How will COVID-19 impact the economy?

Economics professor Stephen M. Miller shares his insights in this exclusive interview.

concept of COVID-19 pandemic impacting economy

Can our economy bounce back from this?

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  • 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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    Photo by Maderla on Shutterstock

    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

    concept of damaged economy COVID-19 five dollar American bill with quarantine mask on

    How can we estimate the damage caused to our economy from COVID-19?

    Image by Ascannio on Shutterstock

    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:

    1. Susceptible (S)
    2. Actively Infected (I)
    3. 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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    Credit: Aaron Thomas via Unsplash
    Technology & Innovation

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    In June 2021, El Salvador became the first nation in the world to make bitcoin legal tender. Soon after, President Nayib Bukele instructed a state-owned power company to provide bitcoin mining facilities with cheap, clean energy — harnessed from the country's volcanoes.

    The challenge: Bitcoin is a cryptocurrency, a digital form of money and a payment system. Crypto has several advantages over physical dollars and cents — it's incredibly difficult to counterfeit, and transactions are more secure — but it also has a major downside.

    Crypto transactions are recorded and new coins are added into circulation through a process called mining.

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    Most of that electricity is generated by carbon-emitting fossil fuels. As it stands, bitcoin mining produces an estimated 36.95 megatons of CO2 annually.

    A world first: On June 9, El Salvador became the first nation to make bitcoin legal tender, meaning businesses have to accept it as payment and citizens can use it to pay taxes.

    Less than a day later, Bukele tweeted that he'd instructed a state-owned geothermal electric company to put together a plan to provide bitcoin mining facilities with "very cheap, 100% clean, 100% renewable, 0 emissions energy."

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    Why it matters: El Salvador's decision to make bitcoin legal tender could be a win for both the crypto and the nation itself.

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    Meanwhile, El Salvador is one of the poorest nations in North America, and bitcoin miners — the people who own and operate the computers doing the mining — receive bitcoins as a reward for their efforts.

    "This is going to evolve fast!"
    NAYIB BUKELE

    If El Salvador begins operating bitcoin mining facilities powered by clean, cheap geothermal energy, it could become a global hub for mining — and receive a much-needed economic boost in the process.

    The next steps: It remains to be seen whether Salvadorans will fully embrace bitcoin — which is notoriously volatile — or continue business-as-usual with the nation's other legal tender, the U.S. dollar.

    Only time will tell if Bukele's plan for volcano-powered bitcoin mining facilities comes to fruition, too — but based on the speed of things so far, we won't have to wait long to find out.

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    "This is going to evolve fast!" the president promised.

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