How Does the Economy Behave Under Covid-19?
The COVID-19 pandemic causes some critical market failures: person-to-person transmission, individuals not knowing if they are infected (due to asymptomatic cases and insufficient testing), uncertainty regarding duration and extent of pandemic, tendency to overreaction by individuals and population groups, and a moral risk. In the absence of public intervention, these factors contribute to a significant decline in economic activity, coupled with a significant increase in illness and death rates, thus requiring a policy which addresses both these outcomes. The study presented at the outset of the discussion, which combines a macroeconomic model with an epidemiological one and is predicated on the assumption that individuals do not have definite knowledge of their medical condition, facilitates a comparison between a policy of total distancing (full lockdown) and one of smart distancing (selective lockdowns informed by smart data and abundant testing), as well as an examination of the effect of testing. This study shows that smart distancing reduces both the decline in GDP and the increase in death rates, when compared to total distancing. Furthermore, carrying out tests without utilizing the option for quarantine may aggravate both economic and health consequences of a pandemic, while using tests to quarantine subjects who test positive has a great social benefit, as this policy makes it possible to maintain health levels without a major decrease in economic activity. Therefore, the recommended policy is smart distancing, in order to reopen the economy and minimize the decline in GDP while managing health risks. Such a policy strikes a finer balance between the various factors which need to be considered during a crisis and provides the economy with the breathing space required for containing the pandemic, without causing irreversible damages. This policy is based on providing transparent information to the general public; abundant, fast testing; maximizing the medical information accessible to individuals concerning their health through several sources and supporting apps; and differentiating lockdowns while exempting low-risk regions, age groups and industries, and maintaining possibility of total distancing in areas where transmission rates are exceptionally high and contribution to GDP is low.
The Aaron Institute's presentation was followed by comments from the following speakers: Prof. Avi Simhon, Chairperson of the National Economic Council; Ayelet Nahmias-Verbin, Esq., Vice President of the Manufacturers' Association of Israel and former Member of Knesset; Major General (res.) Amos Yadlin, Executive Director of the Institute for National Security Studies, Tel Aviv University; Prof. Ran Balicer, Founding Director of the Clalit Research Institute and Chairperson of the Israeli Society for Quality in Healthcare; Mr. Asaf Wassercug, Deputy Director of the Budget Department, Israel Ministry of Finance; Prof. Eyal Leshem, an expert on infectious diseases, Director of the Center for Travel Medicine and Tropical Diseases, Sheba Medical Center; Prof. Kobi Glazer, Head of the Kovens Institute for Health Systems' Management, Professor of Economics at the Coller School of Management in Tel Aviv University and the Department of Economics in the University of Warwick; Prof. Dov Schwartz from Ben-Gurion University, former Chief Scientist of the Israel Atomic Energy Commission; Mr. Yarom Ariav, Chairperson of the Executive Committee of Ben-Gurion University of the Negev; Dr. Adi Brander, Head of Macroeconomic Policy Division, Bank of Israel; and Prof. Yona Rubinstein from the London School of Economics.
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