A (longish) thread on tradeoffs and false tradeoffs during the COVID-19 crisis
With the unrelenting drop in the stock market and off-the-charts UI claims, there are growing concerns that the economic costs of the “cure” are worse than the health costs of the “problem”
With the unrelenting drop in the stock market and off-the-charts UI claims, there are growing concerns that the economic costs of the “cure” are worse than the health costs of the “problem”
Tradeoffs are central to economics. Many of our canonical models are designed to illustrate tradeoffs and we are quick to point out tradeoffs (aka unintended consequences) when they are ignored
Because of tradeoffs, reasonable people with shared goals can disagree simply because they have different views of the underlying elasticity of labor supply, degree of moral hazard, etc that determines optimal policy.
However, when it comes to COVID-19, the tradeoffs I think are *greatly overstated*. Indeed, I’m worried that the language of tradeoffs is being co-opted by outsiders who are shortsighted or pushing for corporate cronyism. We economists should get ahead of this ... and call BS.
False tradeoff #1: The virus vs. economy.
As @Austan_Goolsbee tells us, the first rule of virus economics is that the best thing for the economy is anything that slows the spread of the virus (🛑🦠➡️💰)
As @Austan_Goolsbee tells us, the first rule of virus economics is that the best thing for the economy is anything that slows the spread of the virus (🛑🦠➡️💰)
Spending more on PPE, ventilators, and ICU capacity both slows the virus and stimulates the economy
Even lockdowns, which harm the economy in the short run, allow us to transition to less aggressive measures over the medium run and are therefore good for the economy.
Even lockdowns, which harm the economy in the short run, allow us to transition to less aggressive measures over the medium run and are therefore good for the economy.
False tradeoff #2. Financial assistance vs. work incentives.
Writing in the @WSJ, Laffer and Moore criticize Democrats for their strategy of “paying Americans not to work”.
wsj.com/articles/obama…
Writing in the @WSJ, Laffer and Moore criticize Democrats for their strategy of “paying Americans not to work”.
wsj.com/articles/obama…
This argument was overplayed during the Financial Crisis, but it was at least it was a theoretical possibility at this point. Now, the point is to get people *not* to work.
I’m going to be generous and assume that Laffer and Moore made a sign error when doing their homework.
I’m going to be generous and assume that Laffer and Moore made a sign error when doing their homework.
So why is there so much discussion of tradeoffs? I’m worried that the debates are not about real tradeoffs but are about shortsightedness or providing a fig leaf for corporate cronyism.
Lifting suppression measures is not about the tradeoff b/w the economy and the virus. There are no reasonable discount rates where the benefits of lifting measures now can be rationalized relative to the harm they will cause to in future to the economy and human health.
Providing cash for airlines or the cruise industry is not about the tradeoff b/w the economy and the virus. There are no elasticities that can rationalize bailing out airline shareholders who receive a premium exactly because they are exposed to this type of risk.
Over the coming weeks, we will see many arguments couched in terms of the economy vs. virus tradeoff. When there are real tradeoffs at stake, we should participate in these debates.
But let's also be on the lookout for politicians dressing up shortsightedness or corporate cronyism in the language of economic tradeoffs … and let’s make sure we call BS.
