Ten takes on COVID-19 from a resource economist and citizen • The Berkeley Blog

by nyljaouadi1
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I have been studying resource economics for 40 years, studying the evolution and control of diseases in plants, animals, ecosystems, and humans. The research in this and related topics have produced significant knowledge that can help to address the COVID-19 pandemic. This research integrates economic concepts with knowledge from other disciplines, and emphasizes finding solutions to problems that affect evolving processes.

When applied to pandemics, the aim is to develop strategies that reduce the overall costs in terms of human health and well-being, given the limitations imposed by physical and informational constraints. Our interdisciplinary research first suggests several key factors that affect the impacts of the pandemic and then assesses some of their implications.

1.Technology – Our situation would have been different if we had a cure to the disease underlying this pandemic, or a vaccine to control it. Unfortunately, we do not have either. Now we are in a race to develop a vaccine. The current pandemic highlights the value of capacity to produce vaccines against new forms of flu, requiring significant government investment in terms of research as well as infrastructure. Unfortunately, the private benefit from developing such vaccines is lower than the social benefit, which takes into account both gains to manufacturers and the public.

2.Heterogeneity – The pandemic consists of two linked processes- infection and death. The metrics of the pandemic include the total number of infections and fatalities, recoveries and the number of new infections each period.John Hopkins University provides excellent information on these measures. The outcomes we are seeing around the globe reflect heterogeneity, differences among individuals, locations, and social responses to this contagion. For example, individuals above 80 are much more vulnerable than younger ones.

The fatality risk of an individual (probability of dying during a given period) depends on infection risk, treatment, and vulnerability. Infection risk is the probability of getting infected, which depends on being exposed to other infected individuals (the spread of the disease), the use of preventive measures (washing hands), and preventive treatments (vaccines). Treatment effectiveness is determined by access to drugs, doctors, equipment (ventilators), and overall quality of care, which also varies across locations. Vulnerability, which is the probability of dying from the disease conditional on infection, depends on age, health status, climatic conditions. Researchers continue to investigate whether warmer and drier locations are less hospitable to the virus than colder and wetter ones. One reason that Northern Italy has a higher rate of mortality than Korea is that the infected population is much older.

3.Information – With individual differences, the costs of treatments are likely to decline with differentiated treatments. But the ability to provide such treatments depends upon information. Economists like to speak about gains from information. A big challenge in addressing COVID-19 is that the in most cases, the infection is undetectable for a period of 5-7 days, but the range is from 2-14 days. Infected people without symptoms will infect others. If there were a means to test people, and we could identify sick people immediately, it would allow us to address the disease at much lower costs. This includes, for example, isolating (and treating) infected people as needed, or making sure only non-infected people have access to vulnerable seniors.

The reality is that we have very incomplete information. We recognize infected people when they exhibit symptoms and have a limited number of testing kits that allow identification of some of the infected, non-symptomatic people. We can also separate people that were in contact with the infected people. In countries like Israel and China, the government can monitor cell phones, so they can trace people who were close to infected people and request them to be tested or stay isolated. When we have minimal information, we ask the whole population to quarantine itself for a period (14-21 days) that will allow us to identify and treat the infected individuals, and hopefully prevent new infections. But “lockdowns” may last longer or be reinstituted depending on the progress of the control of the disease.

Without technologies of vaccination and sufficient testing, social distancing and isolation become our infection control policy. But this approach is very costly. Moreover, failures of execution may result in reemergence of the disease. The failure to develop and distribute large numbers of testing kits is a key contributor to the spread of COVID-19. David Ho, a leading virologist, reports that there are two types of tests for Coronavirus infection. The PCR test, the “Gold standard” and a more accurate test, takes at least 24 hours to provide a definite answer, while point of care antibody testing that takes 15-30 minutes to give results. The point-of-care has been used in Asia and the EU on a large scale and has allowed Korea to have a high rate of detection of infected individuals, and better target their disease control efforts.

The US FDA did not approve the use of this test until March 23, and even now its permitted use is limited, which Ho finds puzzling. As an economist, I am puzzled as well. Economists assess decisions about introducing provisions and supplying testing kits as well as other means of addressing the pandemic (ventilators, medical equipment) based on social benefit minus cost, adjusted for uncertainties. Since the gains from (even imperfect) information, both in terms of reduced suffering and lost economic activity, are very high, there is a strong case for accelerated approval procedures and significant investments in both testing and treatment equipment.

4. Capacity – The numbers of new infections and fatalities change over time. They tend to start small but accelerate early in the pandemic, reach a peak, and then decline. Sometimes pandemics have multiple cycles, like the Spanish Flu of 1918. Infection and fatality patterns can both be influenced by policies and innovations, such as a suitable vaccine. Unfortunately, we do not have a vaccine and must wait until one is deployable. Constrained capacity of the medical system to treat infected individuals, due to lack of equipment or trained and able-bodied medical staff, can increase the rate of fatalities. Investments to increase the capacity of the medical system, for example, investing in ventilators and mobilizing medical professionals, is one approach to reducing deaths, but this takes time and has its own supply constraints. Another essential strategy is reducing the speed of spread of infection, “flattening the curve”, by isolation and restriction of movement of individuals. (See the Figure below). A key purpose of social isolation is that we don’t surpass our capacity constraint at a given time.

flattening the curve
5. The role of government – Market forces are not likely to provide incentives for investments in vaccination, testing equipment, or other medical equipment. Suppliers will consider only their private gains, and the government needs to consider benefits for both private business and the public. Effective government enforcement of quarantine and social distancing requirements are also needed, since individuals may not sufficiently weigh the amount of social damage they may cause by interacting with others. In a related, not widely known example, robust enforcement of regulation was essential in eliminating animal diseases in the US and Europe.

