being overwhelmed. Citizens are confined to their homes, and only “essential” services – food, utilities, health care, police and the like – are operating.
According to the International Monetary Fund’s most recent forecast, the US economy will shrink by almost 6% this year (compared with a contraction of about 7% in the eurozone and 5% in Japan). Private forecasters, meanwhile, foresee an annualised second-quarter decline in the US of as much as 40%, with a return to growth in the third quarter.
If the government were not spending several trillion dollars to keep businesses afloat, workers on payrolls and incomes at tolerable levels, the damage would be worse. Nonetheless, US unemployment has soared to its highest level in more than 70 years.
Fortunately, fears of the virus taking as many as 2.2 million lives in the US (under a scenario of taking no action) were quickly dispelled. Only a few hospitals, in hotspots like New York City, have been temporarily overwhelmed; with federal and state support, they have accommodated the upsurge in patients.
Tens of thousands have died, and the virus will continue to pose a threat, particularly to the elderly and those with comorbidities like diabetes, respiratory diseases, and heart conditions. But social distancing at least seems to be paying off, implying fewer hospitalisations and deaths.
And yet, the immense economic toll of the crisis also carries health risks. Household financial stress tends to lead to increased substance abuse, domestic violence, and even suicide. Some governments are under increasing pressure from workers, businesses, and others demanding an end to lockdowns. Several European countries have already begun to reopen their economies, and Donald Trump’s administration and several state governors are preparing guidelines for doing the same, in consultation with health experts.
Can the health and economic risks be sensibly balanced? The risk of returning to work and school will not fall to zero until an effective vaccine has become widely available, or until the population has achieved “herd immunity”. In both cases, that would probably take a year or longer. Still, there are several ways to reduce the health risks associated with a gradual return to normal economic activity.
For starters, ensuring sufficient hospital capacity and medical supplies would ensure that health systems in future hotspots are not overwhelmed, as would new therapeutics that can substantially reduce Covid-19’s most harmful effects on the body. There is also a clear need for substantially more testing, both for the virus itself, to prevent further community transmission, and for antibodies to determine who already be immune, as well as herd immunity levels. In California, Gavin Newsom’s administration has begun to hire thousands of people to conduct contact tracing of those who test positive, though this is bound to raise questions about governmental violations of individual privacy.
Meanwhile, widespread social distancing, continued sheltering in place for the most vulnerable and staggered shifts for essential workers will continue to play a critical role, as will individual safety precautions, such as wearing masks in public and frequent hand washing.
Compliance with such protocols will be easier for some than others: elected officials, firms, workers, and parents will face difficult choices. Actions taken (or not taken) now will produce different results at different times, and the longer-term consequences of any given response will not be easy to predict. Pursuing all of the aforementioned pandemic-response measures simultaneously makes sense, but so does an approach that considers the trade-offs.
For example, if antibody testing and new therapeutics prove effective, these two measures combined could substantially reduce the risks from Covid-19. Recognising that some adjustments and temporary reversals may still be necessary, these interventions can guide decisions about reopening the economy. Moreover, we can learn from other countries. While Denmark is now reopening schools for the youngest children, Singapore is returning to lockdown mode, and Sweden is only beginning to impose one in earnest.While these decisions should be based on a rational consideration of economic and health risks, it would be naive to think that politics won’t factor into pandemic policymaking. With the US presidential election approaching in November, partisan finger-pointing and negative campaigning have already begun. Democratic governors will be pressured to distance themselves from decisions made by the White House; Republicans will be expected to embrace the same decisions.
Either way, the election was always going to be a referendum on Trump’s performance and conduct in office. The focus now will be on his handling of the pandemic and reopening of the economy. Trump and his fellow Republicans will accuse congressional Democrats of delaying a rescue package, and Democratic governors of flubbing their responses to the crisis. Joe Biden, Trump’s presumptive opponent, and his fellow Democrats will level the same charges against the president and other Republican leaders.
And yet, the biggest bungle so far was not made by a politician. That prize goes to the US Food and Drug Administration, which initially refused to allow commercial labs to develop and analyse Covid-19 tests. Instead, it granted a monopoly to the US Centers for Disease Control and Prevention, which proceeded to botch its first round of tests, causing a delay of several crucial weeks. Fortunately, both agencies have since improved their performance.
Looking ahead, if the Democrats take the White House and the Senate while retaining control of the House of Representatives, they will pursue a radical expansion of the size and scope of government, redistributing incomes and raising taxes along the way. In an economy still reeling from near collapse, these policies inevitably will delay full recovery by raising costs and creating uncertainty. That, after all, is what a newly elected Barack Obama and congressional Democrats did during the Great Recession, despite early warnings from me and others. It turned out to be slowest economic recovery since world war two.
Michael J Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution