Upcoming Covid-19 Exit Strategy Workshops
Past Events: Video Recordings
Covid-19 Discussion Papers
Production Networks and Epidemic Spreading: How to Restart the UK Economy
Anton Pichler, François Lafond, Marco Pangallo, R. Maria del Rio-Chanona, and J. Doyne Farmer | May 21, 2020
We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic. Social distancing measures affect both supply and demand, and input-output constraints play a key role in restricting economic output. Standard models for production functions are not adequate to model the short-term effects of lockdown. A survey of industry analysts conducted by IHS Markit allows us to evaluate which inputs for each industry are absolutely necessary for production over a two month period. Our model also includes inventory dynamics and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Occupation-specific data and contact surveys allow us to estimate how different industries affect the transmission rate of the disease. We investigate six different re-opening scenarios, presenting our best estimates for the increase in R0 and the increase in GDP. Our results suggest that there is a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.
Keywords: COVID-19; production networks; economic growth; epidemic spreading
Can Stimulating Demand Drive Costs Down? World War II as a Natural Experiment
François Lafond, Diana Greenwald, and J. Doyne Farmer | April 7, 2020
For many products, increases in cumulative production are associated with de- creasing unit costs. However, a serious problem of reverse causality (lower prices leading to increasing demand) makes it dicult to use this relationship for pol- icy. We study World War II, during which the demand for military products was largely exogenous, and the correlation between production, cumulative produc- tion and an exogenous time trend was limited. Our results indicate that decreases in cost can be attributed roughly equally to the growth of experience and to an exogenous time trend.
Keywords: innovation policy; learning curve; natural experiment; World War II
The Socio-Economics of Pandemics Policy
Dennis J. Snower | April 24, 2020
In response to the Covid-19 pandemic, governments around the world have provided a massive fiscal and monetary stimulus. While this policy is welcome in the short run, it does not address the underlying problem in the medium and long run. The reason is that the pandemic has not given rise to a generalized shortfall in aggregate demand. Rather, it has generated a Great Economic Mismatch, characterized by deficient demand for things requiring close physical interactions among people and deficient supply of things compatible with social distancing, where appropriate. Expansive macroeconomic policy can stimulate aggregate demand, but when social distancing is enforced, it will not stimulate production and consumption whenever this demand is satisfied through physically interactive activities. To overcome the Great Economic Mismatch, “readaptation policies” are called for. In the medium run, these policies promote a redirection of resources to activities compatible with social distancing; the long run, these policies make economies more resilient to unforeseen shocks that generate a Great Economic Mismatch. Once the pandemic is over, a more profound rethinking of decision making - in public policy, business and civil society - is called for. First, decision makers will need to supplement the current focus on economic efficiency by greater emphasis on economic resilience. Second, economic policies and business strategies will need to focus less on incentives for selfish individuals and more on the mobilization of people’s prosocial motives. Finally, to encourage people around the world to cooperate globally in tackling global problems, policy makers at local, national and global levels will need to encourage people around the world to cooperate globally in tackling global problems, with the aid of two powerful tools that humans throughout history have used to coordinate their efforts: identity-shaping narratives and institutions of multi-level governance.