• Leading economists urge governments to bring out the ‘big artillery’ to fight the economic fallout caused by the COVID-19 pandemic.
  • Unconventional policy options such as ‘helicopter money’ should be on the table, they argue.
  • Governments will need to reduce personal and corporate bankruptcies, ensure people have money to keep spending even if they’re not working, and increase public investment and healthcare spending, the economists say.

As the list of countries shutting down in the face of the coronavirus pandemic continues to grow, leading economists from around the world are calling for radical action to fight the economic fallout.

More than 40 high-profile economists, including IMF Chief Economist Gita Gopinath and former President Barack Obama’s top economic adviser, Jason Furman, have contributed to an eBook from the Centre for Economic Policy Research (CEPR) in which they urge governments to act quickly and do whatever it takes to keep the lights on.

They advocate using heavy fiscal firepower for a “whatever-it-takes” economic response to the COVID-19 crisis.

Among the drastic measures proposed are: ‘helicopter money,’ where everyone gets a no-strings-attached handout; Eurozone countries using eurobonds to issue debt together rather than individually; and state investment banks providing unlimited emergency lending to firms.

Flattening two curves

Economics coronavirus
Containment measures flatten the infection curve, but steepen the recession curve.
Image: Centre for Economic Policy Research (CEPR)

Though the economists say it’s still too early to tell how bad the economic damage will be, they’re certain it will be large – the pandemic is destroying lives and livelihoods around the world.

The measures necessary to contain the virus – quarantine, social distancing, school, university and daycare closures, shutdowns of non-essential businesses, and asking people to work from home – are bringing economies to a screeching halt.

What is the World Economic Forum doing about the coronavirus outbreak?

A new strain of Coronavirus, COVID 19, is spreading around the world, causing deaths and major disruption to the global economy.

Responding to this crisis requires global cooperation among governments, international organizations and the business community, which is at the centre of the World Economic Forum’s mission as the International Organization for Public-Private Cooperation.

The Forum has created the COVID Action Platform, a global platform to convene the business community for collective action, protect people’s livelihoods and facilitate business continuity, and mobilize support for the COVID-19 response. The platform is created with the support of the World Health Organization and is open to all businesses and industry groups, as well as other stakeholders, aiming to integrate and inform joint action.

As an organization, the Forum has a track record of supporting efforts to contain epidemics. In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines. CEPI is currently supporting the race to develop a vaccine against this strand of the coronavirus.

“We are facing a joint health and economic crisis of unprecedented proportions in recent history,” writes Pierre-Olivier Gourinchas of the University of California, Berkeley, in a chapter on how to flatten both the infection and recession curves.

But there are fiscal policies governments can use to prevent or limit catastrophic collapses, which Gourinchas says are like the “intensive care units, beds and ventilators of the economic system.” For example, central banks can provide emergency liquidity to the financial sector.

Reducing economic scar tissue

Economics coronavirus
Governments need to address all the red crosses in this diagram.
Image: Centre for Economic Policy Research (CEPR)

To avoid deep, long-lasting damage to economies, governments will need to reduce the number of personal and corporate bankruptcies, ensure people have money to keep spending even if they’re not working, and increase public investment and healthcare spending, the authors write.

Put another way, they need to act now to “reduce the accumulation of economic scar tissue”.

“This is the time to bring out the big artillery; this is not a time to be timid, but to do whatever it takes, fast,” they write.