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How the Pandemic Should Shake up Economics

Economists typically ignore the social norms and customs on which markets depend and treat them as part of the woodwork, because they are so unchanging in normal times. But a disruption such as the one caused by COVID-19 makes these tacit assumptions explicit, reminding us how much we take for granted.

ITHACA – The COVID-19 pandemic has caused massive disruptions to markets, supply chains, and world trade. This has forced a reckoning with many traditional policies and should be treated as an opportunity to rethink some of the ideas that economists have long taken for granted – including the basic notion of what makes an economy function efficiently.

That notion goes back to 1776, a landmark year during which Adam Smith published The Wealth of Nations, America’s 13 states declared independence, and the same day, July 4, the philosopher David Hume held a dinner party for his friends, including Smith, to mark the twilight of his life.

Smith’s path-breaking work, along with later highly influential contributions by Léon Walras, Stanley Jevons, and Alfred Marshall, transformed economics. We learned that markets can function smoothly without a central authority, because the actions of ordinary people trying to earn more and purchase the goods they want create tugs and pulls of demand and supply, causing prices to rise and fall.

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