The economics of coronavirus: some insights

March 22, 2020 Coronavirus

We are economists, one specialized in decision theory under uncertainty, with applications to finance, macroeconomics, climate, insurance, risk prevention and public policy evaluation, and the other in development economics, with applications to infrastructure, public procurement, and institutions. Of course, there isn’t any legitimate specialist on the economics of covid19, and we have no such claim. Amid a health crisis, there are still many unknowns on the human, medical, economic and financial levels. And yet, decisions must be made very quickly. Scientists have useful but partial and incomplete knowledge. They have a responsibility to share it with public opinion and decision-makers, while acknowledging their doubts and the uncertainties that surround this knowledge. This puts scientists involved as much as public decision-makers in a very uncomfortable situation, with the quasi-certainty of being later criticized by citizens who are often subject to hindsight bias, which consists in judging the optimality of a past decision on the basis of information that was not available at the time the decision was taken. Already today, this bias can be heard. It will be worse tomorrow. Let us anticipate a further deterioration in the confidence of the people in their elected representatives.

The covid-19 crisis has no equivalent in modern history, neither in its intensity nor in its treatment. The Spanish flu killed between 50 and 100 million human beings between 1918 and 1920, but the conditions at the time did not lead to a containment strategy at the state level. Asian influenza (H2N2) is estimated to have killed 2 million people between 1956 and 1958, in a context where the international surveillance network was still poorly developed. Covid-19 appears to have a spread rate and mortality rate much higher than that of influenza. In the "laissez-faire" policy invoked at one time in Great Britain and the Netherlands, for example, some epidemiologists refer to a scenario involving a contamination of 70% of the population and a mortality rate of 2% among those contaminated, implying a death rate of 1.4% of the population. For France, this would result in an excess mortality of almost 1 million people. We are no more able than you are to judge the reliability of such an estimate, and its confidence interval is probably considerable. In the absence of certainties about the various parameters of the epidemic, we will have to continue to make choices considering these doubts and uncertainty.


Impact assessment

Of course, we hope that health policy will make it possible to significantly reduce this apocalyptic toll. Let us consider for example the containment policy implemented in France since Tuesday 17 March. Labor is, along with capital, the source of wealth creation. For an isolated individual ("Robinson Crusoe"), not working means not producing, not consuming. What is true at the individual level is also true at the collective level. We cannot distribute wealth that we have not produced. Confinement leads to a degraded version of work, and often to the complete cessation of production. Fortunately for many, telework allows them to maintain a value-creating activity, but it is still very difficult today to measure its impact on the activity. The duration of this decline in production is also unknown. In order to fix the ideas, let us start from a quick estimate, "from the corner of the table". Let's imagine 2 months of firm confinement implying a halving of economic activity. This leads to 1/12 of no wealth creation, i.e. 8% loss of income. If we add a return to normal only gradual by the end of the year, we easily reach a loss of more than 10% of GDP due to the containment policy. The financial markets seem to share this estimate, with a fall in prices of around 40% at the time of writing. Since, in our capitalist society, the equity capital of companies is in the front line to swallow this massive loss of income, these two measures are compatible with each other. Again, keep in mind that these estimates of health and economic impacts are highly uncertain. We are only at the beginning of the learning curve.

A 10% drop in GDP is certainly not insignificant, but if it were fairly distributed over the entire population, it would not mean the end of the world. Above all, it will certainly be temporary. Indeed, once the confinement has been lifted, the population will return to work if economic policy is able to avoid a cascade of business failures in the meantime. In this case, we can even imagine a rebound in growth in 2021, with companies seeking to replenish their stocks, which were damaged by the production stoppage this year, and consumers making the purchases they were unable to make during the confinement. By way of comparison, the Greeks have lost around 30% of their annual income over the last decade, and a return to the pre-euro crisis era is not expected for a long time. France lost 16% of its annual GDP during the 1929 crisis, 31% because of the First World War and 49% because of the Second World War, with the shock lasting much longer than can be anticipated for covid-19. Thus, the current shock is severe, but it is not as catastrophic as those experienced by our parents and grandparents.


