Economics as a science responded quickly and adequately to COVID-19. In March 2020, Baldwin and Weber di Mauro (2020a, 2020b) organised the profession’s rapid response and an impressive follow-up with the launch of Covid Economics, Vetted and Real-Time Papers, which provides real-time analyses of impact and policy. Consequently, the ‘now’ is being covered well by economics.
Similarly, the past has a clear imprint of the economist’s work. Before the COVID-19 outbreaks, economists had already stressed the risks and dismal consequences of ‘disease X’: “Few doubt that major epidemics and pandemics will strike again, and few would argue that the world is adequately prepared” (Fan et al. 2018: 129).
Indeed, a substantial pre-COVID-19 literature provides detailed analyses and estimates of potential losses of pandemics (van Bergeijk 2021: Chapter 2). Thus, the ‘past’ was also covered well by many in the field, although institutional preparation was low (Sands et al. 2016, International Working Group on Financing Preparedness 2017).
Paradoxes of achievement
It is now time to start looking to the future. Not the immediate future – economics is already working hard on that. We need to look at society’s preparedness for the next pandemic. The reason is the ‘paradox of medical and social achievement’: our impressive worldwide life expectancy has amplified our pandemic vulnerability.
Figure 1 illustrates this paradox providing a counterfactual for the Spanish flu and COVID-19, based on mortality rates by age cohort (historic data and forecasts for the world population). In the 1950s, COVID-19 would have hit a younger world population. Like the 1957–1958 Asian flu pandemic, it would have been serious but, from a longer time perspective, relatively mild as the comparison with the Spanish flu counterfactual shows. By 2070, however, the world’s population – thanks to medical and economic progress – will have aged so much that a coronavirus could ‘beat’ the Spanish flu.
Figure 1 Counterfactual: Hypothetical death rate of Spanish flu and COVID-19
Source: Figure 2.9 in van Bergeijk (2021).
Moreover, there is a second paradox: medical performance was so good that the world did not prepare for a medical breakdown, especially in the advanced economies. Here, both the public and policymakers had difficulty imagining a life-threatening situation that modern medicine could not cure. These paradoxes probably drove the policy response to the pandemic, which ultimately was the true black swan of the pandemic: for the first time in history, closing entire economies was used as a medical tool, simultaneously and worldwide.
Baldwin and Weber di Mauro already foresaw that COVID-19 is as contagious economically as it is medically. This natural policy experiment (the outburst of what I call ‘pandonomics’) has shocked the world with a multifaceted cluster of health policies and fiscal and monetary policies. The heterogeneity of the impact of the pandemic on life and livelihoods and of strategies, delivery and policies provides a unique data-rich environment that will allow detailed answers on what works and what is better to avoid.
We should, however, take time for this because our statistical apparatus, especially the National Accounts, requires processing time. Indeed, revisions of the current ‘flash’ estimates of economic activity will bring better coverage and understanding of the sectors and activities that expanded during lockdowns, including household production (van Bergeijk 2021: Chapter 4).
Moreover, in many areas, we are learning that we should not rely too much on ‘nowcasting’ based on data science techniques during periods of significant and fast changes. The data-generating processes constantly change, and machine learning does not pick up these changes on the basis of its training data (Meijerink et al. 2020).
What we do know from first principles is that the world cannot afford pandonomics again. Pandonomics is a ruin problem – a high-impact event with a high probability of surviving a single event but a low probability of surviving repeated exposures (Norman et al. 2020). We are also learning that lockdowns require discipline and endurance, and that both are in short supply in modern Western democracies.
We discover the opportunity costs of prioritising COVID-19: the health toll for the non-COVID-19 sector, the mental and societal costs that ultimately will have an impact on the population’s health, and the purely economic costs of a debt increase cum quantitative easing. Estimating the exact costs will take time because some impacts are drawn out, but the implication is already clear: we must develop alternatives to lockdowns. This form of pandemic preparation is an area where economic science and policy can make a significant contribution.
