The American economy—like those of many countries—is reeling. As COVID-19 forces businesses to shut their doors and consumers to retreat within their homes, the stock market has plummeted and unemployment-insurance claims have skyrocketed. Many people are predicting that we will soon experience a severe recession, in the United States and around the world.
So it may come as no surprise that in this gloomy environment, there are growing concerns that the economic costs of mitigating the spread of COVID-19—through social distancing and/or isolation, the approaches favored by many health experts—are worse than the health costs we would incur by relaxing such measures. As US president Donald Trump put it on Twitter, “We cannot let the cure be worse than the problem itself.”
Trade-offs are central to economics. Many of our canonical models are designed to illustrate them, and economists are quick to point out trade-offs, or “unintended consequences,” when they are ignored by policy makers.
Because of these trade-offs, reasonable people with a shared goal can disagree, simply because they have differing views of, for instance, the elasticity of labor supply (how workers respond to changes in after-tax wages), the degree of moral hazard (how people respond to the out-of-pocket price of health care), and so on.
However, when it comes to COVID-19, the conventional economic trade-offs are greatly overstated. Indeed, I’m worried that the language of trade-offs is being co-opted to push for shareholder bailouts and corporate cronyism. Some of the “trade-offs” being weighed in discussions of policy are not trade-offs at all. We economists should get ahead of this and call it what it is: nonsense.
In the public debate over how to treat the virus and how to minimize the resulting economic damage, two false trade-offs have been particularly pernicious.
False trade-off No. 1: The virus versus the economy
“Anything that slows the rate of the virus is the best thing you can do for the economy, even if by conventional measures it’s bad for the economy,” my Chicago Booth colleague Austan D. Goolsbee told the New York Times’ David Leonhardt.
This should be the first rule of virus economics. Prioritizing the medical battle against COVID-19 helps us in the economic battle on two fronts. When we spend more on personal protective equipment (such as the masks, gowns, and gloves used by health-care professionals), ventilators, additional hospital space, and other health-care infrastructure, this both slows the virus and injects money into the economy. When government officials instruct citizens to stay home except for essential errands, this harms the economy in the short run, but allows us to transition to less aggressive measures over the medium run, and is therefore also good for the economy.
False trade-off No. 2: Financial assistance versus work incentives
In a March 20 Wall Street Journal op-ed, economists Arthur Laffer and Stephen Moore criticized Democrats for their strategy of “paying Americans not to work.” They wrote of their concerns that policies such as paid leave for workers and enhanced unemployment insurance would make the economic crisis more severe and the eventual recovery more difficult.
Conservative political observers made similar complaints ad nauseam during the 2008–09 financial crisis, and whether or not their concerns were valid, they were at least theoretically plausible. The theory of incentives tells us that while it may be desirable to give people assistance when they’re unemployed, it will dampen their incentives to find work.
Today, however, we really do want people not to work. The same catastrophic event that’s shuttered many small businesses has also made it prudent for a huge portion of the workforce to stay at home. The policy goal for the time being is not to create a deluge of new jobs, but to keep citizens economically secure until it’s safe for them to return to work.
A disingenuous debate
So why is there so much discussion of trade-offs? I’m worried that the debates are not about real economic trade-offs but instead are about shortsightedness, or providing a fig leaf for corporate cronyism.
Those who think we should start relaxing coronavirus-suppression measures such as shelter-in-place orders are severely shortsighted. There are no reasonable discount rates whereby the economic benefits of lifting such measures now can be rationalized relative to the harm experienced in future months from the increased spread of the disease.
Questions about whether we should provide cash for airlines or the cruise-ship industry should not be framed in terms of a trade-off between helping the economy or defeating the coronavirus. There is no economic rationale for bailing out airline shareholders, who receive a premium for their investments exactly because they are exposed to this type of risk, and even less rationale for bailing out cruise ships that register under foreign flags to avoid US taxes and labor laws.
Over the coming weeks, we will see many policy arguments, and often they will be couched in the language of economic trade-offs. While there are real economic trade-offs, and economists should participate in debates about them, we should also be on the lookout for politicians dressing up bad ideas in such language—and call them out when they do.