The State as insurer of last resort

Nevertheless, in the absence of public intervention, the reality will certainly be quite different from a uniform 10% drop in income this year with a return to normal next year. At the household level, it will be far harder on the most precarious, the intermittent, those whose employment is not sustainable or is crucially limited by confinement, not to mention the homeless or refugees. Similarly, some businesses (restaurants, tour operators, etc.) will lose much more, and many of them could go bankrupt. Large companies will also face major financial difficulties. These include airlines, car manufacturers, hotel chains, concert halls, football clubs, etc. Government officials, online service providers, the food industry and traders in essential services will not lose much. The containment strategy is a necessary collective sacrifice for the common good. This effort must be shared fairly from an economic and financial point of view. It is as much a moral imperative as it is an economic one. Under the veil of ignorance, not knowing whether we are civil servants or restorers, we would all like to see this happen. Ex-post solidarity is ex-ante insurance. Only the State can set up such an insurance mechanism as a last resort. It calls for a systematic socialization of economic and financial losses due to containment.

Economists have long argued that there is an opposition between the need to make individuals and companies accountable on the one hand, and the need to share risks effectively on the other. Strengthening insurance often means reducing the incentive to prevent risk effectively. But in the context of covid-19, this reluctance to share risk based on this "moral hazard" has no reason to exist. We are therefore in a very different situation from that of 2008 (subprime crisis) and 2011-12 (euro crisis) where the moral hazard argument had an indisputable empirical basis: banks determine the risk associated with their loans portfolio; governments determine the risk associated with the bonds they issue.  The socialization of losses could be interpreted as an absolution of past bad behavior, and a license to start again. The covid-19 and the associated containment are a combination of an "act of god" and a political decision, and no actor has the possibility to intervene to prevent them. There can be no stigmatization of the victims of containment.

How can this imperative of socializing losses be implemented? It is a transfer of any losses linked to confinement of households and companies to the State accounts. The victims must be compensated, and only them. The deferral of social security charges and taxes may be useful in the short term to loosen the grip on the cash flow of SMEs, but it is not an instrument for the socialization of losses. The ban on redundancies constitutes a transfer of the burden of employee containment to companies. It is viable only in the very short term because its sustainability would risk putting many firms out of business that are unable to maintain their wage expenditure in the absence of a concomitant flow of revenue. Fortunately, the situation in France is very different from that in the United States, for example, because we have a much more efficient and generous social security system. Ideally, it should be possible to have recourse to unemployment insurance, with 100% of the salary being maintained throughout the period of confinement, at least below an upper limit. The State should also compensate the loss of income of self-employed workers forced to interrupt their activity by paying a cheque (or a tax rebate) proportional to the duration of this interruption, and based on the declared income of 2019. This targeting is in this respect different from the bipartisan solution of the US Congress to send a cheque to all households, which therefore has no economic justification in the current circumstances. This "helicopter money" is only useful if it is a response to a demand shock, which is not (yet) the case. Of course, there is a risk that there will be holes in the racket and profiteers. Economists working on social transfers understand targeting is never perfect, but the urgency and intensity of the crisis justifies some losses down the line.

Compensation of losses by the state is also a way to ensure that this production shock does not additionally generate a demand shock. By maintaining the purchasing power of households, the propagation of the shock over time is cut off. You have to know how to be Keynesian when the situation requires it. The State must also ensure that the industrial apparatus remains intact by preventing business failures. A recapitalization through temporary state participation in the capital of certain companies may prove necessary. As in 2008, if the economic rebound is confirmed, this could even be done at no cost to the taxpayer. Finally, it should be noted that the policy of maintaining demand while production and supply will fall this year may lead to a small temporary surge in inflation. Such a surge in inflation would be rather welcome in Europe.


Debt and self-insurance

Public opinion has now clearly understood the need to flatten the contamination curve. But there is a second curve that needs to be flattened, that of the fall in income following the containment that this first flattening imposes on us.

