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The Real Economic Fallout of COVID-19

Regardless of how long the current pandemic lasts, the existing organization of economic activities needs to change fundamentally. In particular, governments must support the shift in employment from physically interactive to physically disjointed activities.

BERLIN – Governments around the world are pursuing extremely expansive monetary and fiscal policies to combat the economic fallout from the COVID-19 pandemic. But such largesse is appropriate for an old-style depression, not for this public-health crisis.

We currently face a tradeoff between social triage and economic collapse. That is because much economic activity involves physical interactions among people, including in the retail trade, restaurants, tourism, live entertainment, and most forms of office work. With social distancing being enforced, such activity comes to a halt.

Worse, COVID-19 is the first pandemic to have struck a thoroughly integrated global economy. Most goods today are products of global supply chains, where physical interactions in one location are connected to physical interactions elsewhere. Stop the physical interactions in one place, and the economic fallout is felt in many others.

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