What Is Economics?

The Economics of the COVID-19 Crisis

The COVID-19 pandemic hit the world’s economies hard. The business closures, employment losses, and supply chain disruptions caused by shutdowns will resonate for years. But if we focus on the positive, we can come out of stay-at-home times with a stronger and better economy. The buildings remain. The tools, computers, and other capital are still there. Plus, we still have relatively stable institutions governing us.

Yes, the crisis substantially reduced demand for travel, big-ticket items like cars, and discretionary goods that meet wants rather than needs. Panic buying created short-term supply issues for everything from hand sanitizer, toilet paper, and face masks to rice and frozen pizza. Layoffs and furloughs put millions out of work.

A History of Hope and Promise

The good news is that the U.S. economy has weathered storms before. Since 1900, Americans have navigated through more than five major wars and moved through more than 20 recessions, with two of them called “Great”—the Great Depression (1929–33) and the Great Recession (2008-09). Additionally, the economy has survived three worldwide pandemics and AIDS.

The U.S. economy will rebound. Though we don’t know exactly how, economists and other social scientists remain hopeful. It will rise up and out of this pandemic with the promise of becoming a bigger, better, and stronger version of itself while bringing along its friends and trading partners. That is what mixed market economies like ours do. History gives us reason to be optimistic and encourages us to turn to preparing for the next expansion as the seeds for it are now being planted.

Economic Lessons

This crisis has drawn much attention to how our mixed market economy works, with all its strengths and weaknesses. It has brought to the forefront the concept of scarcity and the importance of strategic decision making guided by our core economic principles. Consumers and business owners everywhere are talking. Market forces have shown us how demand shifters and supply shifters work. Markets made up of people—both consumers and producers—are sending out price signals to communicate what is happening and how to respond. The crisis taught us more about the role that government plays in the economy, in our households, and across businesses.

The pandemic has also given us an opportunity to see how well consumers, families, employees, business owners, corporations, and philanthropists respond to crisis and adapt to new situations. Social distancing and shutdowns have expanded technology’s use in new and interesting ways. And this period has highlighted our resiliency, innovation, and philanthropic motivations. From the individual to the business to government, we’re all working together to emerge from this crisis a better version of ourselves.

For example:

• Millions shifted to working at home and staying connected with their community and personal organizations using technology and social media.

• Supermarkets, delivery services, and other businesses deemed “essential” immediately hired workers.

• Some companies changed their hours and availability to offer senior citizens and other vulnerable customers opportunities to shop separately.

• Restaurants switched to takeout, sold groceries, and offered rolls of toilet paper as incentives to do business with them.

• As retail stores closed and existing online retailers were swamped, retailers increased their online presence with curbside pickup and special offers.

• Some major manufacturers, such as Lockheed Martin, gave advances to small and medium-size enterprises in their supply chains.

• Entertainment providers adapted by offering live events and new movie releases for in-home viewing.

• Major advertisers, led by Ford, immediately created new advertising to reach the stay-at-home audience, offering financial and other support for new and existing customers.

• Some companies offered their employees extraordinary benefits to keep them safe and employed despite the changing conditions for the companies.

• The U.S. government passed stimulus packages aimed at sending money and granting loans to individuals and small businesses to keep the economy moving.

• The Federal Reserve Bank expanded lending options to businesses and local and state governments.

• State governments eased regulations and lifted restrictions, opening new revenue streams for functioning businesses. More and more businesses turned attention to exporting goods to countries emerging from the COVID-19 pandemic.

On the philanthropic side, companies and individuals stepped up immediately with funds to support businesses, employees, households, and others navigating through the crisis and to advance COVID-19 research.

The mixed market economy we had before the crisis has taken a hit and will take time to recover. But that same mixed market economy is what has kept us making slow forward progress in the meantime: working to keep school children fed even when not in school, finding positions for as many displaced workers as possible, and providing a lifeline to small businesses while we wait. Because the resources in our mixed market economy are in the hands of market participants, we know that the “invisible hand” is still pressing to move resources to their highest-value use and—eventually—will bring us back to the prosperity we knew before.