London Daily

Focus on the big picture.
Monday, Sep 08, 2025

The Four Rules of Pandemic Economics

The Four Rules of Pandemic Economics

A playbook that should govern America’s short-term reaction to the health crisis.

With this tweet, President Donald Trump summarized a disturbingly common reaction to social-distancing measures. Texas Lieutenant Governor Dan Patrick expressed the same sentiment when he told Americans to “get back to work,” even if doing so means more death. Fox News commentators, likewise, have argued that Americans should break free of the shackles of quarantine to reboot the economy.

Call it the gospel of growth: the notion that Americans cannot afford to save tens of thousands, even hundreds of thousands, of lives, if it means sacrificing a quarter or two of gross domestic product.

While this might sound like an economic argument, it enjoys little support among economists. In a recent University of Chicago survey of dozens of prominent economists, almost all of them agreed with the idea that the economy would suffer if the U.S. abandoned “severe lockdowns” while the infection risk remained high.

Still, the growth evangelists are right about one thing. Severe lockdowns produce a parallel human misery-with millions of unemployed Americans, thousands of looming bankruptcies, and extreme financial anguish.

What are the economic rules of this upside-down world, where opening the economy too soon produces mass death, but shutting it down for too long produces mass suffering?


Rule 1: “Save the economy or save lives” is a false choice.

Last week, a group of economists from the Federal Reserve and MIT published a paper on the 20th century’s most murderous flu, the 1918 outbreak. Because the federal government in 1918 offered little if any economic assistance to suffering Americans, the local response from city leaders varied widely. Some places, such as New York and St. Louis, quickly ordered social distancing and other interventions, while others, such as New Haven and Buffalo, allowed public gatherings even weeks after the flu reached crisis levels. This variance gave researchers the ability to see which cities recovered the fastest after the outbreak.

“We were expecting that the areas with more [social distancing] would have a worse economy but less mortality,” said Emil Verner, a co-author of the paper and a finance professor at MIT. But early and aggressive interventions both saved lives and triggered a faster rebound in several measures, such as job growth and banking assets.

The infamous trade-off between people and GDP? It doesn’t exist-or, at least, it didn’t in 1918. The reason, Verner told me, is that pandemics are “so, so disruptive that anything that you can do to mitigate that destructive impact of the pandemic itself is going to be useful.” Without a healthy population, there can be no healthy economy.

This simple idea has some weird implications. “In a normal recession, you want to boost demand,” said the Northwestern economist Martin Eichenbaum. “But we don’t really want to boost demand in the very short run at all, right now. We don’t want United to be flying full planes. We don’t want restaurants serving food to dine-in customers. We want everybody to stay in and hold on.”

It follows that we should-as incomprehensible as this may sound-hope for a deep, short recession, caused by a cliff dive in many forms of economic activity. That would be a clear signal that people have gone home and that the face-to-face economy has been shut down to limit the spread of disease.

“The question I would ask of our leaders is: What will you regret?” Eichenbaum said. “Will the government regret that it didn’t save money in early 2020? Or will it regret that we let a viral infection kill millions of people, which also, by the way, led to the death of a lot of great companies? It’s pretty obvious what the worst-case scenario is. You want to err on the side of saving lives.”


Rule 2: Pay people a living wage to stop working.

In a pandemic, public gatherings are a kind of social pollution, and asymptomatic individuals who violate social-distancing rules are like factories that spew invisible carbon. “We can’t ask people to internalize health risks on an individual basis any more than we can expect polluting factories to self-regulate,” Eichenbaum said. “So governments have to freeze the economy and order people to stay home.”

But asking millions of able-bodied workers to stop working creates a crisis of unemployment for which the word unprecedented does no justice. On Thursday, the government announced that 3.28 million people had applied for jobless benefits in the previous week. That’s not just the highest weekly figure in recorded history; it’s roughly five times larger than the highest-ever figure in recorded history. In seven days, unemployment benefits rose by as much as they did during the first six months of job losses in the Great Recession.