6. Economic impact – The responses to COVID-19, especially the quarantine and restriction of movement and assembly, barriers on tourism and international trade, and the required closure of businesses, are all contributing to what is expected to be a major adverse economic cycle. The responses to the pandemic are reducing economic activity substantially and causing shortages; its impact on industrial production has been more significant than that of the biggest recession.

Furthermore, they have led to substantial losses in jobs and income to individuals who may lose their ability to pay for shelter and food. These lead to a significant loss in income for companies and escalate the risk of bankruptcies. The overall impact thus far has exceeded pessimistic expectations of experts for China and other economies. School shutdowns also increase the burden on working parents, who have to make choices between taking care of their children and losing their livelihoods. The damage is especially acute for lower-income individuals who don’t have the resources to address these emergencies. Therefore, government intervention to mitigate these losses is crucial to stabilize the economy and provide social welfare. Many of these disruptions will end once the COVID-19 is over, but the overall damage may be lasting. The government has to reduce permanent losses that will harm the economy in the future.

7. Impact on developing countries – Developing countries with weaker public and private health infrastructure are very vulnerable to the disease. This is especially true in congested urban centers, where the introduction of social distancing is hardly feasible. Policies that will slow economic activities would have adverse effects on the poor, who work in the informal sector and lack a minimal social safety net. Climatic conditions, low contact with the outside world, and demographics may mitigate the severity of the impacts of the COVID-19 virus in the rural sector of developing countries, as well as developing countries with younger populations relative to the developed ones. Maximo Torero, the Chief Economist of the UN Food and Agricultural Organization, has policy suggestions for countries addressing the COVID-19 challenge, recommending the establishment of an emergency safety net for vulnerable populations, Keeping international trade and global food supply chains going, and removing constraints on domestic smallholder production.

8. Crisis triggers change – In a period of crisis, the political and economic resistance to experimenting with political and technological solutions can decline sharply. From my own experience, I know that modernization of the water systems in California and traditional water trading occurred mostly during periods of drought. In an excellent article, the historian Yuval Harari analyzes some of the changes that are likely to follow COVID-19. One that he noticed is an increased reliance on virtual communication (I’m now Zooming increasingly). There is a significant shift in education, entertainment, and commerce to online mediums, and some of it may well continue, displacing traditional alternatives. There is a significant shift in education, entertainment, and commerce to online mediums, and some of it may well continue, displacing traditional alternatives.

Concern about infection may lead to the expansion of telemedicine (caring for patients remotely)- saving time money and expanding access to treatment. Diagnosis will increasingly rely on artificial intelligence. The use of electronic surveillance for detecting the spread of the disease by digitally tracing individuals may lead to increased acceptance of oversight by government and business in the future, which is a source of concern. I am quite worried that politicians who want to build walls between people will extend temporary barriers on the movement of people and goods. There has also generally been a lack of international collaboration instead of taking advantage of the economic scale, complementarity, and relative advantages of different nations to combat the disease.

The current crisis emphasizes the weaknesses of institutions in the United States and other countries, where people have limited and costly access to medical treatment and a weak safety net for workers in the population. I hope and believe that new awareness of these vulnerabilities may lead to changes (e.g., public options in health insurance and pension) that will provide improved access to economic and technological safety nets across the board. The COVID-19 crisis also reveals the cost of ignoring risks of disruption in designing trade and economic policies and the need to develop capacities to overcome unpredicted shocks and barriers that limit access to essential equipment and materials.

9. A growing appreciation of science – The COVID-19 crisis revealed human vulnerability and society’s dependence on science and scientists. In the last few years, there was growing resentment of elites and gravitation toward populist regimes that frequently rejected scientific opinions. The recent crisis is elevating awareness of the crucial role of scientific competence and evidence-based policies, although reluctantly in some quarters, but hopefully, this will lead to a wider and more sustained awakening. Science and technology have delivered the basis for the prosperity of the modern world. The benefits of prosperity have not been equally shared. The distrust of elites will stay with us because while people desire elites that serve the public, they resent an elite that they perceive to serve itself.

While the economy is resting, the environment is celebrating. We’ve seen turkeys and wild deer in the streets of Berkeley. Chronically high urban noise is receding. Air pollution and GHG emissions are declining. Yet government response to COVID-19 is a bad indication of the capacity to the much longer-run threat of climate change. Hopefully, the appreciation of science will trigger acceptance of strategies to address the threat climate change. The crisis teaches us that society is capable of responding to immediate threats, but will we be wise enough to invest in preventing bigger future threats?

10. “America first?”-vs. “We are the world.” We have to be blind not to contrast the swift and efficient response of Asian countries (Taiwan, Korea, Singapore, even China) to COVID-19 compared to the US and Europe. Asian countries gained experience addressing SARS, and scientists and the population were better prepared and more concerned with the new virus.

At least in my view, it’s not an issue of democracy vs. dictatorship. We are in an unfortunate period, where ideology is attempting to overrule knowledge, handicap our economic security, and personal safety with underinvestment in public goods like health care and science. Repudiating international collaboration, which successfully contained the much more lethal Ebola virus, only compounds our problems. Viruses and Climate change do not recognize borders; scientific knowledge is our common heritage, and the best weapon of Humanity against evolving diseases and changing climate. I hope that the current crisis will lead to the emergence of leadership that will pursue global cooperation rather than mutual isolation. Despite self-imposed handicaps, and being very concerned about the COVID-19 and its impacts, I know we will survive it, it will lead to changes for the better, but tragically at a high cost.



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