IDEAS home Printed from https://ideas.repec.org/p/bfi/wpaper/2020-48.html
   My bibliography  Save this paper

Economic Activity and the Value of Medical Innovation during a Pandemic

Author

Listed:
  • Casey B. Mulligan

    (University of Chicago - Kenneth C. Griffin Department of Economics)

Abstract

We are currently fighting a war against the COVID-19 virus.The war presents an obvious and massive tradeoff between “guns†–activities whose primary purpose is war production–and “butter,†which refers to the normal activities of households and businesses. Without any improvement in our techniques for fighting the war, the sacrifices by households and businesses will be staggering and historically unprecedented. This document enumerates and quantifies the sacrifices, showing why negative 60 percent is an optimistic projection for the annualized growth rate of U.S. GDP in 2020 Q2 if the nonessential businesses were not allowed to operate during that quarter. The lost surplus from market activity, while massive, nonetheless understates the true costs of the sacrifices that households and businesses are making, which I estimate to total almost $15,000 per household per quarter before counting any health costs or monetizing any intrinsic costs of forgone civil liberties. This is why better techniques for fighting the war are incredibly valuable.

Suggested Citation

  • Casey B. Mulligan, 2020. "Economic Activity and the Value of Medical Innovation during a Pandemic," Working Papers 2020-48, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-48
    as

