Five questions from a student at GIPE about the corona virus and economics

 

Punyaa, a student from GIPE emails in this list of questions. My answers below.

He says:

I want to know details about:

  • The impacts of free immigration on the spread of the virus.
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    There are benefits and costs to everything. Think of a spectrum on which you have the kind of global lockdown we do right now, and the kind of unhindered, unimpeded flow of people like me dream about.
    The good news with full labor mobility is rapid economic growth, but as your question implies, also an easy spread of a variety of undesirable things, viruses included.
    The good news with a lockdown is no viruses spread, but neither does economic activity.
    Tradeoffs, in other words. Reasonable people can and should argue about where you want to be on this spectrum, but the world as a whole will favor lesser immigration as a consequence of this lockdown. So on the spectrum, the world will now move towards being less welcoming to people from other parts of the world.
    Tradeoffs
  • Will the world be able to shift from the excessive dependence of it on China?
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    Again, trade-offs! China, given all of what it has learnt and applied over the last 30 years, remains the cheapest place to manufacture at scale. The purely economic preferences of most corporations the world over will be to base themselves in China, even after the crisis is over. Except we’re now beginning to see the downsides of a lack of diversification. I don’t think it is a question of “will” as much as it is of “must”. Every crisis is also, eventually, an opportunity!
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  • Will countries change their policy towards international trade.¬†
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    Almost certainly yes. Check this post on MR for more details:

    If a good is vital for national security but domestic producers have higher costs than foreign producers, it can make sense for the government to tax imports or subsidize the production of the domestic industry. It may make sense, for example, to support a domestic vaccine industry. In 1918, more than a quarter of the U.S. population got sick with the flu and more than 500,000 died, sometimes within hours of being infected. The young were especially hard-hit and, as a result, life expectancy in the United States dropped by 10 years. No place in the world was safe, as between 2.5% and 5% of the entire world population died from the flu between 1918 and 1920. Producing flu vaccine requires an elaborate process in which robots inject hundreds of millions of eggs with flu viruses. In an ordinary year, there are few problems with buying vaccine produced in another country, but if something like the 1918 flu swept the world again, it would be wise to have significant vaccine production capacity in the United States.

  • How long¬† can we expect the market to rise again? (sic)
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    I think this means how long before we can expect the markets to rise again, and by rise I assume above pre-corona levels. Who knows? If you say you do, I don’t believe you.
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  • How will the government be planning to manage the fiscal deficit?
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    Easiest to answer: it won’t be planning to manage it. We are clearly in do-whatever-it-takes territory.

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