Intertemporal Economics

Don't Stand So Close to Me: Social Distancing and the U.S. economy

Conference call with Brian Pellegrini

Brian’s analysis centred on the dangers of recycling pre-built econometric models to estimate the impact of COVID-19 on the US economy. In Brian’s view, the economics profession has a bad habit of extensively studying events soon after they occur and then moving on and forgetting the topic. Once the topic comes up again, in this case pandemics, economists use findings from the prior round of study to generate forecasts. In 2020, economists drew heavily from research conducted in the mid-2000s on the potential impact of an influenza pandemic. Taking these pre-built models and applying them across countries has led to horrible predictions.
Brian reviewed the many ways in which differing lifestyles, city planning and medical systems have affected the outcomes of COVID epidemics in various countries. Specifically, low population density, higher air quality and an outpatient-centric medical system help mitigate the risks of COVID for the US. In addition, the US is among the best prepared for a ‘Work From Home’ revolution, which positions its service-centric economy well in any extended lockdown situation. The risk of serious recession in the US has been greatly overstated.
Brian’s presentation closed with what he believes will be the most impactful and lasting effect of COVID - political economics. Brian’s research has found that epidemics are generally more psychological events than they are real economic disturbances. Damage is done by changes in behaviour that increase risk premiums. Epidemics come in three phases. The first is panic, the second is the actual outbreak of disease and the third is recriminations. The world is now entering phase three and a political bargaining process is taking place to see who will get stuck holding the bag. In the US, the battle lines are young vs. old and urban vs. rural. That presents a severe political problem for Trump because his voting base is older and more rural than average. As a result, Trump - among many other world leaders - has been ramping up nativist rhetoric. The battle line Trump wants to create is domestic vs. China, which is the one area of politics where a majority of Americans agree and are growing increasingly anti-China across parties.