Freakonomic's most recent episode, “The Side Effects of Social Distancing” addresses the economic impacts that COVID-19 and the social distancing policy will have on the economy, work, education, and the environment. Stanford economist and IRiSS Advisory Board member Nick Bloom, along with additional guests Toby Moskowitz of Yale’s Department of Economics and Marshall Burke of Stanford’s Department of Earth System Science, discussed these issues and laid out potential longterm consequences of the pandemic.
Bloom began by providing a high-level analysis on COVID-19's economic impact, acknowledging the virus's "first moment effect:" a tremendous shock to supply and demand through the disruption of business supply chains, transportation, and labor. This shock is coupled with a huge amount of uncertainty. Historically, any type of uncertainty is damaging to the economy, and Bloom conceded that we have more than likely already entered into a recession, though it is too early to predict how severe it will be.
With regard to monetary policy, Bloom put the current situation into context by reflecting on policy since the 2008 recession. The Federal Reserve acted aggressively on March 15th, lowering interest rates to almost 0%, but financial markets did not respond positively in the way that was hoped for. Bloom pointed out that interest rates were low before the pandemic broke out, and had been relatively low since 2008. Instead of cutting taxes and keeping rates down, Bloom suggested that administration policies should have focused on paying off national debt and putting money back in the bank; as a result, we haven't had a chance to "reload our arsenal” and are not well situated to absorb this latest economic shock.
Asked to reflect on the predicament of workers, Bloom acknowledged the grim circumstances for hourly workers. He pointed out that labor markets have become more flexible over the past 30 years, making it easier for firms to lay off employees; one fifth of American workers have already been let go from their jobs or had their hours reduced. For salaried workers, the immediate changes enacted have been work-from-home policies established to meet the criteria for social distancing. In a study conducted in Shanghai six years ago, Bloom concluded that workers who worked from home (in this instance, those with jobs consisting primarily of independent, task-based work) were 13% more productive. He noted some reasons why the results may not extend to our current situation, however; many jobs require high amounts of collaboration and loneliness can cause mental health issues, and in turn, other health problems, for workers who prefer a more social environment.
For a more comprehensive understand of COVID-19's economic impact, listen to the full episode