VoxEU Column COVID-19

Lockdowns, economic contraction and public investment in treatment capacity: Views of leading economists

With severe lockdowns in place across much of the world to counter the spread of the coronavirus, the IGM Forum at Chicago Booth invited its panel of leading US economists to express their views on interactions between containment measures and economic activity, and the need for public investment to support the medical response to the health emergency. This column reveals a strong consensus among the experts that abandoning lockdowns prematurely will cause greater economic damage in the longer term. There is also unanimity on the need for more US government spending on expanding treatment capacity: building temporary hospitals, accelerating testing, making more masks and ventilators, and providing financial incentives for the production of a successful vaccine.

Just three weeks ago, the likelihood of a major US recession as a consequence of the global pandemic was still in question. In the last few days of March, the number of claims filed for unemployment insurance hit record levels (Department of Labor 2020); the total number of COVID-19 cases in the United States went past 150,000, already substantially higher than the totals in Italy and China (Worldometer 2020); and parts of the country have imposed lockdowns – closing non-essential businesses and requiring people to stay at home as much as possible (Ornelas 2020).

The IGM Forum at Chicago Booth, which, for nearly a decade, has been regularly polling some of the world’s top economic experts in the United States and Europe for their views on topical issues of public policy, invited its US panel to express their views on the policy response to the COVID-19 crisis – in particular, the interactions between containment measures and economic activity, and the need for investment to support the medical response to the health emergency. 

Following the standard format of the IGM polls, the experts were asked whether they agreed or disagreed with the following statements, and, if so, how strongly and with what degree of confidence:

a) A comprehensive policy response to the coronavirus will involve tolerating a very large contraction in economic activity until the spread of infections has dropped significantly.

b) Abandoning severe lockdowns at a time when the likelihood of a resurgence in infections remains high will lead to greater total economic damage than sustaining the lockdowns to eliminate the resurgence risk.

c) Optimally, the government would invest more than it is currently doing in expanding treatment capacity through steps such as building temporary hospitals, accelerating testing, making more masks and ventilators, and providing financial incentives for the production of a successful vaccine.

Of the 44 US experts, 41 participated in this survey and the balance of opinion on the three statements are summarised below. More details on the experts’ views come through in the short comments that they are able to make when they participate in the survey. Several provide links to relevant research evidence, including the web page set up to collect policy proposals for mitigating the economic fallout from COVID-19 written by the network of economists associated with the IGM Forum, many of them also associated with CEPR.

Economic contraction and the spread of infections

On the first statement, weighted by each expert’s confidence in their response, 66% of the panel strongly agreed, 31% agreed, 3% were uncertain, and none disagreed.

Among the comments, Larry Samuelson (Yale) notes: ‘We have already seen one of the quickest and most severe contractions in history, with no immediate end in sight.’ Bengt Holmstrom (MIT) concurs: ‘Economic activity already down and will hardly pick up until pandemic under control and fear abates.’

Angus Deaton (Princeton): ‘We don't quite know how bad it will be, or exactly what "very large" means. But spirit is right’; while Kenneth Judd (Stanford) is more optimistic: ‘Yes, there will be a "very large" contraction, but with a short duration, hopefully just several weeks.’

Aaron Edlin (Berkeley) alludes to the link between the public health crisis and the economy: ‘We need a lockdown and random testing until we know either A. that the virus is under control or B. that mortality is low.’ Similarly, Anil Kashyap (Chicago) comments: ‘Slowing the disease spread requires social distancing and less labor supply – we don't want to fully offset this’, adding a link to his analysis with three colleagues of three pillars of the economic policy response to the Covid-19 crisis (Budish et al. 2020).

Several panellists refer to the appropriate policy response when tolerating an economic contraction is necessary for public health reasons. Alberto Alesina (Harvard), for example, states: ‘Fiscal policy will be needed to support the weakest during the recession.’ Jose Scheinkman (Columbia) says: ‘It is crucial to preserve capacity of firms of all sizes to return rapidly once social distancing is no longer necessary.’ Christopher Udry (Northwestern) adds: ‘There are many steps we can take that both will reduce the contraction and reduce lives lost. Most obviously vastly improved testing.’