This socialization of losses will result in a massive public deficit in 2020, perhaps around 10% of GDP, and a corresponding increase in public debt, which will have to be gradually repaid. This policy of socialization of losses and intertemporal smoothing of the shock is economically desirable. It is well known that the uncertainty that weighs on a household's income can be effectively managed by accumulating liquid precautionary savings. This safety cushion is built up in periods of high income to be used in periods of low income. This simple self-insurance mechanism has always been used by those households that can, but is only possible to a limited extent for the more modest because of the credit constraint. The latter are often forced to pass on 1-to-1 the loss of income in loss of consumption, with potentially dramatic consequences if they are unable to borrow.

What is optimal for a household is equally optimal for a state. Its policy of capital accumulation (infrastructure and public participation) and indebtedness reflects this need for intertemporal smoothing of macroeconomic shocks. Unfortunately, in France, the Treasury's wiggle room is reduced, and the State has few assets that it could dispose of to finance this shock. Moreover, given the level of stock market valuations (the CAC 40, for example, has lost nearly 40% in one month), it would be unwise to dispose today of Aéroport de Paris, EDF or the assets held in the Pension Reserve Fund. For decades France has agreed to let deficits slip through during recessions without ever reducing its debt in better times. In this sense, democracy is the dictatorship of the present. This indiscipline has been reinforced since the creation of the euro and the concomitant end of the mechanism of automatic punishment of this indiscipline by the devaluation that the financial markets usually inflicted on it. Let us recall the Greek crisis. If one day we reach debt levels that could tempt a future government to exit the monetary union and default, the risk is that the anticipation of such an event could lead to the country's inability to refinance its debt or cushion a new shock, with dramatic social consequences for the country. There is obviously no point in dwelling on this problem of financial stability and rationality of public spending in the present circumstances. From this point of view, the suspension of the budgetary discipline rules of the European Treaties is welcome. However, this problem of the inability to balance the public budget over a long period of time will have to be dealt with one day. Why should France be eternally incapable of doing what Germany has been doing for decades? This is undoubtedly one of the major macroeconomic issues that will be on the table after this crisis.

The first consequence of this smoothing of the shock by public debt concerns its measurement in terms of GDP in the short term. The public transfer policy in favor of the victims of containment will mean that the fall in GDP could be reduced to virtually nothing in 2020. The bulk of the GDP loss would be carried forward to the following years, when part of the wealth creation would be neutralized to repay the "corona debt" rather than being translated into consumable income.

Fortunately, France is not at the forefront of this exposure to sovereign debt risk. Italy has the misfortune of being the European country most affected by the pandemic. It is also one of the most indebted European countries. The exogenous nature of the economic shock also removes here any problem of moral hazard and the stigma associated with it. It is the whole of the European Union that should socialize the corona loss on our continent. If the Union does not express this solidarity in the context of this pandemic, it will lose much of its remaining credibility as a political entity. This is all the truer since the firm policy of containment in Italy has had a beneficial effect on the rest of the Union. This loss should therefore be shared by issuing a European corona-bond with joint responsibility of the Member States for its reimbursement. Failing this, the ECB should ensure that the conditions of indebtedness of the States do not diverge within the Union. The rule capping purchases of sovereign debt under the European Stability Mechanism should be exceptionally suspended. The recent widening of government bond yield spreads within the Union should be contained. The ECB's launch of the 750 billion Pandemic Emergency Purchase Programme (PEPP) at least partially addresses this concern.

In the short term, the ECB must also avoid a liquidity crisis by offering cash to all financial institutions that request it. This is so that the latter can in turn finance solvent companies facing difficult maturities. The socialization of losses by governments should help reassure banks about the solvency of their borrowers. Trust and credibility are key here.


Evaluation of health policy

There is much to be said about health crisis management as such. Let's start with the call for good citizenship. At the beginning of March, the French government counted on the civic-mindedness of its citizens to encourage them to behave responsibly. The failure of this policy was widely reported in the media. Why wasn't education and information enough? Many citizens expressed their rejection of basic preventive measures by explaining that they were prepared to take the risk for themselves. Do they understand that their behavior affects not only their own survival, but also that of others? There are two possible explanations for this lack of civic-mindedness. The first is that these people have not really understood this negative externality, similar to those who refuse vaccination for other diseases. The second explanation is that this externality is understood but is simply not taken into account by individuals who are more concerned with their own well-being than with the risk that their behavior poses to others. This is a bit like climate change. In both cases, your efforts protect me and my efforts protect you. Perhaps I could just rely on your efforts, while abstracting from my own, in a free-rider behavior that has been well studied by economists. The lightness of many of our fellow citizens in applying the most basic rules of social distancing is a perfect illustration of this problem.

