2020 - THE ECONOMIC CONSEQUENCES OF THE COVID-19 PANDEMIC

Christian TYBRING-GJEDDE (Norway)

17 June 2020

The global community is currently undergoing the most consequential pandemic since the outbreak of Spanish influenza in 1918-19. Pandemics, however, are not as rare as many have thought. Indeed, there have been four major pandemics over the last 120 years when flu viruses genetically mutated, and the resulting novel viruses overwhelmed humanity’s natural defences: 1918, 1957, 1968, and 2009. The lethality of these diseases, however, has varied considerably. The so-called swine flu of 2009, for example, proved mild in its health impacts, unlike the 1918 influenza, but it spread widely and rapidly because of the high rate of global integration and dense global travel networks.

It is too soon to fathom the toll that the current outbreak of the COVID-19 virus will exact on Western societies and the world as a whole, but initial indications are that the economic costs will be substantial and are likely to be felt for several years at least. What is particularly worrisome is that this infectious virus has made it very difficult to carry out normal human interaction and compelled millions of people to remain home and to venture out only for the most essential reasons. This has effectively put a sudden stop to entire categories of human and economic activity. The global economic consequences have been substantial and could prove catastrophic if not properly managed.

It is essential that parliamentarians and policymakers understand the underlying economics of pandemics as they are charged with formulating approaches to managing both the crisis and its daunting aftermath. There have been a number of economics papers published in recent years seeking to model the macro- and microeconomic impacts of pandemics. The purpose here, however, is neither to build a model nor delve deeply into this important and instructive literature. It is rather to illustrate the various economic forces at play and how these could shape the policy calculations that governments are likely to undertake to mitigate the immediate impacts of pandemics. It will also seek to identify the ways societies might best cope with longer-term costs while also hedging against future pandemics in far more serious ways than has been done in the past.