How could anyone harm the world economy

Questions to an economist - Professor: "With or without lockdown - the damage is great"

Switzerland is debating Corona. The number of cases is increasing and space in the intensive care units is becoming scarcer. From a health point of view, one thing is clear: the pandemic must be stopped quickly. But can we afford it? Economics professor Dina Pomeranz from the University of Zurich explains which measures cost little and are very useful.

Dina Pomeranz

Economics professor, University of Zurich

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Prof. Dr. Dina Pomeranz is Professor of Microeconomics in the Department of Economics at the University of Zurich. Her research areas are development economics, public finance and impact analysis.

SRF: Is there a trade-off between health and the economy?

Dina Pomeranz: Basically, the worst thing for the economy is an escalating pandemic. So there is actually no conflict of goals at the macro level, because in order to protect the economy, we have to protect people from the pandemic.

So if you protect people from the pandemic, you are indirectly protecting the economy. What measures do we need to ensure that the economy does not suffer from it?

It is very important that the measures we take are designed in such a way that, on the one hand, the benefit against the pandemic is as great as possible and, on the other hand, the damage to the economy is as small as possible. Measures with great benefits and low costs are, for example, good and sufficient testing, wearing masks for everyone and contact tracing. In addition, deliberately restrict the types of activities that are particularly dangerous, such as indoor choirs. The cost-benefit ratio is extremely high.

But are there also measures that cost the economy a lot?

Exactly. There are measures that cost a lot and are of little use. Currently there is the discussion about quarantine after entry from countries with similarly high or even lower infection rates as Switzerland. It costs a lot to the economy because people drop out of work and so on. And the benefit is very questionable. We have to have very targeted measures that really tackle the pandemic directly and cause as little damage as possible. It is therefore important to take the right, balanced measures.

Could a lockdown also be such a measure?

If we don't get it under control in time - and it looks very dangerous at the moment - then we may end up in a situation where it is the only measure that is still cost-benefit efficient. But if we have other measures early on that are more targeted, it doesn't have to come to that. That is why it is currently so important that we do everything we can to prevent things from happening as bad again.

The economic damage with or without lockdown (...) is very similar. But without lockdown, the illnesses are much worse.

You say yes, the economy is suffering, even if no action is taken now. How strong would such a paralysis be?

There are exciting studies from the USA and also from the Nordic countries, in which one compares neighboring countries that had different reactions to the pandemic - with more or less strict lockdown. What you can see: The economic damage is almost the same, even without a lockdown. Because when many are sick, people are scared and stop going shopping. And if they lose income, they can no longer shop either. The economic damage with or without lockdown is very similar in these neighboring countries - but without lockdown the diseases are much worse.

Nevertheless, entrepreneurs say that one should also take individual responsibility into account. Does personal responsibility make sense at all from an economic theoretical point of view?

First of all, I think it is very important to emphasize that it is not all entrepreneurs who are calling for this, but rather certain voices that are now very loud. Others are also happy when we have security so that their business can continue and their employees are protected. Personal responsibility is good and important. We must all make our personal contribution now. But in the situation we are in right now, that's not enough. Because this is a so-called externality. In other words, a situation in which one of my actions has an effect. Positive or negative. In this case, negatively affect other people. That means, if I only take responsibility for myself, that is insufficient.

When it comes to drinking and driving, we don't just say that everyone should take personal responsibility.

A good example is drink-driving. Here we are not simply saying that everyone should take responsibility for themselves. Sure, personal responsibility is also important. But we also have regulations that determine how much alcohol you can drive with. Otherwise there will be a fine because we have to protect other people from this externality.

If I don't put on a mask, it's dangerous for me, but especially for my fellow human beings, because I may infect them without even realizing it.

It's exactly the same with the virus: If I don't put on a mask, it's dangerous for me, but above all for my fellow human beings, because I may infect them without even realizing it. And as a result, the virus spreads more.

Interview conducted by Roger Brändlin.

Echo der Zeit, October 24, 2020, 6:00 p.m.; srf

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