How will COVID-19 impact the economy?
Economics professor Stephen M. Miller shares his insights in this exclusive interview.
- Stephen M. Miller, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, gives insight into how the COVID-19 pandemic impacts American economies.
- Calling it a "trade-off between public health and economic health," Miller explains why social distancing is a necessary measure to avoid a total crash of economies.
- The SIR model, which is a guide to assessing how much of the population is actively infected, shows what could happen if the active cases of infection goes above 10% of the population.
COVID-19 and the American economy
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From non-essential businesses closing down to people experiencing temporary loss of work - what will the economic impact of this pandemic be in the near and distant future?
Stephen M. Miller, director of the Center for Business and Economic-Research at the University of Nevada, Las Vegas, agreed to chat with Big Think to answer some of the most pressing questions about how pandemics such as COVID-19 can impact the American economy.
COVID-19 - the trade-off between public health and the health of the economy
"The COVID-19 event caused a trade-off between public health and economic health," explains Miller. "In order to protect public health, governors felt it necessary to lock down their state's economies by closing down non-essentials and asking residents to go home."
This lockdown, according to Miller, is considered an adoption of nationally social-distancing regulations which has seen an instantaneous recession. He goes on to explain the risk of bankruptcy many small businesses are facing:
"The exposure [to facing bankruptcy] that businesses face depends on the liquid reserves they hold that they can use to survive a large loss of revenue from declining business activity."
While there is no way to tell just how deeply small businesses will be impacted, it will likely involve many small business closures.
What is the trajectory of COVID-19's impact on the economy?
Miller says that the effect on the American economy depends on the length of the pandemic. The longer COVID-19 lingers, the deeper the impact on the economy will be and the longer it could take for businesses and residents to recover.
What can people do to help the economy during these difficult economic times?
"People can follow the guidance of public health officials on social distancing and staying at home to solve the pandemic problem. The federal government has a big role to play in building bridges across the time the pandemic shuts down the economy, bridges for workers and small businesses so that the economy can take off again after the pandemic ends."
Can past pandemics give us an idea of what to expect about the short and long-term repercussions of COVID-19 on the American economy?
"This event appears to conform to the characteristics of the Spanish Flu in 1918-1919," explains Miller, "[That] pandemic killed 675,000 individuals in the US (0.8% of the 1910 population). Given today's population of 331 million, that translates into about 2.6 million deaths."
Miller further explains that our healthcare system and the structures in place to re-balance the American economy are much improved since the 1900s – however, our much-improved geographic mobility makes the transmission of a pandemic more problematic than it was in the past.
The SIR model
How can we estimate the damage caused to our economy from COVID-19?
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The SIR model is a guide to assessing the spread of an epidemic in a population in which the total population is divided into three categories:
- Susceptible (S)
- Actively Infected (I)
- Recovered/Deceased (R)
How an epidemic pans out vastly depends on the transition rates between these three categories. According to recently published working paperecently published working paper by UCLA professor Andrew Atkeson, special attention will need to be given if the fraction of active infections throughout the population exceeds 1%. At this point, the health system forecast will be severely challenged.
Trajectory shows that if the fraction of active infections were to reach 10% or higher, this would result in staffing shortages for key financial and economic infrastructure, which could have devastating results.
The main conclusion of this paper is that the evolution of COVID-19 in the United States (and worldwide) will likely require social distancing measures to be maintained for an entire year or longer until a vaccine can be developed to avoid severe public health and economic consequences.
The economic costs of social distancing will be felt deeply across every state's economy as businesses close and employees are instructed to stay home, but the cost of a large cumulative burden of lost work time due to the disease further spreading could be much higher.
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