There are three solutions to this stowaway behavior inherent in any problem of externality, in a pandemic as in climate change. Plan A applies the principle of responsibility. It is about making individuals pay for the value of human lives lost through their behavior. In the case of covid-19, this plan is, of course, impossible to implement since the cause and effect relationship cannot be established. Plan B imposes a "price signal" on anyone wishing to escape from its confinement. It consists of charging each person who moves a price equal to the expected value of the health damage caused by the move. For example, a "corona-tax" could be put in place in proportion to the length of time each citizen has been out of confinement. Nevertheless, despite recent technological developments, the implementation of such a solution remains complex and raises serious ethical questions. All that remains is Plan C, that of a blind policy of confinement of the entire population tempered by a few exemptions. This is the health approach currently followed by more and more countries.

Let's continue with the controversy over the usefulness of containment. As we have seen, the economic and social cost is going to be severe, with a loss of wealth that could exceed 10% of annual GDP, i.e. around EUR 250 billion in the case of France. In order to assess the value of this policy, we must compare the loss it entails with that of non-confinement, which, as we have seen, could lead to an excess mortality of one million people. How can we compare EUR 250 billion to a million deaths? To make these things comparable, we must somehow put a value on human life. There are many ways of answering this question at the intersection of multiple social sciences. Economists have their methods, studying how people themselves value their lives. Everyone can take action to increase their life expectancy, through simple preventive gestures (crossing the street at pedestrian crossings, brushing their teeth, maintaining physical activity,...) or through safety investments (changing tyres, moving to a less polluted area,...). These actions are often costly, and the study of behavior and market prices makes it possible to estimate a " value of statistical life". In France, this value is set at three million euros, using this type of method. In other words, the State is prepared to spend up to 3 million to save a whole life in expectancy ("Eléments pour une révision de la valeur de la vie humaine ", Commissariat général à la stratégie et à la prospective, 2013). Thus, for example, the benefit of reducing the speed on our roads to 80 km/h, the usefulness of a new motorway, a maternity hospital in a rural area, or a new MRI at the hospital in Toulouse is estimated. Let us now estimate the value of one million deaths from covid-19. It is probably equivalent to the loss of 300,000 whole lives given the age distribution of the victims of this virus. At 3 million euros a lifetime, this gives us a value of this excess mortality equal to 900 billion euros. It is much higher than the estimated cost of 250 billion euros in economic loss due to two months' containment. Under these health and economic assumptions, the message is therefore clear. Between the options of laissez-faire and containment, and even disregarding the obvious ethical issues in this case, the latter far outweighs the former. Perhaps we should translate this text into Dutch for Mark Rutte's government? But we should always keep in mind the assumptions that lie behind this recommendation. New information could change it anytime.

Total containment is obviously impossible. It is crucial that certain essential activities be maintained in the agri-food, energy, waste and safety sectors, not to mention, of course, health. How do we determine the policy of exemptions to containment beyond these obvious cases? As with any individual or collective decision, wisdom dictates that we compare the costs and benefits of each possible action. The cost of going to work corresponds to the risk of contracting the disease and becoming a vector of transmission. Depending on the type of work and the state of the health system, the transmission models used by epidemiologists must make it possible to estimate the impact of this action on overall excess mortality. This information can be transformed into an economic value by using the value of human life mentioned above. This cost must be compared to the societal benefit of the activity generated. For a nurse, a baker, a scientist in search of a vaccine, there is certainly no debate. For a teacher or a bank clerk, the calculation is probably more complicated, all the more so as relatively efficient teleworking solutions exist today for these professions. Once the accompanying health measures have been defined, it will therefore be necessary to provide for a gradual policy of exit from confinement targeted at various professions, using this cost-benefit method.

