A Simple Framework to Help Revive the US Economy

The COVID-19 crisis has seemingly left US policy makers with a choice between two terrible options: keep the economy shut down, or risk allowing the disease to run rampant throughout the populace, overwhelming the health system and opening the door to an unthinkable number of deaths.

But there is a middle course that decision makers can chart, and Chicago Booth’s Eric Budish has created a framework to help them do so. Managing COVID-19 for the time being, he says, requires bringing the rate of the disease’s spread down to an acceptable level and then finding ways to maximize economic activity without exceeding those epidemiological bounds. And he suggests that some combination of low-cost interventions, such as public-awareness campaigns and requiring people to wear masks in public, could be the way forward.

His framework starts with the rate of transmission of the coronavirus that causes COVID-19. Let’s assume the rate of transmission is 2—one person infects two people, those two infect four, the four infect eight, and so on. The actual rate is currently uncertain, but many estimates put the unconstrained rate, absent interventions, at between 2.5 and 3.

Ideally, interventions would bring the rate of infection to 0 and wipe COVID-19 from the planet. But there could be huge social and economic costs involved, at least until a vaccine or cure is developed. For example, one influential epidemiological model by scholars at Imperial College London, which helped push the US and UK governments to impose lockdown measures, predicts that schools would need to be closed for most of two years, Budish notes.

Is there an acceptable alternative? Reducing the rate to 1 or less would contain the spread, he notes. Take R as the rate of transmission. If R = 2, the number of infections doubles constantly and quickly, but R < 1 constrains the exponential growth. China, South Korea, Singapore, and Hong Kong have all managed to bring the rate under 1 by using social distancing, widespread testing, and other nonpharmaceutical interventions, Budish writes. Other countries could similarly reduce the rate to below 1, maybe by overshooting it at first to err on the side of human health.

After that, policy makers could accomplish health goals while also maximizing social welfare. Rather than seek to minimize the virus’s spread at any cost, officials could use the model to think about trade-offs and develop plans that weigh the health and economic risks.