Economic tools aid response to Covid-19 – leading macroeconomic influencers

12 November 2020 (Last Updated November 12th, 2020 08:07)

Economic tools aid response to Covid-19 – leading macroeconomic influencers
Credit: DaLiu, shutterstock.com.

Leading epidemiologists believe that the tools of economics are helping them to better understand the impact of the Covid-19 disease. Therefore, a collaboration between modelling policies and endogenous factors is pertinent to combat the virus spread.

David Flynn

David Flynn, an economics commentator and historian, re-tweeted on the importance of economists working alongside epidemiologists to assess the impact of the Covid-19 pandemic and design an effective strategy to curb its spread. The article shared by the American Economic Association (AEC) highlights how Boston University epidemiologists such as Eleanor Murray believe that economic tools have helped her better understand the impact of the virus.

Eleanor highlights the importance of economists in studying and responding to Covid-19 in the Journal of Economic Perspectives. She stated that economists were important from the point of view of understanding the impact of the pandemic on businesses and economic activities, and in understanding how people would receive payments.

She also discussed why estimated cases and deaths in some of the early models either by the London Imperial College or the Institute for Health Metrics and Evaluation were widely different because in both the cases researchers were trying to evaluate the spread of the disease, and compare the current health crisis with previous pandemics and outbreaks to derive an appropriate response mechanism.

David Andolfatto

David Andolfatto, an academic, shared an article on how the pandemic has clogged the global economy with paper currency. The article elucidates how the Covid-19 outbreak has caused a global increase in the cash-build up across economies such as Canada, the US and UK. However, despite the increase in banknotes circulation since the Covid outbreak, ATM cash withdrawals declined by 60% in the UK, the article highlighted.

Economists first believed that the unusual rise in banknotes circulation across western countries in March and April, may have been the result of cash withdrawals as people wanted enough resources to deal with the virus crisis. However, experts have learnt over the months that the rise in cash-in-circulation has not resulted because of withdrawals as people were spending less and most of the immediate and necessary transactions were taking place digitally.

Experts believe that the only explanation for the persistent rise in banknotes in the economy is the result of less cash being returned to banks and ATMs. Consequently, individuals and businesses are not redepositing the cash into banks, which is leading to a clog and preventing the smooth and regular flow of returns. In the case of Europe, withdrawals of euro bank notes have exceeded returns between 2007 and 2020. This has led to cash bulge in the economy over time. However, European Central Bank’s (ECB) data reveal that there has been a sharp decline in both during the pandemic, with returns of cash plunging to a level that has caused the huge cash build-up in circulation.

Ben White

Ben White, a chief economic correspondent, re-tweeted on the new president of the US, Joe Biden being faced with deep wounds from Covid-19, a staggering economy, and a Republican Senate. While Obama faced similar challenges to deal with during his term as president, experts believe that he had better tools to deal with the challenges ahead of him.

Despite the vaccine development rush, the country still awaits a dark winter with new virus outbreaks, and meagre sings of a second fiscal stimulus. Economists believe that the Biden team would have to eventually depend on the Federal Reserve to act, which would lead to investors becoming richer.

Additionally, the US economy is still grappling with high unemployment rates and is approximately 10 million short of jobs since the pandemic hit. Small businesses stay helpless and at the verge of bankruptcy as they hope for more Federal support. Consequently, the current course of the virus coupled with the prospect of a divided Congress pose the toughest choices for the Biden team ahead, economists opine.