No doubt you will have heard in most government press conferences the aim of flattening the curve. In trying to flatten the epidemic (epi) curve there will be a trade-off with reduced economic activity. By having a lockdown you reduce the exposure of people to the virus but it also means less employment and consumption.
The graph above shows the following:
- steep red curve shows – (medical outcome) without some sort of lockdown
- latter blue curve – impact on cases of the virus with a lockdown
- flatter red curve shows – the impact on economic activity if there was no lockdown
- steep blue curve shows – impact on economic activity if there was a lockdown
Therefore if you flatten the infections curve you steepen the recession curve.
This unavoidable trade-off is surely behind some leaders delaying containment policies – not wanting to experience a severe recession especially in US as it is election year. It seems that if you don’t act to contain early you pay for it later
These desperate times call for desperate measures – a version of shock therapy. Society has a pressing need for a massive increase in government spending but what we don’t want to happen is a COVID-19 recession gradually turning into a COVID public debt crisis.
Source: Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes. Edited by Richard Baldwin and Beatrice Weder di Mauro