    Download full text from publisher

    File URL: https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_202048.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. DiMasi, Joseph A. & Grabowski, Henry G. & Hansen, Ronald W., 2016. "Innovation in the pharmaceutical industry: New estimates of R&D costs," Journal of Health Economics, Elsevier, vol. 47(C), pages 20-33.
    2. Breton, Theodore R., 2013. "Were Mankiw, Romer, And Weil Right? A Reconciliation Of The Micro And Macro Effects Of Schooling On Income," Macroeconomic Dynamics, Cambridge University Press, vol. 17(5), pages 1023-1054, July.
    3. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    4. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4, National Bureau of Economic Research, Inc.
    5. Adam Jørring & Andrew W Lo & Tomas J Philipson & Manita Singh & Richard T Thakor, 2022. "Sharing R&D Risk in Healthcare via FDA Hedges [Bank lines of credit as contingent liquidity: Covenant violations and their implications]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 11(4), pages 880-922.
    6. Dale W. Jorgenson & J. Steven Landefeld, 2009. "Implementation of a New Architecture for the US National Accounts," American Economic Review, American Economic Association, vol. 99(2), pages 64-68, May.
    7. Robert J. Barro & José F. Ursúa & Joanna Weng, 2020. "The Coronavirus and the Great Influenza Pandemic: Lessons from the “Spanish Flu” for the Coronavirus’s Potential Effects on Mortality and Economic Activity," NBER Working Papers 26866, National Bureau of Economic Research, Inc.
    8. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, March.
    9. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 119-128.
    10. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509, December.
    11. Casey Mulligan, 2014. "Uncertainty, redistribution, and the labor market since 2007," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-16, December.
    12. Robert J. Barro & José F. Ursua & Joanna Weng, 2020. "The Coronavirus and the Great Influenza Epidemic - Lessons from the "Spanish Flu" for the Coronavirus's Potential Effects on Mortality and Economic Activity," CESifo Working Paper Series 8166, CESifo.
    13. Hartwick, John M., 1990. "Natural resources, national accounting and economic depreciation," Journal of Public Economics, Elsevier, vol. 43(3), pages 291-304, December.
    14. Dale W. Jorgenson, 2009. "A New Architecture For The U.S. National Accounts," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(1), pages 1-42, March.
    15. Casey B. Mulligan, 1999. "Substitution over Time: Another Look at Life-Cycle Labor Supply," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 75-152, National Bureau of Economic Research, Inc.
    16. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    17. Sherwin Rosen, 1972. "Learning and Experience in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 7(3), pages 326-342.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abel Brodeur & David Gray & Anik Islam & Suraiya Bhuiyan, 2021. "A literature review of the economics of COVID‐19," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1007-1044, September.
    2. Broughel, James & Kotrous, Michael, 2020. "The Benefits of Coronavirus Suppression: A Cost-Benefit Analysis of the Response to the First Wave of COVID-19," Working Papers 10632, George Mason University, Mercatus Center.
    3. Kong, Edward & Prinz, Daniel, 2020. "Disentangling policy effects using proxy data: Which shutdown policies affected unemployment during the COVID-19 pandemic?," Journal of Public Economics, Elsevier, vol. 189(C).
    4. Granja, João & Makridis, Christos & Yannelis, Constantine & Zwick, Eric, 2022. "Did the paycheck protection program hit the target?," Journal of Financial Economics, Elsevier, vol. 145(3), pages 725-761.
    5. Xu, Yingying & Lien, Donald, 2022. "Assessing the impact of COVID-19 on price Co-movements in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    6. Rehse, Dominik & Tremöhlen, Felix, 2022. "Fostering participation in digital contact tracing," Information Economics and Policy, Elsevier, vol. 58(C).
    7. M. O. Oleche & D. K. Manda & R. G. Mutegi & S. Kipruto & M. K. Muriithi & P. Samoei & A. W. Ndirangu & G. Mwabu, 2023. "The gendered impacts of COVID-19 and business closure due to lockdown on wage employment in Kenya," Journal of Economic Policy and Management Issues, JEPMI, vol. 2(2), pages 31-48.
    8. James Broughel & Michael Kotrous, 2021. "The benefits of coronavirus suppression: A cost-benefit analysis of the response to the first wave of COVID-19 in the United States," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-20, June.
    9. Casey B. Mulligan, 2021. "The Incidence and Magnitude of the Health Costs of In-person Schooling during the COVID-19 Pandemic," NBER Working Papers 28619, National Bureau of Economic Research, Inc.
    10. Richard Gearhart & Lyudmyla Sonchak-Ardan & Nyakundi Michieka, 2022. "The efficiency of COVID cases to COVID policies: a robust conditional approach," Empirical Economics, Springer, vol. 63(6), pages 2903-2948, December.
    11. David Baqaee & Emmanuel Farhi & Michael J. Mina & James H. Stock, 2020. "Reopening Scenarios," NBER Working Papers 27244, National Bureau of Economic Research, Inc.
    12. Jin Fan & Hongshu Wang & Xiaolan Zhang, 2022. "A General Equilibrium Analysis of Achieving the Goal of Stable Growth by China’s Market Expectations in the Context of the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(22), pages 1-22, November.
