Economies in the Time of Coronavirus

Years from now we will look back on the Covid-19 pandemic as a source of much new information, not just about epidemic disease and how to manage it, but about structural features of the world’s economies that were made clearer by the crisis and how it was handled, both well and badly.  In the meantime, we can begin to speculate about what we will have learned when the pandemic is history, and what we must still learn to prepare for dealing with its continuation, and with future pandemics.

  1. Supply chains, both global and domestic, were subjected to unusual stresses.

As soon as Covid-19 arrived in American hospitals, it became clear that the supply chain of protective gear for health workers was global, and fragile. Face masks in particular turned out to be disproportionately supplied by factories in Hubei Province, the home of Wuhan, where early shutdowns had already been put in place. So it was that, just as the demand for masks soared, the supply was cut short.

Domestic supply chains were also disrupted: American store shelves were quickly bare of disinfectants, and, more surprisingly, of staples like toilet paper and baking supplies like flour and yeast. (As families sheltered in place, home baking had a surge in popularity, including products that could be made without hard to find yeast, such as sourdough bread.) These shortages were driven by increased demand, but in some places shortages were also driven by disruptions in supply logistics. (Matt Lowe and Ben Roth (2020) observed this, dramatically, at  Delhi’s Azadpur Mandi, the largest wholesale produce market in India, where the arrivals of fruits and vegetables plummeted and prices rose following the imposition of a lockdown that included limitations on interstate travel.)

Price adjustments and entrepreneurial ingenuity brought most of these supply chains back into balance, if sometimes slowly. As restaurants were locked down in the U.S., companies that deliver food directly to homes increased the scope of their operations, from groceries (e.g. Instacart), to ready to cook meals (e.g. Gobble), to fully prepared meals (e.g. Doordash), sourced from a growing roster of restaurants that in many cases had rushed to develop  takeaway options when they had to close their dining rooms.

However, there is considerable consensus that, in an emergency, life-saving goods in short supply should not be allocated primarily by prices. For example, a majority of economists polled by the University of Chicago’s IGM Expert Panel (2020) agreed with the statement “Governments should buy essential medical supplies at what would have been the market price and redistribute according to need rather than ability to pay.

Cramton et al. (2020) offer some thoughts on how markets could better be organized to transition between price-based and emergency allocation phases more gracefully when needed. They use as examples markets for electricity in the U.S. in which emergency procedures kick in automatically when there is a disruption of supply (Cramton, 2017); and food banks that distribute free food to the needy, among which supplies are allocated, for free (except for transport costs),  by a bidding system that uses artificial money as an accounting tool (Prendergast, 2017).

Next time we have to be prepared to handle supply chains better.

  1. Labor markets were also shocked when economies locked down.

 One widely implemented policy in pandemic hotspots was that all but essential workers were told to stay home. It turns out that many workers are essential to keep economies going. McCormack et al. (2020) observe that 40% of adult workers in the U.S. were classified as essential workers, and a quarter of them earn less than $40,000. That is, they are not all wealthy doctors, but include many other kinds of health workers as well as many of those workers involved in the manufacturing, transport and sales of food and medicines, and other essential goods and services.

Both for those who were essential and continued to work (and were thus left exposed to infection) and those who were required to stay home from work, this kind of lockdown exacerbates the consequences of wealth inequality. Prosperous office workers can often  work remotely, and continue to be paid, but many manual workers can’t work remotely, and when government stimulus payments to maintain employment run short, they become at least temporarily unemployed.

The usefulness of incentives to maintain employment can, however, survive beyond their effective date, since when the economy opens up again the restaurants and shops that had to lay off workers are still connected with them, and employment can pick up again quickly, when workers go back to their old jobs. The situation is different for firms that wish to hire new workers during a lockdown in which they are having all workers work remotely. The processes of interviewing and “onboarding” new workers have had to be redesigned so that they can be conducted remotely. We’ve seen this most clearly in tech companies that offer digital technology that allows workers to work from home (e.g. conferencing software, cloud computing, etc): their demand for new employees has grown just as their old interviewing and hiring procedures have become unavailable. But much the same can be said for the job markets facing new high school and university graduates during lockdowns.

One reason many regions in the U.S. may be ending lockdowns early is that this kind of lockdown is very painful and costly—it disrupts ordinary life for almost everyone, and it increases unemployment sharply.  Akbarpour et al. (2020) observe that policies such as those that require all but essential workers to stay home raise unemployment anywhere they are applied, but may have very different effects on the spread of disease and resulting mortality, depending on the demographics and logistics of the location. They estimate for example, that in a densely populated city like Chicago, allowing only essential workers to work sharply cuts the death rate from the virus, but that in more sparsely populated places it has little effect on the death rate. These differences will also apply to the timing and effects of emerging from lockdowns, and regional authorities will be wise to consider them carefully.

Next time we have to be prepared to handle labor markets better.

  1. Unwinding lockdowns, and preparing for the next one

 We face some immediate and short-term tasks, for dealing with the current pandemic, and some longer-term goals to prepare better for the next one.

In the very near term, we have to prepare both to emerge from lockdowns, and to deal with the continuing threat of infection as we do so. (Some of the difficulties of riding a tiger become apparent only when it is time to dismount.)

