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A critical COVID-19 economic policy tool: Retrospective insurance

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journal contribution
posted on 11.08.2020, 10:17 authored by Alistair MilneAlistair Milne
The Covid-19 pandemic is a major economic shock. With no comparable event having occurred since the 1918 Spanish Flu, and a rapidly changing public health situation, economic policy makers are largely having to improvise their responses. This note assesses the scale of this large shock, suggesting that it is about 10% of global GDP so around five times as large as the credit and liquidity problems that created the global financial crisis of 2007-2008. It then examines the economic policy response, suggesting that to be as effective as possible the response must address two distinct objectives: offset the deflationary economic shock and provide targeted support to those most directly affected and avoiding corporate bankruptcies. It proposes a surprisingly inexpensive framework – “retrospective insurance” at a net additional cost only 2% of GDP – that can guide the allocation of public resources to ensure no business goes under as a result of the pandemic and all who merit protection get support.

History

School

  • Business and Economics

Department

  • Economics

Published in

SSRN

Publisher

SSRN

Version

SMUR (Submitted Manuscript Under Review)

Rights holder

© SSRN and The Authors

Publication date

2020-03-21

Language

en

Depositor

Prof Alistair Milne Deposit date: 7 August 2020