The Economics of COVID-19

A horrific pandemic reveals truths about human action

March/​April 2021 • Policy Report

The ongoing pandemic has radically reshaped everyday activity for millions of Americans. As deaths in the United States near half a million, we continue to grapple with the reality of the worst mass casualty event in over a century, surpassing even both world wars. As governments, businesses, and individuals scrambled to react to a world turned upside down, economic chaos ensued.

But even in the most trying times, the insights of economics offer an important set of tools for understanding people and their actions. That’s what Ryan Bourne, R. Evan Scharf Chair for the Public Understanding of Economics at Cato, sets out to explain in his new book Economics in One Virus: An Introduction to Economic Reasoning through COVID-19.

As he explains, “By fundamentally changing the calculations about what we wanted and were able to do, [the pandemic] exposed the sheer scale of choices we usually make unthinkingly.” Simple, mundane tasks became fraught with new risks and new tradeoffs. Governments, too, were faced with unprecedented choices as they considered radical new policy responses. While the science of medicine and epidemiology shaped many of these decisions, Bourne explains how they were fundamentally economic. “For at its most basic, economics is about choices. It is about weighing different options or alternatives in the face of constraints.”

Across 16 chapters and in a straightforward and accessible manner, Bourne answers a series of questions: “When is a lockdown cure worse than the disease?” provides a window into cost‐​benefit analysis. “What good is a pandemic plan with so many unknowns?” is used to explain uncertainty and the knowledge problem. “Why was there no hand sanitizer in my pharmacy for months?” is the question that launches an exploration of the price system.

While individual behavior has been shaped by economic incentives, the actions—and failures—of government also have economic explanations. In the chapter “Why did airlines get a special bailout but not my industry?,” Bourne explains the basics of public choice economics: how the structures of government often incentivize politicians and policymakers to do the wrong thing for what seems to them like rational reasons.

Throughout Economics in One Virus, Bourne uses the deadly serious circumstances of the past year to highlight principles of economics that often operate in the background, guiding our decisions with little conscious action. But there is no escaping economics, and its principles will continue to shape our world long after the pandemic has passed. For that reason, it’s crucial for citizens and policymakers alike to have a better understanding of what works, what doesn’t, and how the constraints of economics cannot be casually discarded without serious consequence.

Economics in One Virus will be released in April and will be available from online and retail booksellers.

Economics in One Virus
Featured Event

Economics in One Virus: What Have We Learned?

April 8, 2021 | 12 — 1 PM EDT | Live Online Book Forum

To mark the publication of Economics in One Virus: An Introduction to Economic Reasoning through COVID-19 by the Cato Institute’s Ryan Bourne, this book forum will discuss what we’ve learned about public policy and the economic reasoning that has informed it over the past year. In particular, the forum will assess the extent to which the tragic death toll and economic damage we’ve seen during the pandemic can be laid at the door of important decisions being underpinned by faulty economic reasoning.

Download the Policy Report Article