How relevant is economics during a pandemic and in what way might economists make things better?
By Josh Wells
In the following blog, I will discuss why economics should be a key focus during a pandemic, and how economists may mitigate the impacts. To begin with I will split my essay into sections which I believe are key parts of the modern economy and consider the effects of pandemics. I shall emphasise the importance of understanding the costs of economic decisions, as each one will have an effect. But these costs will vary between individuals, businesses and governments so I will show these variations and how it changes the relevancy of economics for them. These decisions during a pandemic may seem simple on the outside but when thinking economically it becomes much more complex and so I shall put emphasis on the importance economics during a pandemic and how it’s fundamental for stability.
Impact on industry
Throughout a pandemic economies are very volatile as many industries have to adapt to new challenges they face. Governments may have to implement rules to mitigate transmission of the pandemic, such as wearing face masks or social distancing. These are all new challenges that businesses will face, forcing them to purchase PPE to keep them running at the cost of Profits. For example with Covid-19 the ramifications have been widespread as we have seen many sectors struggling recently.
Aviation has been hit heavily in 2020 with travel bans being put in place by multiple countries to try and minimise the spread of CV19. In June Iata issued a revision stating that revenues would fall by £419 Billion which is precisely half what airlines earned in 2019. This colossal loss in revenue meant airlines resulted to laying off workers, such as Easy Jet who announced job cuts for 1,300 crew and 727 pilots.
This decline in the aviation industry had serious consequences, airlines where forced to lay off employees as it wasn’t feasible to keep them. They also had to cancel millions of flights which caused the £419 Billion loss In revenue. These are all economic decisions that businesses have had to take to maintain profits at the cost of thousands of skilled workers. Without these actions many businesses would go bust forcing GDP to fall, creating a situation where the government may decide to intervene.
Overall the relevancy of economics cannot be understated during a pandemic, as the decisions made by businesses during the time can depict it’s future in the industry.
Impact on inflation
Throughout a pandemic it is fundamental that a Government is monitoring it’s economy and trying to predict any future problems. One problem during a pandemic is consumer confidence falls due to uncertainty over their employment; therefore the demand for goods and services falls forcing businesses to reduce their prices to maintain their profits.
Due to the Covid-19 pandemic there has been lots of uncertainty about future employment so GDP contracted by 19.8% in the second quarter of 2020. The Bank of England warned people may continue to put off spending as they expect prices to fall further, creating a spiral of deflation. Overall the annual inflation rate for 2020 was 0.9% with a low of 0.2%
This will increase the real value of debt when borrowing and the real value of savings will grow giving consumers more incentive to save, creating a period of stagnant/negative economic growth. It’s clear to see if deflation is not in control that it can have serious consequences within a economy. This is why the central bank has to make key decision such as lowering interest rates to control deflation. Lowering interest rates gives people more incentive to consume instead of save, therefore demand should rise stopping prices from falling further.
This highlights the importance of economics during a pandemic, as it allows the central bank to make correct decisions to keep it under control.
Impact on Unemployment
During a Pandemic businesses will be struggling with low levels of consumption and new challenges. Their profits will be suffering so they result to laying off workers as the cost is too great. Governments will predict this during a pandemic and set out a plan to stop workers becoming unemployed.
Rishi Sunak The Chancellor of the Exchequer released his economic plan in 2020 to aid the economy through Covid-19. Part of his plan was the furlough scheme which aids businesses by the government paying 80% of an employee’s wages. This allows businesses to keep employees at a small cost, helping them fight through the pandemic.
Without the furlough scheme unemployment would of climbed drastically thus leaving the government paying higher welfare costs whilst receiving less from taxes; which would increase the government budget deficit potentially leading to higher tax rates. So government intervention to regulate the unemployment rate is fundamental to stop the budget balance becoming a threat to the economy.
Hopefully it’s clear to see if economics is disregarded during a pandemic unemployment will soar creating an even larger problem, the understanding of key economic concepts allows governments to make the correct decisions to counter any rise.
In many eyes economics is seen as crucial throughout a pandemic, whereas many others believe protecting the health of those that make up the economy is more important. A pandemic can be deadly, leaving thousands dead as it spreads from country to country. The loss of a family member can be one of the hardest times in your life, as they are part of you. This feeling of loneliness can cause people to become very closed as they hold all their feelings up inside and some may even become depressed.
A study found suicidal thoughts had increased from 8% to 10% and even higher in young adults from 12.5% to 14%. Even though these rises may look small they are
worrying as they rose over such a short time.
Many people will be struggling during this pandemic with the loss of family, unemployment and lockdown restrictions. They will feel stressed as they may have families that are dependent on them; or they may feel lonely as they get disconnected from society because of lockdown rules. If forgotten many will loose confidence to re-enter the labour force and a lack of motivation which will decelerate economic recovery.
Economics may be important but it’s synergy with peoples health is vital for economic recovery as it creates a large and efficient labour force which can create growth. Therefore I feel that Health and economics should be highly relevant as they are both very volatile during pandemics.
How Economists can make things better
An economists is someone who studies the production and distribution of resources, goods and services. Economists have a vital role within a economy as their research has a big influence on decisions to be taken.
When the UK government had to make a decision on the Economic plan to help combat the impacts of C19, it will have been formed around the proposed ideas by economists. There will be Economists with positions within the government, allowing the party to form the most effective decision on Economic aid,
In the past economists will of studied economic trends within an economy such as changes in GDP and unemployment. This analysis allows governments and
businesses to predict/understand the impacts of a pandemic and how they could mitigate them. So in the future pandemics may no longer be such a threat to the global economy thanks to the analysis of economists.
Without economists important theories that allow us to understand the functioning of an economy wouldn’t exist. These theories can show us how to stimulate growth or what may occur in the future, which if used correctly can create a powerful economy. With this knowledge of what may occur during a pandemic governments can efficiently put measures into place to protect the economy; economists become smarter as they analyse reoccurring trends every recession making government action more efficient.
On the other hand Economists aren’t always correct which can sway decisions the wrong way. An example of this is the ‘Eat out to help out scheme’ during August of 2020, economists saw that the hospitality industry was struggling because of lockdown restrictions. Therefore the government listened to advice and introduced the scheme which planned to boost the hospitality industry. After analysing the scheme it was said “66% of respondents in hospitality and catering reported a fall in sales and bookings between June and the end of September.” This highlights the ineffectiveness of the scheme and it seems that the £500 million spent was wasted which could have been used on funding the governments expenditure on the vaccine.
Overall after considering the relevancy of economics during a pandemic I believe it’s
fundamental for every decision we make. We see from both examples that
pandemics have severe impacts on them and without economics they wouldn’t be mitigated. Economics allows us to think rationally and understand how to distribute aid throughout an economy when they need it most, which makes me believe that it’s the key factor for recovery from a recession. After evaluating economists I feel that they make things better as they analyse past and current economic trends which can help effective decision making, such as the furlough scheme. They may sometimes be incorrect but even so they are working to try and help the economy which is admirable, so I do believe they make things better.
- Coronavirus: More than 12,000 jobs to be lost from high-street retailers and aviation companies hit by pandemic | The Independent | The Independent