Others express further caveats. James Stock (Harvard) argues that: ‘Spread of infections must drop to point health system can handle; will be contraction; but not clear suppression is desirable goal.’ Robert Shimer (Chicago) says: ‘There are other reasons to stop tolerating the contraction, e.g. effective treatments, evidence that mortality rates are not too high, etc.’ And Daron Acemoglu (MIT) notes: ‘Containment doesn't mean complete elimination. May be optimal to stagger return to work for low-risk groups once peak-disease is gone.’ 

Sustaining severe lockdowns

On the second statement about the potential impact of the length and severity of lockdowns on total economic damage, again weighted by each expert’s confidence in their response, 57% of the panel strongly agreed, 32% agreed; 11% were uncertain, and none disagreed.

In comments, several panellists mention the evidence from epidemiology. Darrell Duffie (Stanford) links to the widely discussed Imperial College London (2020) report on strategies for mitigation and suppression, saying: ‘The epidemiology studies imply severe economic damage in the form of additional loss of human life (to which I assign high economic damage).’

Michael Greenstone (Chicago) also refers to evidence on the benefits and costs of ‘flattening the curve’ for COVID -19 (Thunstrom et al. 2020): ‘Taking available epi models at face value suggests there are large welfare/economic benefits to social distancing/slowing spread of COVID-19.’ Anil Kashyap adds: ‘Everything I read suggests that premature cessation will backfire – see Andy Atkeson's (2020) analysis. 

Jose Scheinkman comments: ‘Without vaccine, likelihood recurrence is high till very high percentage infected. Optimal strategy involves multiple waves of contact reduction.’ Christopher Udry points out that: ‘The key is to reduce the likelihood of resurgence by better targeting of preventative measures. Until then, strict social distancing needed.’ 

But Penny Goldberg (Yale), who replied to the poll to indicate that she is uncertain on both this and the first question, argues that: ‘We need to know the true infection and asymptomatic rates before deciding on local lockdowns. If everyone is already infected, lockdowns will not make a difference.’ Both she and James Stock emphasize the need for data to inform the policy response (Goldberg 2020, Stock 2020a) – and he argues strongly for random testing (Stock 2020b): ‘We have insufficient data to assess and need random testing of population to ascertain true infection and death rates.’

Pete Klenow (Stanford) points to preliminary evidence on the optimal length of a total economic lockdown (Alvarez et al. 2020), and the role of testing and case-dependent quarantine (Berger et al. 2020).

Government investment in expanding treatment capacity

On the third statement on public investment in temporary hospitals, testing, masks and ventilators, and efforts to find a vaccine, weighted by each expert’s confidence in their response, 78% of the US panel strongly agreed, 22% agreed, and none were uncertain or disagreed.

Among this unanimity, panellists pass comment on a number of different policy issues. Daron Acemoglu says: ‘US federal response has been incoherent and counterproductive. Hard to understand lack of investment ahead of current situation.’ Larry Samuelson adds: ‘A timely response could have less vigorous and less expensive, but we must now intervene all the more to compensate for wasted time.’

David Autor (MIT) notes: ‘The fiscal response is awesome, but the federal health response has been abysmal.’ But Aaron Edlin warns: ‘Compare the spending in the stimulus package on these necessities vs. stimulus that spreads virus’, linking to his policy advice: don’t just flatten the curve: raise the line (Edlin 2020).

William Nordhaus (Yale) is emphatic: ‘Given the potential length and depth of downturn, it is hard to imagine overinvesting in pandemic-related investment.’ Similarly, Kenneth Judd comments: ‘Absolutely! Hard to imagine overspending on vaccine development, given likely spillovers to future work.’

He adds a link to his policy proposal to get cash to corporations quickly by the government buying newly issued preferred stock (Judd and Schmedders 2020). Another innovative policy proposal is a COVID-19 vaccine price guarantee, suggested by a team of researchers at Stanford (DeMarzo et al. 2020).

Several panellists refer to US policy failures in response to the Covid-19 crisis. Jose Scheinkman notes: ‘Though hard to measure current investment rates, government greatly underinvested when a serious epidemic became apparent in China.’ Richard Thaler (Chicago) mentions: ‘Massive incompetence in delayed testing and supplies acquisition. Thankfully some governors are stepping up.’

Robert Hall (Stanford) states: ‘The failure of executive leadership in government, especially the White House, is tragic.’ And Richard Schmalensee (MIT) concludes: ‘Some state governments are flat out, others asleep; the federal government should do more now and should prepare for the NEXT pandemic.’


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