We Must Be Optimistic About the Long-Term Impact of the ‘Covid Economy’

We Must Be Optimistic About the Long-Term Impact of the ‘Covid Economy’

“In the short run, we have to save lives and hibernate the economy. In the longer term we will have slower, but important changes. The pandemic raises appreciation for sick leave. We will fly less and, unfortunately, we will use less public transportation, but we will also work more from home, commuting and driving less. We are now paying part of the fixed cost of making this switch,” writes Wojciech Kopczuk

Longer-term

This is where things can get interesting and perhaps, even if it is hard to imagine it now, fun.

1st, I am still optimistic that this is not going to be a depression, though that will depend on how long it all lasts and how policy response looks like.

Hurricanes and earthquakes are devastating, but they do not lead to depressions. You can rebuild from the damage, especially if you have insurance. This is a bit like that, if it does not last too long and if government policy substitutes for missing insurance.

There will be some human capital and financial capital damage, but if it is partially compensated where necessary at the expense of future taxpayers, it need not be devastating.

2nd, I am looking forward to seeing how we will adapt in the short-, medium- and long-term. I have already seen some short-term adaptation.

Restaurants, even high-end ones, switching to take out and delivery; fresh bagels in my New York City grocery store are now individually pre-wrapped to reduce the risk of contamination by other customers; everybody has been flocking en masse to video-conferencing, online teaching; my physical/sports therapist offers training sessions online. I have seen virtual pubs and happy hours pop up.

I expect much more of that in the medium-term, as we learn to live with containing the epidemic before we fully address it.

Remote work and communication will be 1 way. We will see more people in masks and masks that are easier to use, and that will serve as a fashion statement, true now, and definitely true elsewhere.

We will dress warm in Winter, putting on a mask assuming experts will not fully dissuade us from it, bumping elbows and bowing instead of shaking hands, washing hands and using sanitizers more often are just adaptations that we can learn to treat as normal.

We may see other innovations

UV light can kill flu viruses. Can we have each plate in a restaurant go through a cheap UV device for 30 secs before being served? Can we have technology like that at home? What other forms of remote services and entertainment can we envision? Some are ripe for it, for example, virtual appointments of many types, or watching live shows from the comfort of your own home.

In the longer term we will have slower, but important changes. Clearly, this event raises appreciation for sick leave. There will be an incentive for employers to adopt it voluntarily in some context with customers’ renewed attention to the risks, but it will probably take policy to make it stick.

My personal view on this is that solutions that involve portable private accounts or shift the burden away from labor costs are preferable to mandates on employers, but there are many solutions elsewhere to look into.

Looking closely into the mistakes of the CDC and FDA in preparation and roll-out of testing and drawing lessons from that about organization, planning, and regulation of private parties will be important.

More excitedly, the economy will adjust.

We will fly less. Telecommuting has been slowly trending, but with this event as a coordinated push to have many more people do it, we may start seeing a growing appreciation of its advantages.

Part of the fixed cost of making this switch will be paid now, these investments, done in a coordinated fashion, will likely make it stick.

Remote work means less commuting, less driving, more time spent at home.

Work from home is not always easy, you need to have the right technology and adapt the environment to make it productive, you need to find solutions to have children not intrude, you need to organize your time properly.

When buying their next home, people will think more about things like this, and we will see a drift of our living, work, and commuting arrangements responding to it.

The impact on public transportation is 1 thing that bothers me, imagine reduced willingness to use it, though you can also imagine reduced commuting in general that would reduce the strain on the existing infrastructure.

Alternative modes of transportation: bikes, e-bikes, scooters are potential winners, with perhaps renewed openness to having the infrastructure to support it.

I am optimistic about the impacts in the longer term. We just need to make sure that the necessary recession is as short as possible through public health response and that the unnecessary recession in the aftermath will not happen, by freezing and preserving as much of the economic fabric as we can right now.

By Wojtek Kopczuk

Paul Ebeling, Editor

Editor’s Note: Wojtek Kopczuk is a Professor of Economics and of International and Public Affairs, Department of Economics and School of International and Public Affairs, Columbia University.

Have a healthy weekend, stay at home!

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