Coronavirus measures: a trade-off between healthcare and the economy?

NEMO Kennislink
Erasmus School of Economics

Policy to prevent the coronavirus from spreading is often presented as a trade-off between the healthcaresector and the economy. But is this really true? In an interview with NEMO Kennislink, Bas Jacobs, Professor of Public Economics at Erasmus School of Economics, tells us that there is still a lot of uncertainty about what effect the corona measures really have on the economy.

Economic damage

It is clear that with stricter measures, the number of cases is lower. It is also clear that stricter measures are harmful to the economy in the short term. However, not taking measures also impacts the economy. According to the IMF (International Monetary Fund), 40% of global economic damage is not caused by the measures, but by the virus itself.

Economists do not yet agree what the long-term effects will look like. Some believe that the economy will recover quickly after the measures have been relaxed, but others believe that the economic downturn will lead to permanent damage. ‘You often see that in recessions’, Jacobs says. ‘When the economy slows down, unemployment rises and companies go bankrupt. That leads to loss of knowledge, skills, technology and capital.’

Health gains 

You should be wary of economists who have only one particular vision’, says Jacobs. ‘Nobody knows for sure how the economy will ultimately react to the measures.’ Nevertheless, we should not underestimate the situation. The Netherlands is currently doing better economically than other eurozone countries, but that does not mean that we are not in the middle of a serious crisis. ‘This recession is worse than the recession after the 2007 credit crisis’, says Jacobs. ‘But its also different, because large parts of the economy continue to function as usual. Online commerce, supermarkets and department stores have been doing better than usual since the beginning of the crisis.’

In the event of a second wave, the Netherlands Bureau for Economic Policy Analysis (CPB) expected a economic decline of 9%. ‘That's a lot, and years on end', says Jacobs. ‘And that second wave, we are now in the middle of it.’ According to Jacobs, the most important question is which measures will yield the most health gains per euro spent. This would allow us to get through the crisis with as little damage as possible to both the economy and the healthcare sector. ‘Lockdowns then score low. Lockdowns are extremely expensive with onlylimited health gains.’ According to Jacobs, it is much better to test everyone as much as possible, to adhere to the basic rules, and to provide extra protection for high-risk groups. ‘Then we can open up the economy without too many health risks.’

Professor
More information

The full article from NEMO Kennislink, 24 November 2020, can be found here (in Dutch).