Once the government has put the economy into an artificial coma, it must keep the patient alive. The U.S. economic-relief package does so in a few ways. Washington will send to most households one-time payments of $1,200 per adult-plus $500 per child-and expand unemployment benefits, bumping up weekly payments for eligible workers, including independent contractors and the self-employed, by $600 for the next few months. The new law also delays tax filing, suspends wage garnishing among those who have defaulted on their student loans, and establishes a four-month eviction moratorium among landlords with mortgages from federal entities, such as Fannie Mae and Freddie Mac. This is a huge and kaleidoscopic response. But it still might not be enough.

Denmark and other northern-European countries are taking a different approach. Their governments are directly paying businesses to maintain their payrolls to avoid the sort of mass layoffs and furloughs that are already happening across the United States. The chief benefit of this approach is that restaurants, factories, and so on don’t have to go through the bureaucratic rigmarole of firing thousands of workers and then rehiring them all when the economy bounces back (and those workers don’t have to waste time applying for jobs, either). They’re putting their entire economy in the freezer for three months.


Rule 3: Build companies a time machine.

The U.S. has about 6 million companies, according to the census, and 99.7 percent of them employ fewer than 500 people. Many of these small- and medium-size companies face extinction during the pandemic shutdown. While their income has evaporated, they still owe wages to workers and rent to landlords. This is a recipe for cascading bankruptcies.

If America’s small businesses begin to fail en masse, the damage will spread quickly throughout the economy. Just imagine the closed wine bars in Manhattan. Without money from thirsty New Yorkers, they can’t afford to buy more bottles from family wineries. Without commercial buyers, those wineries can’t buy new fruit from local grape growers, who can’t pay tractor manufacturers for new equipment. One sector’s problem quickly becomes every sector’s problem.

Financial markets may experience a parallel domino effect. If thousands of restaurants suddenly can’t make rent, their property owners might default on mortgage payments. When their banks suffer catastrophic losses, the financial system will seize up because nobody wants to lend anybody money. This is how a pandemic recession could become the Great Depression of the 21st century.

How do we begin to solve this impossible problem? The Federal Reserve has said it will pull all available levers to keep the financial system alive, by buying up government debt, corporate debt, and a variety of asset-backed securities. But something more will be needed to save America’s businesses.

“We have to build companies a time machine,” Justin Wolfers, an economist at the University of Michigan, told me. He isn’t talking about the H. G. Wells contraption. He’s referring to anything-including grants, cheap loans, and debt relief-that would allow companies to shift their expenses to the future.

“My local burrito shop, which used to be a thriving business, could go belly-up any day now,” Wolfers said. “But in the post-coronavirus world, it should be a thriving business again. What that burrito business needs is what every business needs right now-a time machine to go from the present pandemic to the future.”

In the U.S. economic-rescue package, that time machine looks like $370 billion in low-interest loans backed by the government. Many businesses won’t have to pay back a cent if they use the cash to make basic expenses, like payroll or rent, and don’t lay off workers. As Slate’s Jordan Weissmann explains, private banks will make the loans to local companies with whom they already have a relationship, and the Small Business Administration will guarantee those loans-at least, until they run out of the roughly $370 billion.

Most economists I spoke with had the same reaction to the economic-rescue plan: Nice idea, too late, and too small. “This should have been passed three weeks ago, and it should have been much larger,” said John Lettieri, CEO of the Economic Innovation Group, a think tank and an advocacy group. Steven Hamilton, an economist at George Washington University, wrote that if the bill is intended to cover 11 weeks of payroll for all companies with fewer than 500 employees, the right figure should be closer to $600 billion. When the U.S. Senate returns to draft follow-up legislation, small-business relief will have to be at the top of the list.


Rule 4: The business of America is now science.