    13. Rehse, Dominik & Tremöhlen, Felix, 2020. "Fostering participation in digital public health interventions: The case of digital contact tracing," ZEW Discussion Papers 20-076, ZEW - Leibniz Centre for European Economic Research.
    14. Croce, Mariano & Farroni, Paolo & Wolfskeil, Isabella, 2020. "When the Markets Get COVID: COntagion, Viruses, and Information Diffusion," CEPR Discussion Papers 14674, C.E.P.R. Discussion Papers.
    15. Casey B. Mulligan, 2021. "The Backward Art of Slowing the Spread? Congregation Efficiencies during COVID-19," NBER Working Papers 28737, National Bureau of Economic Research, Inc.
    16. Christopher Cotton & Bahman Kashi & Huw Lloyd‐Ellis & Frederic Tremblay & Brett Crowley, 2022. "Quantifying the economic impacts of COVID‐19 policy responses on Canada's provinces in (almost) real time," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 406-445, February.
    17. Robert S. Pindyck, 2020. "COVID-19 and the Welfare Effects of Reducing Contagion," NBER Working Papers 27121, National Bureau of Economic Research, Inc.
    18. George Kapetanios & Nora Neuteboom & Feiko Ritsema & Alexia Ventouri, 2022. "How did consumers react to the COVID‐19 pandemic over time?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(5), pages 961-993, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Casey B. Mulligan, 2020. "Economic Activity and the Value of Medical Innovation during a Pandemic," NBER Working Papers 27060, National Bureau of Economic Research, Inc.
    2. Christophe J. NORDMAN & François-Charles WOLFF, 2012. "On-The-Job Learning And Earnings: Comparative Evidence From Morocco And Senegal," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 35, pages 151-176.
    3. Rosario Aldunate, 2019. "Returns to Work Experience in Chile," Working Papers Central Bank of Chile 855, Central Bank of Chile.
    4. Daron Acemoglu & Jörn-Steffen Pischke, 2003. "Minimum Wages And On-The-Job Training," Research in Labor Economics, in: Worker Well-Being and Public Policy, pages 159-202, Emerald Group Publishing Limited.
    5. Ferreira, Maria & de Grip, Andries & van der Velden, Rolf, 2018. "Does informal learning at work differ between temporary and permanent workers? Evidence from 20 OECD countries," Labour Economics, Elsevier, vol. 55(C), pages 18-40.
    6. Destré, Guillaume & Lévy-Garboua, Louis & Sollogoub, Michel, 2008. "Learning from experience or learning from others?: Inferring informal training from a human capital earnings function with matched employer-employee data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(3), pages 919-938, June.
    7. Mysíková Martina, 2016. "Educational mismatch in the Czech Labour Market," Review of Economic Perspectives, Sciendo, vol. 16(2), pages 103-120, June.
    8. Ollivier, Timothée & Giraud, Pierre-Noël, 2011. "Assessing sustainability, a comprehensive wealth accounting prospect: An application to Mozambique," Ecological Economics, Elsevier, vol. 70(3), pages 503-512, January.
    9. repec:eee:labchp:v:1:y:1986:i:c:p:603-640 is not listed on IDEAS
    10. Jovanovic, Boyan & Nyarko, Yaw, 1997. "Stepping-stone mobility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 289-325, June.
    11. Nikhil Agarwal, 2015. "An Empirical Model of the Medical Match," American Economic Review, American Economic Association, vol. 105(7), pages 1939-1978, July.
    12. Dench, Daniel & Grossman, Michael, 2018. "Health and the Wage Rate: Cause, Effect, Both, or Neither? New Evidence on an Old Question," IZA Discussion Papers 11943, Institute of Labor Economics (IZA).
    13. Lee, Chul-In, 2008. "On-the-job human capital investment and intertemporal substitution: New evidence on intertemporal substitution elasticity," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3350-3375, October.
    14. Theodore R. Breton & Andrew S. Breton, 2021. "Growth in a macro‐Mincer model: Good results with schooling and experience interactions," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 563-581, May.
    15. Carl Sanders & Christopher Taber, 2012. "Life-Cycle Wage Growth and Heterogeneous Human Capital," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 399-425, July.
    16. Polachek, Solomon W., 2008. "Earnings Over the Life Cycle: The Mincer Earnings Function and Its Applications," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(3), pages 165-272, April.
    17. Robert Gibbons & Michael Waldman, 2006. "Enriching a Theory of Wage and Promotion Dynamics inside Firms," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 59-108, January.
    18. repec:eee:labchp:v:1:y:1986:i:c:p:357-386 is not listed on IDEAS
    19. Peng, Fei & Anwar, Sajid & Kang, Lili, 2017. "New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe," Economic Modelling, Elsevier, vol. 64(C), pages 1-19.
    20. Guillaume Destré & Louis Lévy-Garboua & Michel Sollogoub, 2005. "On-the-job learning and earnings," Cahiers de la Maison des Sciences Economiques bla05022, Université Panthéon-Sorbonne (Paris 1).
    21. Schumann, Mathias, 2017. "The effects of minimum wages on firm-financed apprenticeship training," Labour Economics, Elsevier, vol. 47(C), pages 163-181.
    22. Davia, Maria A. & McGuinness, Seamus & O'Connell, Philip J., 2016. "Determinants of Regional Differences in Rates of Overeducation in Europe," IZA Discussion Papers 10250, Institute of Labor Economics (IZA).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bfi:wpaper:2020-48. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Toni Shears (email available below). General contact details of provider: https://edirc.repec.org/data/mfichus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.