These calculations often differ depending on whether one adopts the individual or the collective point of view. In normal times and with a frictionless labor market, the equilibrium wage of a job is equal to the social value of its marginal production. In this case, there is no difference between the two points of view. But in times of crisis, it is likely that the social value of some jobs is much higher than the wage received by these employees. We are obviously thinking of all hospital staff, saleswomen in food stores and postal workers, for example. In this case, these categories of employees may find themselves in a situation where they consider their health risk to be excessive in relation to their remuneration, even though from the point of view of society, their work is socially desirable. The exercise of their right of withdrawal would then lead to a failure of the system. Should the right of withdrawal be restricted accordingly? Personally, we are more in favor of paying exceptional bonuses to reduce the gap between pay and the social value creation of the corresponding work. Beyond the objective of demonstrating our collective gratitude to those who take risks to rescue us, this policy makes it possible to align private interests with the common good, and to federate energies on the most essential activities in this period of crisis. Here again, once the crisis is over, we will have to reflect on the social value of these activities in the long term and on the possible permanent realignment of the remuneration of some of these professions, which are on the front line in times of crisis. Finally, let us not ignore the importance of the intrinsic motivations (self-sacrifice, willingness to help, pleasure taken in accomplishing a social or humanitarian task) of our care staff to carry out their missions. The expressions of gratitude of the population towards them, such as the spontaneous applause that takes place every evening at 8 p.m., take on their full importance here.

Finally, there is the question of how to exit the containment. A recent report published under the direction of Professor Neil Ferguson of Imperial College in the United Kingdom indicates that a radical strategy for the removal of covid-19 of the type currently applied in our country appears to be the only one likely to avoid the total submersion of the health system in the short or medium term, but would, according to the authors, expose us to the risk of a significant rebound in contamination as soon as the radical social distancing measures are lifted.

This problem is closely linked to that of the economic consequences of the epidemic and the measures taken to curb it. It is difficult to envisage extending systematic containment beyond the 4 to 8 weeks that the current measures should last without incurring disproportionate economic and human costs. The production and deployment time for an effective Coronavirus vaccine is estimated to be around 18 months, so it is imperative that our collective intelligence first put in place a means of exiting containment that will gradually allow economic activity to resume. We believe that such a strategy is possible, and can be defined by taking maximum advantage of the multiple skills present in our society, and in particular by combining the expertise of epidemiologists and social science researchers. It should combine two main components.

The first is based on the deployment of large-scale tests. A rough estimate shows that, starting on the basis of a unit cost of 100 euros, including implementation methods, the entire French population could be tested at an overall cost of 7 billion euros, i.e. less than 0.3% of GDP. Clearly, this is an absolute priority in the current situation, and it is a very small sum compared, for example, with the estimated cost of EUR 250 billion. If this would put more than 90% of the population back to work, the reduction in economic loss according to our initial calculations would be EUR 225 billion. The cost-benefit analysis is therefore quickly done in favor of this strategy. Of course, in the very short term there are many obstacles, such as the lack of reagents or other inputs, or the absence of dedicated production lines. But the potential benefits justify a total mobilization on this objective, of the type imposed on the productive apparatus in the past in times of war.

The second element that must be combined with large-scale testing is tracing, so that the results of such testing can identify in real time all contacts that people carrying the virus may have had while travelling. The identification of movements and contacts through mobile phone signals makes such tracing possible and very effective. This is particularly important because it is now recognized that many contaminations occur even when the carriers are asymptomatic and therefore unaware of the risk they pose to others. The combination of these two components is what will allow individuals who are cured or uncontaminated to gradually resume their normal activities in complete safety, and at the same time allow contaminated people, whether healthy or sick carriers, to be isolated or cared for. This is the condition for a gradual recovery of the economy, and therefore an indispensable virtuous circle, within two to three months.