Preparing for the next pandemic
Three sub-fields of economics are relevant for pandemic preparation: political economy, societal cost-benefit analysis, and international economics. From a political economy perspective, the organisation of society is key (Wyplosz 2020). Figure 2 provides an illustration for a selection of countries and makes four points.
First, China still stands out as the country with the most stringent measures and a low death rate. Second, the worst performing G7 countries over time have taken almost as much liberty away from their population as China did, but have a much higher death rate. Third, the outcomes on the European continent vary widely, suggesting that culture, institutions, and policies matter.
Figure 2 Cumulative stringency and COVID-deaths per million population
Source: Calculations based on Oxford COVID-19 Government Response Tracker
Fourth, a comparison between Asia and Europe likewise underscores the importance of the organisation of society. A deeper investigation of different societal settings – from a Darwinian society via a Big Brother society to an autarkic autocracy – shows that bad institutions and behaviour can make us extra vulnerable. But it also illustrates that pandemic-resistant societal organisation can delay the spread of a disease (van Bergeijk 2021: Chapter 6). Unfortunately, the idea that we can stop or prevent pandemics is an illusion.
Therefore, mitigation and adaption need to be top priorities. The trade-offs between COVID-19 and non-COVID-19 suffering along many dimensions are an important topic for economists because a pandemic is, in the end, all about scarcity.
Significant investments will be necessary to enhance resilience. City planning, public transportation, workplace design, social safety nets, and education will need to be rethought. An intelligent strategy should enable a major transformation, and the public and private investments could help the economic patient recover from the pandonomics virus attacks. Here the contributions of societal cost-benefit analyses are clear. Resources are limited, and forward-looking analysis is, therefore, vital for decision-making.
Finally, international economics will argue that international policy coordination and external effects are key issues. The nation-state is not always the optimal healthcare area and certainly not during pandemics. The EU provides a clear example of highly integrated markets with free movement of people, but national health policies remain unsynchronised.
One of the basic international economics lessons is that we need global public goods for a well-functioning world economy. The best way forward is to add to World Health Organization activities and use existing structures to manage the economics of delivery of these goods (e.g. country surveillance by the IMF, OECD, and World Bank enables peer-review and sharing of best practices).
The lesson that strengthening global governance is an elementary step in pro-active pandemic preparedness is certainly not new – it has been already made with respect to Ebola, HIV/AIDS, and SARS. Our response to COVID-19 has shown that we need to take that lesson seriously.
Baldwin, R, and B Weber di Mauro (eds.) (2020a), Economics in the time of COVID-19, CEPR Press.
Baldwin, R, and B Weber di Mauro (eds.) (2020b), Mitigating the COVID economic crisis: Act fast and do whatever it takes, CEPR Press.
Fan, V Y, D T Jamison and L H Summers (2018), “Pandemic risk: How large are the expected losses?”, Bulletin of the World Health Organization 96(2): 129–34.
International Working Group on Financing Preparedness (2017), “From panic and neglect to investing in health security: Financing pandemic preparedness at a national level”, World Bank Working Paper 115271.
Meijerink, G, B Hendriks and P A G van Bergeijk (2020), “Covid-19 and world merchandise trade: Unexpected resilience”, VoxEU.org, 2 October.
Norman, J, Y Bar-Yam and N Nicholas Taleb (2020), “Systemic risk of pandemic via novel pathogens–Coronavirus: A note”, New England Complex Systems Institute.
Sands, P, A El Turabi, P A Saynisch and V J Dzau (2016), “Assessment of economic vulnerability to infectious disease crises”, The Lancet 388(10058): 2443–8.
Van Bergeijk, P A G (2021), Pandemic economics, Edward Elgar: Cheltenham.
Wyplosz, C (2020), “The good thing about coronavirus”, in R Baldwin and B Weder di Mauro (eds), Economics in the time of COVID-19, CEPR Press, 113–5.