Policy Options for Tackling COVID-19 Crisis

Assistants_and_George_Frederic_Watts_-_Hope_-_Google_Art_Project
George Frederick Watts "Hope" // Public domain

The coronavirus is the current number one issue for policymakers, who have to deal with the unprecedented stress on health care systems, as well as the economic effects of travel restrictions and shutdowns. Although even medical experts struggle to understand the precise nature of the new coronavirus, it appears clear that it has the ability to spread fast, creating an exponential growth rate.

To an economist, who is not a medical expert, it seems that the core facts of the health crisis are as follows.

The virus does not appear to be very deadly per se, at least compared to, for example, Ebola or the Marburg virus. Nonetheless, even though our data is preliminary and sketchy, the fatality rate seems to be higher than the common flu’s.

Some COVID-19 patients do develop severe or even life-threatening symptoms. Risk factors include high age, as well as pre-existing health conditions such as coronary diseases or diabetes. It is, of course, good news that most people develop no or weak symptoms.

However, at the same time, containing the disease is made harder by seemingly healthy persons spreading the virus.

The core problem with the coronavirus is thus the extremely rapid spread, because even a relatively small percentage of patients requiring hospitalization and ventilation can overload health care systems.

The Status Quo

Three things seem to be clear:

1. The fatality rate rises steeply if a health care system becomes overloaded

The capacity to ventilate patients with a severely affected breathing capacity seems to be the most important threshold.

To minimize fatalities, the most common policy response worldwide was a shutdown of most, or even all, social and economic activities. This seems to be working as an immediate measure to contain the exponential growth of the virus, thereby avoiding the collapse of health care systems.

2. Lockdowns are costly

Obviously, shutting down service providers, such as restaurants and airlines, and even manufacturing, creates enormous economic costs.

Companies lose some or even all of their revenue streams. Employees have to take their holidays, go into short-time work with reduced wages, or are laid off. Small business owners and freelancers face immense losses. Tax revenues and social security payments crumble.

There are further medical and social costs that most people do not take into consideration. A lockdown might lead to an unhealthier lifestyle (e.g. less exercising, more alcohol) and might thereby exacerbate long-term medical problems.

The adverse effects of social distancing or even quarantine on people with mental health issues can be severe. The number of cases of domestic violence increases.

There are political costs as well. Even if taking a walk was still permitted under certain conditions, do we want societies where people have to give their reasons to the authorities?

3. No miracles are in sight

Most likely, there will not be a treatment for the disease in the near future. There are several ongoing studies with existing drugs developed to treat other infections. Their advantage is that they have already passed safety trials.

Conducting further trials regarding their effect on COVID-19 patients, however, will take time, and so will the production of drugs in larger quantities.

So far, no contender promises spectacularly good results. If we are lucky, there will be a treatment available from summer onwards, which will help to prevent some of the most severe COVID-19 cases. It is unclear if such a cure will be effective enough to keep health care systems from breaking down in the face of an exponential outbreak.

Of course, the best option would be an effective vaccine. There are very promising developments, but we should not expect a successful launch before spring or even summer 2021. Larger quantities of the vaccine would only be available even later.

A Real Dilemma

To summarize: Most likely, we will have to deal with the corona outbreak and the dangers to our health care systems for a year or longer until a vaccine can stop the virus. Natural immunization would most likely take even longer if we restrict infections in order to prevent an overload of health care systems.

At the same time, we need to restart our economies to prevent widespread bankruptcies. In other words, policymakers face a real dilemma.

Smart Lockdown Instead of Complete Shutdown

Policymakers worldwide are trying to formulate strategies to tackle this issue. Our goal has to be to prevent a medical catastrophe, as well as an economic meltdown. Here are some options that should be considered to balance the two goals:

  1. Medical capacity

Increasing the capacity to treat severe cases seems to be the most important challenge. Investments in equipment are as important as mobilising additional personnel.

There is also much to be gained by international cooperation. For example, experiences of the most successful treatments and the best preventive measures should be shared widely.

  1. Short-term liquidity aid

The current shutdown of most economic activities hits most companies hard. There are several ways to implement assistance for companies, from direct grants to tax breaks and credit lines.

Additional measures, such as short-term work, can also be helpful. The goal should be to help otherwise healthy companies survive the coming weeks until economic activities restart. Some companies will not survive, but the main goal is to prevent a complete collapse.

  1. Test, Test, Test!

We have to test as many people as possible to widen our database. Doing so improves our knowledge of the new virus and helps to identify and quarantine infected persons.

Antibody tests that can detect people who already overcame the infection might also be beneficial. It is most likely that once the coronavirus is defeated, a person stays immune for some time. Those with immunity could assist in the treatment of patients and the interaction with high-risk groups.

  1. Keep borders open

One of the first responses of many countries was to close their borders. This created severe logistical problems and might become one of the biggest economic problems after the shutdown is (partially) lifted. Most likely, international travel will continue to be restricted in the upcoming months.

Yet, all borders within the Schengen Area should be reopened as soon as possible. In general, borders should not be closed to international trade, as it is a necessary lifeline for medical supplies and the restarting of the economies.

  1. Smart lockdown

To stop the coronavirus, most countries ceased almost all economic and social activities. As a first response to prevent an exponential growth of cases, this was probably justified. However, we will not be able to bear the costs of such a complete shutdown for a very long time.

Therefore, we have to come up with target-oriented measures that will contain the virus, without costing as much as the current shutdown. For example, reopening shops and factories while implementing security measures could be part of such a smart lockdown, as well as making as many employees as possible work from home.

We should also wear protective masks in public. Reopening kindergartens and schools is more important than permitting larger events such as soccer games.

A voluntary smartphone app could be a very effective tool, even if only around 60% of the population use the app.


Continue exploring:

Preventing Upcoming Post-Epidemic Catastrophe

Coronavirus and Changing Labor Market

Justus Lenz
Friedrich Naumann Foundation for Freedom