Numerous recent articles report the success of these strategies, carried out in similar forms, particularly in South Korea, or combined with more or less restrictive social distancing measures, in Taiwan or Singapore. The devil is in the detail, however. In particular, it is clear that the success of these measures depends to a large extent on institutional and cultural factors that are very specific to the countries that have implemented them, and that their replication in our society could prove difficult. Social scientists, and in particular economists, have significant expertise in this area. Firstly, the use of very large geolocalized databases is now well mastered. On the other hand, it has been well known for many years by economists working on public policies, for example in the context of international development, that the various public interventions are not objects that can be transposed at will without taking into account the context, and that programs that work very well in some countries may be totally unsuitable in others.

For several decades, economic analysis has also developed the study of incentive mechanisms, which associated with public interventions make it possible to reinforce or, on the contrary, discourage certain behaviors. The implementation of a dual strategy of testing and tracing is likely to encounter significant resistance in France, for example related to concerns about privacy or the stigma that testing can generate. Similarly, the fact that part of the population, probably the most at-risk, does not have a mobile phone suitable for rigorous monitoring is another problem. These issues are critical, as it would take only a small fraction of the population to escape the system to make it ineffective. It is therefore essential to put in place the mechanisms and incentives necessary for the chosen strategy to work. Already, encrypted applications, allowing tracking that would respect the anonymity of users, have been launched, for example at the MIT Media Lab or in Singapore. Similarly, specific subsidies, for example through mobile subscriptions, making individual exit authorizations at the end of confinement conditional on the use of these secure technologies, can be put in place and eventually replace the paper authorizations we currently use.


Extreme risk management

Humanity faces many risks that could lead to its extinction. The plague is believed to have killed up to half of the European population in the mid-14th century. The pandemics imported from Europe by the conquistadores in America would have essentially wiped out the indigenous populations two centuries later. We also risk another collision of the Earth with an asteroid, a risk that could be limited by an ambitious "interstellar" policy. The global warming we are inflicting on ourselves and future generations is another illustration of these extreme risks. Of all these examples, only global warming is certain to occur. On the contrary, the annual probability of an asteroid collision is probably less than one millionth. The risk of a Spanish flu or covid-19 type pandemic is centennial in nature.  What should we be willing to sacrifice of our well-being to collectively guard against these very infrequent but extraordinarily intense events? The answer to this question should determine our willingness to invest in medical (or space) research as much as in the number of intensive care units.

There is no longer any doubt today that France will run out of ventilators and emergency beds, as is already the case in Italy. Does this mean that France has poorly prepared for the pandemic? Of course, if the occurrence and intensity of this pandemic had been certain, it would indeed have been optimal to invest in as many respirators as people with respiratory deficiencies, since their cost is lower than the value of the lives saved. But if the probability of a pandemic is 1%, is such a policy still optimal? Of course not. Public money is scarce, and it is crucial to allocate it where it creates the most social value. Investing in respirators that are unlikely to ever be used is probably not optimal, as France is facing a crying need for investment in education and social housing, to take just two examples, and other crises linked to extreme events are also likely to occur. Criticizing the state for running out of ventilators in times of health crisis is populist.

How many ventilators should we plan for when we don't know how many will be needed? This problem is as old as the problem of stock management in a company, or the newsboy who does not know how many newspapers he will be able to sell during the day. This problem is referred to as the "newsboy's problem" in operational research, a discipline of applied mathematics developed since the Second World War. The optimal strategy is very simple. It is optimal to invest in such a number of respirators that the probability of being out of stock is equal to the ratio of the cost of one respirator to the value of the lives saved through its use. Suppose a patient's survival requires the use of a ventilator for 2 weeks. The purchase price of a ventilator is about 25,000 euros. The rental cost for 2 weeks should therefore not be more than 1,000 euros. Therefore, using a residual life value saved of 1 million euros, the probability of being short of respirators should not exceed 1 per thousand per fortnight, or 2.6% per year. Out of the 2600 fortnights that make up a century, we should observe on average no more than 3 fortnights during which our country is short of respirators. The fact that the covid-19 pandemic is one of these rare fortnights seems logical, but this does not mean that the health investment policy is necessarily open to criticism.

