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The COVID-19 Balancing Act

Although the economic and human costs of the COVID-19 pandemic have been devastating, a strategy for reducing the health risks of a gradual return to normalcy has begun to take shape. The task now is to navigate the difficult trade-offs and even more difficult politics of the crisis as sensibly as possible.

STANFORD – For a long time, as health spending accounted for an ever-larger share of US GDP, I would joke that health economists were becoming macroeconomists, and that macroeconomists needed to become health economists. Sadly, the joke is now reality. The US and the global economy are in the deepest contraction since the Great Depression, owing to lockdowns to mitigate the spread of COVID-19 and prevent hospitals from being overwhelmed. Citizens are confined to their homes, and only “essential” services – food, utilities, health care, police, and the like – are operating.

According to the International Monetary Fund’s most recent forecast, the US economy will shrink by almost 6% this year (compared to a contraction of around 7% in the eurozone and 5% in Japan). Private forecasters, meanwhile, foresee an annualized second-quarter decline in the US of as much as 40%, with a return to growth in the third quarter.

If the government were not spending several trillion dollars to keep businesses afloat, workers on payrolls, and incomes at tolerable levels, the damage would be worse. Nonetheless, US unemployment has soared to its highest level in more than 70 years.

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