Pandemic Economics

Thomas R. Sadler

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000411355
• Edition: 1
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

Pandemic Economics applies economic theory to the Covid-19 era, exploring the micro and macro dimensions of the pre-pandemic, pandemic, and post-pandemic phases.

Using core economic tools such as marginal analysis, cost-benefit analysis, and opportunity cost, this book explores the breadth of economic outcomes from the pandemic. It shows that a tradeoff between public health and economic health led to widespread problems, including virus infections and unemployment. Taking an international and comparative approach, the book shows that because countries implemented different economic policies, interventions, and timelines during the crisis, outcomes varied with respect to the extent of recession, process of recovery, availability of medical equipment, public health, and additional waves of the virus.

Pedagogical features are weaved throughout the text, including country case studies, key terms, suggested further reading, and discussion questions for solo or group study. On top of this, the book offers online supplements comprising PowerPoint slides, test questions, extra case studies, and an instructor guide.

This textbook will be a valuable resource for advanced undergraduate and postgraduate courses on pandemic economics, macroeconomics, health economics, public policy, and related areas.

1 Introduction to pandemic economics

Learning objectives

After reading this chapter, you will be able to:

1. LO1 Describe the field of pandemic economics.
2. LO2 Discuss the economic approach and its application to the study of pandemics.
3. LO3 Analyze the origin of the coronavirus pandemic.
4. LO4 Assess the history and economic implications of previous pandemics.
5. LO5 Analyze the rules of pandemic economics.

Chapter outline

• Pandemic economics
• The economic approach
• A pandemic origin story
• Previous pandemics and economic history
• Rules of pandemic economics
• Summary

Pandemic economics

The disease Covid-19, which emerged in December 2019, is caused by severe acute respiratory syndrome coronavirus (SARS-CoV-2), named because of its genetic relationship to the virus responsible for the SARS outbreak in 2003. After emerging in China, Covid-19 quickly spread throughout Asia, Europe, North America, and the rest of the world. On March 11, 2020, the World Health Organization declared it a pandemic. The International Monetary Fund’s Managing Director Kristalina Georgieva (2020) anticipated the “worst economic fallout since the Great Depression.” Economic contagion spread from the developed world to low-income countries across Asia, Africa, and Latin America.

In response, federal governments implemented unprecedented controls, including household lockdowns, economic shutdowns, and quarantine orders. Government stimulus plans proved to be expensive palliatives, not cures. Exposures and deaths rose, while national economies fell. Anxious to get people back to work, countries experienced rising healthcare costs, social anxiety, and medical shortages. Economic sectors experienced supply shocks (mining and manufacturing), demand shocks (transportation and tourism), or both (restaurants). Unequal outcomes occurred. Members of marginalized communities with pre-existing health conditions, less access to medical care, and poor environmental quality experienced higher rates of morbidity and mortality. Gender inequalities existed with essential work, childcare, and employment (Sevilla and Smith, 2020). At the same time, people in high-income occupations, while implementing defensive measures to avoid the disease, were relatively immune from the economic downturn.

Urbanization and the growing connectivity among metropolitan centers contributed to the risk of contagion. The geographic spread of the disease affected the lives of hundreds of millions of people. The complexity of human mobility and the difficulty of containment strategies complicated the global response. Reacting to growing economic hardship, more than eighty countries sought help from the International Monetary Fund (Elliott, 2020a). As the pandemic progressed, many analysts wondered if the global economy would ever be the same. Writing in Foreign Policy, Adam Tooze (2020), director of the European Institute at Columbia University, argued that “There has never been a crash landing like this before. There is something new under the sun. And it is horrifying.” With the disease spreading through global transmission networks, epidemiologists argued that humanity would struggle to contain future outbreaks. Economists warned that rising costs would cripple economies. At the intersection of these economic and health crises, the field of pandemic economics was born, the study of pandemics from an economics perspective.

The economic approach

The field of economics analyzes society’s material wants under the condition of scarcity. To develop the area of pandemic economics, this book uses the economic approach, which combines assumptions of market equilibrium, maximizing behavior, and consumer preferences. To study individual topics, economists use their analytical toolboxes, filled with economic tools and concepts. In this book, readers will encounter economic methodology that is common in principles of economics courses.

Economic methodology

One example of economic methodology is cost-benefit analysis. After a disease outbreak becomes an epidemic and then a pandemic, most countries attempt to slow its transmission. Public sectors implement shutdown orders to shutter targeted segments of the economy. By reducing the risk of exposure, these policies create a public health benefit. Economic costs, however, include lost jobs and income. To determine the overall effect, a cost-benefit analysis balances the economic costs with the health benefits.

Another example of economic methodology is the concept of tradeoffs. The reason that economists think in terms of tradeoffs is we live in a world with limited resources. Tradeoffs result from the condition of scarcity—the state of being in short supply—which is the root of society’s economic problems. During a pandemic, public sectors allocate resources to support public health, but then fewer resources are available to aid workers and businesses. Gordon Brown, former Prime Minister of Great Britain (2007–2010), when discussing the coronavirus pandemic, explained, “The more you intervene to deal with the medical emergency the more you put the economy at risk” (Elliott, 2020b). In this context, the opportunity cost of an extended economic shutdown means the value of the most desired but foregone alternative.

A potential tradeoff exists between efficiency and equity. Efficiency occurs when society receives the most it can from its scarce resources. Equity exists when those benefits are distributed fairly. That is, efficiency refers to the size of the economy while equity refers to how output or income is divided among members of society. But when the public sector implements economic or health policy, these goals may conflict. During a pandemic the public sector deems certain workers as “essential” or necessary to keep the most important segments of the economy operating, even when the disease is spreading. The problem with this approach is that many essential workers have lower-income status, pre-existing health conditions, and less access to he...