How Economists Are Trying to Answer Coronavirus Questions

Ernesto Stein, an economist at the Inter-American Development Bank, normally spends his time thinking about industrial policy in Latin America. But recently, a map in The New York Times caught his eye. It illustrated how hospital systems in some regions of the United States would be quickly overwhelmed by the spread of the coronavirus while others still had resources to spare.

This, Mr. Stein thought, was a problem that economists could help solve: A “market” in ventilators — in which hospitals in states with ventilators to spare lent them or rented them to hospitals in needy states — could help ease shortfalls and perhaps save millions of lives. This market doesn’t exist, though, because there is no enforceable rule or covenant — what economists call a commitment device — that ensures that needy states would give them back.

“Commitment problems are important in the world of economics,” Mr. Stein noted. So he wrote a blog post about it, which he hopes Gov. Andrew M. Cuomo of New York will read.

Epidemiologists, virologists and other health experts are throwing everything they have at understanding the new coronavirus, hoping to develop treatments, vaccines and strategies to slow its spread and limit its toll. But economists, too, have broken from other work to explore what they can add to understanding a world upended by disease.

Every Monday, the National Bureau of Economic Research puts out a batch of “working papers,” offering an early view of research from the world’s top economists. The most recent list included a paper on how more intensive testing for the coronavirus would allow for less strict quarantines, a piece about how mobility restrictions reduced the spread of the disease in China, one on how to assess the costs and benefits of different policies to reduce the coronavirus transmission rate and another about strategies to ensure compliance with stay-at-home orders in Italy.

One study just published looked at pandemics back to the 14th century, concluding that they inhibit investment and increase savings for decades, depressing an economy’s central interest rate. Another evaluated the short-term macroeconomic shock from the virus and assessed ways to respond.

“I’ve been Zooming the halls of my department,” said Michael Greenstone of the University of Chicago, who has been meeting with colleagues remotely through the online app Zoom (and by email) to discuss what they are working on. “Even people who work on very abstract things now want to engage.”

Mr. Greenstone was a co-author of a paper on the impact of the shutdowns and stay-at-home orders aimed at containing the outbreak. Using estimates from the Environmental Protection Agency about the value of lives saved, the study estimated the benefits amounted to $7.9 trillion, or roughly $60,000 per U.S. household.

Filipe Campante, a political economist at Johns Hopkins University, had been working on and off with colleagues on a project trying to understand how fear affects people’s political choices. Their data was from the Ebola outbreak that hit the United States a month before the 2014 midterm elections. As the new coronavirus started spreading through China, it seemed relevant to the moment. “We dropped all our other research topics,” Mr. Campante said.

They published a study that found that voters assumed more conservative attitudes on immigration in response to the Ebola scare. Fear, they found, “can have a strong electoral impact,” even when the risk to Americans’ health is low. “What will the magnitude” be like, Mr. Campante asked, “given the magnitude of the shock now?”

Economics is not epidemiology. But the coronavirus pandemic brings steep economic challenges, affecting consumption, production and investment and employment. And economic policy will, to a large extent, shape society’s resilience to the emergency and what lies beyond.

“It is our job to find the set of policies that are the right ones given the circumstances,” said Olivier Blanchard, an economist at the Peterson Institute for International Economics. “The odds of making mistakes are high, and central banks and governments need all the help they can get.”

A few days ago he produced a paper noting that while prioritizing fighting the infection and providing financial relief to households and small businesses were “no-brainers,” calibrating fiscal policy was tougher because it must take into account that the disease constrains the productive capacity of the economy.

Credit...Jessica Greenstone

Chang-Tai Hsieh, an economist at the University of Chicago’s Booth School of Business, worries about how to reallocate resources after the enormous asymmetric shock of Covid-19 on the economy. Millions of jobs have been destroyed even as some companies are desperately trying to hire. Can the idled pilots and planes of Delta and American Airlines be quickly moved to, say, help UPS and FedEx cope with the surge of orders from Amazon? “Amazon Prime deliveries are now one month out,” he said.

The way the American economy ordinarily handles these shifts is too slow. Idled workers go on unemployment for a bit, then start looking for new jobs. Eventually they find a good fit. Mr. Hsieh worries that simply protecting jobs, or the income of newly jobless workers, does not help speed it up.

“You want to protect the income of furloughed pilots but make productive use of their skills,” he said. He wonders whether there is a viable model in the approach taken in China, where restaurant chains negotiated agreements with big online delivery companies to take on their idled workers temporarily.

At the same time, Mr. Greenstone worries that policymakers aren’t thinking through the current containment policy until the end, especially considering that the coronavirus will remain with us until we achieve so-called herd immunity, which in the absence of a vaccine will require 50 to 70 percent of the population’s becoming infected.

“We need to think about what would a nuanced social distancing policy look like on the way down,” Mr. Greenstone said. Even if we manage to stall the spread of Covid-19 over the summer, he said, we need to assess the benefits of relaxing social distancing, and “measure that against the likelihood of a second wave.”

Addressing the economic policy challenge is, in the end, inextricably linked to dealing with the shock to the world’s public health.

Indeed, economists hold part of the answer to a critical task in defeating the disease itself: developing, and broadly disseminating, a treatment and ultimately a vaccine. Governments and philanthropies need a way to coordinate in allocating funds to the myriad efforts by public and private labs around the world.

Patents, the standard incentive to spur innovation, will encourage private pharmaceutical companies to develop a vaccine or a treatment only if there is the prospect of a big return on investment. But that will require high prices, which will limit access. Entire countries may not be able to afford treatments, along with many of the 27 million uninsured in the United States.

Michael Kremer of Harvard, a recent Nobel laureate, has for years studied alternative incentives, from prizes to patent buyouts by governments. He has also explored arrangements in which governments or philanthropies put up money to guarantee a market for the new drug, at a given price, and can then distribute it broadly.

“We should think about the full range of tools at our disposal,” Mr. Kremer said. Incentives are needed not just for the creation of therapies and vaccines, he added, but also “to ensure they are widely accessible to all.”

More immediately, there is Mr. Stein’s message for Governor Cuomo: There is a market failure here. Just as there would be no bank lending if there wasn’t a legal infrastructure assuring banks that they would get their money back, hospital systems won’t lend or rent out their ventilators because they have no way to ensure they will get them back when they need them.

While the governor on Friday issued an executive order for hospitals to share ventilators within the state, he cannot mandate a national sharing program. Mr. Stein argues that the federal government could help by stepping in to enforce a ventilator-sharing agreement among the states, maybe even acting as a clearinghouse or offering incentives — first dibs on the new Tesla ventilators, for instance — to hospitals that agreed to lend or even rent out their machines.

This would assure hospitals with spare capacity that lending a ventilator today would not put them at risk of not having one when they urgently needed it back. That way, Mr. Stein argues, “the market will work.”

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