Several states, counties, and cities in the United States have gone into shutdown mode to slow down the spread of the novel coronavirus that has now infected over 1 million people worldwide. Amid reports that our healthcare capacity is inadequate to handle the surging number of cases, we also hear grumbling that the measures in place may have devastating long-run impact on the economy.
A major problem with the current approach to deal with the epidemic is that it is a one-dimensional solution to a multi-dimensional problem: It essentially focuses on one goal, lowering the number of new cases, without taking into account the enormous economic, social, and emotional costs of the predicament that we are in. There are, however, other ways to “flatten the curve” that would be better on all these dimensions.
In an epidemic, simple acts by an individual can have serious, harmful effects on many others. Because people may not consider or be aware of the effects of their behavior on those around them, public policies should be designed so that individuals in some way have to account for the impact of their actions on the rest of society. That means, in the context of the current pandemic, that individuals (and other entities such as businesses) who contribute to virus-spread should be “penalized” to incentivize them to change their behavior.
By the same token, individuals and institutions that prevent disease-spread, or generate some other forms of benefit to others during the pandemic, should be “rewarded” to encourage pro-social behavior.
The current strategy of closing schools and putting our economy in a standstill is suboptimal, for it puts everyone in the same boat without regard to how they are affecting the well-being of society during this outbreak. There are other steps policymakers can take. By providing the right incentives to people and businesses, government can promote behavioral changes to curb the spread of the virus without incurring the tremendous costs to society that the current approach entails.
First, we must permit our businesses to open up again. Second, because many nonessential businesses provide places for people to congregate, thus helping the transmission of the coronavirus, the government should levy a “contagion tax” on these entities as the “price” they have to pay for contributing to disease-spread. Third, essential workers, such as healthcare providers, should have their incomes supplemented and be granted paid sick leave should they get infected.
Fourth, with limited healthcare capacity and equipment such as ventilators, the government and the medical community need to clearly define a system whereby certain groups of people are given priority in getting access to care and treatment. In keeping with the principle that those who contribute positively to the rest of society should be rewarded for their actions, this priority status should be given to essential workers.
The contagion tax, put in place only during epidemics, would hurt some businesses and force a few to close down or stay closed. But, as long as this tax is not prohibitively high, other nonessential businesses will stay open and could pass on higher costs to customers in the form of higher prices. That would reduce the number of customers, thus decreasing the likelihood of disease-spread from those establishments.
Businesses would also have an incentive to “virus-proof” their operations so as not to lose customers who are wary of getting infected. This is yet another channel through which the contagion tax would help contain the epidemic while preventing an economic catastrophe.
Adoption of the steps outlined here would likely result in more infections initially. However, as people adapt and respond to the incentive structure of these measures, we would be able to flatten the curve after an adjustment period while getting the economy restarted. The current approach that seeks to isolate people in their homes for weeks, or perhaps months, is simply not sustainable. It is time for a change, because that boat we are all in right now is slowly sinking.
Frederick Chen is a professor of economics at Wake Forest University.