Among the goods and services that were in short supply as the pandemic hit were test kits to see who was infected, and the ability to process them quickly, in large numbers. That shortage is fading, and we are beginning to see better tests, i.e. tests that are less invasive, less likely to expose health care workers to infection, more accurate, and faster to process than those that were initially available. Fast available testing will make it easier to make nuanced decisions about who can return to work and who must stay home in temporary quarantine.

Testing policies will have to keep in mind what economists know well, which is that there may be perverse incentives in play. Some people will be very eager to return to work, and might be willing to do so even when they risk spreading infection. Others may be happy to work from home (especially if there is risk of infection at work) and may not wish to return to work even when they themselves do not pose a risk to others. And if those who have been infected and have recovered  (e.g. who test positive for antibodies) are treated differently than others, some people may feel a need to expose themselves to infection in order to enter this privileged class. So who conducts the tests, and how they are reported and recorded, will be important.

In the intermediate term, we need to develop more effective treatments for those who are infected, and vaccines that will prevent infection. While both of these depend on technical progress, economic policies will also play a role.

One possible source of treatment is from “convalescent plasma,” i.e. from antibodies in the blood plasma of people who have recovered from the disease (see e.g. Chen, 2020). Antibodies specific to Covid-19 are becoming less scarce, as recovered patients spread through the population. But much of the world faces difficulty in collecting sufficient blood plasma, because of laws that prevent plasma donors from being compensated. This is not the case in the United States, where donors can be compensated, and so the U.S. is a major exporter of plasma and plasma-derived pharmaceuticals. (I follow these issues at .)  So I anticipate that this may become one source of treatment for Covid-19, while we wait for a vaccine that will prevent infection.  

But vaccine development is also hard. Vaccines need to be developed, tested, and manufactured at scale. Testing is generally slow, and one (controversial) proposal for speeding up that process is to have controlled human infection trials (also called “challenge trials”) in which volunteer vaccine testers allow themselves to be deliberately exposed to infection (see Eyal et al. 2020, Shah et al. 2020,  and ). Proposals to speed manufacture and distribution at scale (i.e. for the billions of vaccine doses that will be needed worldwide) include having governments commit in advance towards subsidizing production and distribution (Kremer et al. 2020).

In the long term, we in the United States need to attempt once again to provide everyone with health insurance and employment sick-leave policies that will allow everyone to be treated promptly as needed, and permit people with contagious diseases to stay home from work without losing their jobs. The pandemic makes clear that such policies are public goods.  Around the world, we need to think about the fragility of supply chains for health care goods, and about how to make orderly transitions into and out of emergency policies.

We can do better, and we will if we learn from our successes and failures.


Matt Lowe and Ben Roth, “Arrivals Dropped 50% Post Lockdown. When Will Azadpur Mandi’s Supply Return to Normal?,” April, 2020, .

Peter Cramton, Axel Ockenfels, Alvin E. Roth and Robert B. Wilson, “ Borrow crisis tactics to get COVID-19 supplies to where they are needed-- Emergency procedures that keep electricity running and food banks stocked can also keep health workers in protective equipment.
Nature 582, 334-336, 11 JUNE 2020 doi: 10.1038/d41586-020-01750-6

IGM Expert Panel (2020), “Prices of Medical Supplies,” May 20, 2020, .

Cramton, Peter. "Electricity market design." Oxford Review of Economic Policy 33.4 (2017): 589-612.

Prendergast, Canice. "How food banks use markets to feed the poor." Journal of Economic Perspectives 31.4 (2017): 145-62.

McCormack G, Avery C, Spitzer AK, Chandra A. Economic Vulnerability of Households With Essential Workers. JAMA. Published online June 18, 2020. doi:10.1001/jama.2020.11366

Mohammad Akbarpour, Cody Cook, Aude Marzuoli, Simon Mongey, Abhishek Nagaraj, Matteo Saccarola, Pietro Tebaldi, Shoshana Vasserman, Hanbin Yang, “ Socioeconomic Network Heterogeneity and Pandemic Policy Response,” June, 2020, NBER Working Paper No. 27374.

Chen L, Xiong J, Bao L, Shi Y. Convalescent plasma as a potential therapy for COVID-19. The Lancet Infectious Diseases. 2020 Apr 1;20(4):398-400.

Eyal N, Lipsitch M, Smith PG. Human challenge studies to accelerate coronavirus vaccine licensure. The Journal of infectious diseases. 2020 May 11;221(11):1752-6.

Shah SK, Miller FG, Darton TC, Duenas D, Emerson C, Lynch HF, Jamrozik E, Jecker NS, Kamuya D, Kapulu M, Kimmelman J. Ethics of controlled human infection to study COVID-19. Science. 2020 May 7.

Kremer M, Levin J, Snyder CM. Advance Market Commitments: Insights from Theory and Experience. AEA Papers and Proceedings 2020 May (Vol. 110, pp. 269-73).

This is largely drawn from the perspective of the U.S. experience. (Many of these topics are touched on in my Market Design blog, at those posts labeled “corona”: . )

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