The new rules of pandemic economics are meant to guide U.S. policy during a period of weeks or months-not quarters or years. A three- or four-month freeze is one thing, but a full year of isolation and economic inactivity is untenable.

That brings us to the $100 trillion question: How do we get out of this? A lot more science.

Our lack of knowledge about the virus is our greatest weakness in combatting it. Not knowing who has the virus, or who is most susceptible, contributes to higher infection rates. Not knowing who has recovered from, and built immunity to, the virus delays our ability to treat individuals, or release select individuals from isolation. The possibility that the virus is anywhere means that we have to shut down economic activity everywhere. The road back to normalcy is through more clear and public information.

First, we need more tests, which can tell us where the virus already is. As The Atlantic’s Ed Yong explains, that means we need more masks, more nasopharyngeal swabs for collecting samples, more extraction kits to retrieve the virus’s genetic material, and more trained people to administer the tests.

Second, we need sophisticated tracing technology to tell us where the virus is spreading. “Contact tracing” means reaching out immediately to people who came into contact with an infected person, testing them, and recommending isolation if they test positive. While some countries’ tracing methods draw on mobile data in a way that might make Americans uncomfortable, Germany is looking to deploy a national app that has (for now) won approval from its health minister and data-protection commissioner.

In addition to coordinating a test-and-trace strategy, Washington should train its prodigious energies toward defeating the disease as fast as possible, by establishing billion-dollar prizes for vaccine and antiviral breakthroughs and by relaxing regulations to accelerate the approval of new treatments. After weeks of delay, the administration is finally using the wartime Defense Production Act to force manufacturers to produce ventilators and surgical masks.

We need to get people money, or they will die. We need to get companies cash, or they will die. But if we don’t clear the way for health-care workers to treat the sick, or for scientists to treat the disease, people and companies are going to die, anyway. There is no such thing as a normal economy until we contain the virus. But if we can’t contain the virus quickly, we might not have anything normal to return to.

Newsletter

Related Articles

0:00
0:00
Close
Court Staff Cover Up Banksy Image of Judge Beating a Protester
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
Elon Musk Poised to Become First Trillionaire Under Ambitious Tesla Pay Plan
France, at an Impasse, Heads Toward Another Government Collapse
Burning the Minister’s House Helped Protesters to Win Justice: Prabowo Fires Finance Minister in Wake of Indonesia Protests
Brazil Braces for Fallout from Bolsonaro Trial by corrupted judge
The Country That Got Too Rich? Public Spending Dominates Norway Election
Nearly 40 Years Later: Nike Changes the Legendary Slogan Just Do It
Generations Born After 1939 Unlikely to Reach Age One Hundred, New Study Finds
End to a four-year manhunt in New Zealand: the father who abducted his children to the forests was killed, the three siblings were found
Germany Suspends Debt Rules, Funnels €500 Billion Toward Military and Proxy War Strategy
EU Prepares for War
BMW Eyes Growth in China with New All‑Electric Neue Klasse Lineup
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
US Justice Department Launches Criminal Mortgage-Fraud Probe into Federal Reserve Governor Lisa Cook
Escalating Drug Trafficking and Violence in Latin America: A Growing Crisis
US and Taiwanese Defence Officials Held Secret Talks in Alaska
Report: Secret SEAL Team 6 Mission in North Korea Ordered by Trump in 2019 Ended in Failure
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Florida Murder Case: The Adelson Family, the Killing of Dan Markel, and the Trial of Donna Adelson
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Brand-New $1 Million Yacht Sinks Just Fifteen Minutes After Maiden Launch in Turkey
Here’s What the FBI Seized in John Bolton Raid — and the Legal Risks He Faces
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Queen Camilla’s Teenage Courage: Fended Off Attempted Assault on London Train, New Biography Reveals
Scottish Brothers Set Record in Historic Pacific Row
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Court of Appeal Allows Asylum Seekers to Remain at Essex Hotel Amid Local Tax Boycott Threats
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
×