Since the contaminated blood affair, France has officially relied on the precautionary principle to manage its environmental and health risks, despite the fact that its operational application remains extremely vague and subject to profound disagreements of interpretation. It is true that decision theorists have clearly shown that a risk is better measured by the thickness of the distribution tails, i.e. the frequency of extreme events, than by deviations from the mean. Reducing the frequency of these extreme events, or reducing their intensity, therefore has a considerable impact on collective well-being. This has a cost that can be significant. For example, the massive purchase of H1N1 flu vaccines in 2009 cost France about one billion euros for a derisory benefit since the epidemic did not materialize and the French refused to be vaccinated. This does not mean that this prevention effort was ineffective from an ex-ante point of view. Let us not get carried away by hindsight.


Role of financial markets and the pension system

The equity capital of companies is the first cushion of the capitalist system against economic fluctuations. As long as they can, at the level of these reserves, they insure employees against the hazards of entrepreneurship. The volatility of prices on the stock markets reflects this insurance. Shareholders are therefore in the front line to bear the risk of entrepreneurship, and that is fine. Indeed, unlike employees, who can hardly diversify their activities between different companies, shareholders can pool their risk across a multitude of assets, sectors and countries. So they are in a much better position to bear the risks. Obviously, the most extreme symmetric macroeconomic shocks cannot be eliminated by this pooling, but shareholders are handsomely remunerated for bearing this risk, at around 6% per year over the last century.

In the case of covid-19, the direct replenishment of companies' equity is therefore much less justified than the replenishment of household income. Financial markets must play their role as risk absorbers. Only the risk of insolvency and loss of industrial knowledge can justify a state bailout of companies. The recent political announcements on bankruptcy protection go in this direction.

In France, individual shareholding is relatively underdeveloped, which implies that this role as a shock absorber remains rather ineffective. This will force the State to use more public money to stabilize our economy and to insure workers. This is particularly the case because a tax advantage is being offered on the French people's preferred savings instrument, life insurance in euros. However, this policy offers a 100% guarantee on the capital invested, for a total of around 1,400 billion euros.  In other words, French people's savings do not in any way contribute to the carrying of collective risk, which must nevertheless be carried by someone! In France, more than elsewhere, it will therefore be the State that will suffer most of the losses. Moreover, this contractual guarantee leads insurers to invest in risk-free assets, which essentially no longer yield any return. All this is also lost for the financing of our companies. In the long term, everyone loses out. The new PACTE law is unlikely to change much in this worrying landscape of French savings. Here too, it is an important area for reflection for the future.

It is desirable for the pension system to organize a sharing of risks between generations of French people. Once again, under the veil of ignorance, everyone would prefer to live in a world where shocks are borne equally by all. In the points-based pension system, it would therefore make sense for the value of the point to fall temporarily in the year in which workers suffer a temporary shock as violent as that of covid-19, especially if the state fails to fully compensate workers. 




Pandemic covid-19 and large-scale population containment raise new social and economic issues that require novel analyses. Data are lacking (or are unreliable) for an accurate analysis of the situation and the net benefits of policies. Nevertheless, economic science offers analytical tools that we believe are useful in guiding public decision-making, despite these sometimes-radical uncertainties. The coming weeks will be crucial in managing the pandemic and its economic, social and financial consequences. It would be desirable for these tools to be put into practice on this occasion.

The 2008 crisis had already revealed a weakness in our society due to the "interconnection" of banks, with the financial risks taken by one bank affecting the financial risks borne by the others. The 2020 crisis reveals another interconnection, one between human beings, the health risks chosen by some affecting the health risks carried by others. Your efforts protect me; my efforts protect you. We all depend on each other. In our hyper-individualistic society, this lesson reminds us that liberalism cannot do everything. Beside religious faith, we need mechanisms of solidarity and civility among men that only a powerful and legitimate state in the eyes of the people can put in place. Let's bet that this crisis will strengthen our awareness of the social bond and the sense of our individual responsibility towards humanity. It also shows us in a striking way how a strong and resolute political will, guided by science, is capable of transcending our individualism in order to eliminate an existential peril. Can we learn from this cathartic experience to mobilize tomorrow against the other world war that we must urgently wage, that of the fight against global warming?