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COVID-19 Two-Pronged Choice (when choices or opinions are divided): Production Possibility Frontiers Author: Gans Start with the figure 1, showing a tradeoff between the economy and health

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COVID-19 Two-Pronged Choice (when choices or opinions are divided): Production Possibility Frontiers Author: Gans Start with the figure 1, showing a tradeoff between the economy and health. The outer line is a standard production possibilities frontier. This diagram should be interpreted as the tradeoff at a point in time. At a point in time, it would be possible to say, shut down factories and thus to improve air quality, in a way that would reduce the size of the economy but improve health. The blue dot shows the point chosen by society. This diagram should be interpreted very broadly, so that "economy" means all of the benefits generated by the economy, not just a simple measure of GDP. E Economy Economy H H Health Health Figure 1: PPF Curve amid COVID 19 What happens when a pandemic hits? Focus on the left-hand side panel first. Gans argues that the pandemic will mean that the possibilities for both economic output and for health to contract. The previous combination of economy and health chosen by society--the blue dot--is no longer feasible. Instead, we have to think about whether we want to absorb the negative impact of the pandemic more through a reduction in the economy, or more through a reduction in health, or with some combination of the two. On the left-hand side of the diagram, point E shows a choice of keeping
the economy where it was before, and having all the costs of the pandemic happen via less health. Point H shows a choice of keeping health where it was before, and having all the costs of of the pandemic happen via a reduction in the economy. That arises out of the nature of a pandemic that most countries in the word have been experiencing since the start of COVID-19. To consider this, suppose that we started from our original level of the economy (at a point like E, the black dot). Then, if we want more health during a pandemic, we need to give up a lot of the economy to get it. This is the social distancing argument we need a lot of social distancing in order to halt the spread of infectious disease and a little bit won't have much effect. The same logic applies if we start from our original level of health (at a point like H, the green dot). In that situation, if we look to give up a little health for a better economy we find that we cannot do that. Even to achieve a level of health remotely close to what we previously had, we have to employ lots of social distancing which means that the only way to get a better economy is to give up a ton of health. (Notice that the less virulent is the infection, the smaller the bite is likely to be.) The point is that if we take the advices of epidemiologists seriously then our usual marginal thinking about trade-offs does not work. To put it another way, the shape of the red line emphasizes that trying to muddle through a pandemic with a slightly lower level of health and a slightly reduced economy isn't going to work well (not feasible). If a society decides that it will choose half-way job of social distancing, it will experience both a big drop in health (because half- way social distancing isn't all that effective) and also a big drop in the economy (because half-way social distancing is still quite costly). A pandemic thus present a kind of either or choice: choose health or choose economy, protect one of them, and accept the corresponding costs. What Gans calls the "drift" makes this lesson even more clear. Imagine that society chooses point E, to protect the economy. As the pandemic advances over time and the health costs become more severe, the economy is going to decline further (as shown by the lower level of point E in the righthand side of the figure). Also, if society tried to defend the same level of the economy, and thus the pandemic keeps spreading, trying to keep the level of public health more-or-less the same is no longer a workable option. If society wants to protect public health in a pandemic, it needs to actlbriste because the option of protecting muhlic health won't he nassihle after the pandemic
thus the pandemic keeps spreading, trying to keep the level of public health more-or-less the same is no longer a workable option. If society wants to protect public health in a pandemnic, it needs to act briskly, because the option of protecting public health won't be possible after the pandemic spreads. Questions: 1. The shape of the red line curves has an inward curve (concave shape). what Gans calls a "hollowing out." What does that shape represent and why is it so? Explain 2. Do you think that issues like why the social distancing rules were put in place so abruptly, why trying to take a half-way approach to social distancing would have probably imposed lots of economic costs with few health gains? Justify.