Romer & Garber: How to prevent the economy from dying?

The corona-pandemic has emerged from a health crisis into an economic crisis with looming supply and demand shocks. Nobel prize winner Paul Romer and Alan Garber from Harvard University have laid out a plan to deal with the crisis.




24. MARCH 2020



The authors advocate for massive investments into the health care system in order to resume back to normal in a few months. They call for more than just loan guarantees and direct cash transfers because those will only provide short-term aid. “To protect our way of life, we need to shift within a couple of months to a targeted approach that limits the spread of the virus but still lets most people go back to work and resume their daily activities.”

Their strategy aims for a more extensive approach towards the testing-procedure. The allocation of government resources should be channelled towards a massive increase in testing capabilities. Since those are destined to get cheaper, the authors argue that “it will be possible to test and retest everyone, not just those with symptoms. Frequent virus tests will let us identify and isolate someone who is infectious days before symptoms develop. We could start by screening the general public on a weekly basis. It might make sense to test health care and emergency response workers daily.” The next step, they argue, would be to test for antibodies in order to identify, if people are already immune to the virus.

“As long as the risk of infection remains high, we need protective equipment that anyone who works in a grocery store, and anyone who shops there, will be comfortable wearing. Without waiting for the expanded system of tests to come online, we should set an ambitious goal — within two months, a return with protective equipment for 25 percent of all workers, and within four months, 75 percent of the work force.”

Romer and Garber argue that the economy will not be able to handle a 12 to 18 month period of current social distancing until a vaccine is developed. This step by step approach, however, will keep the economy alive.

Simon Tilford (Forum New Economy) commenting on the plan of Romer and Garber

“Paul Romer argues that government investment in protective equipment and tests would boost demand and enable workers to go back to work as soon as possible, and therefore be a far less expensive way of stimulating the economy than giveaways and transfers. Such spending is no doubt necessary – not least to ensure countries are better prepared for the next crisis – but it would not obviate the need for other measures. Even if 25% of workers could return to work in two months and 75% within 4 months – as Romer assumes – this would still imply a massive fall in output and hence the need for an unprecedented fiscal response.”

The full article of Romer and Garber in the New York Times: Will Our Economy Die From Coronavirus?



The Corona pandemic poses new kinds of challenges for global economic and social policy making and has further intensified an already existing need for action. Economists are working hard on mitigating the economic effects.