Defying Gravity: The Economic Effects of Social Distancing

TL;DR

This paper models the economic impact of social distancing during COVID-19, revealing that prolonged distancing leads to a lower long-term growth path due to complex interactions between output and social behavior.

Contribution

It introduces a novel economic model capturing the interdependence of social distancing and output growth during a pandemic.

Findings

Prolonged social distancing results in a lower growth trajectory.

The model demonstrates complex feedback loops between social behavior and economic output.

Lower growth path is inevitable with sustained social distancing.

Abstract

The COVID-19 pandemic has forced changes in production and especially in human interaction, with "social distancing" a standard prescription for slowing transmission of the disease. This paper examines the economic effects of social distancing at the aggregate level, weighing both the benefits and costs to prolonged distancing. Specifically we fashion a model of economic recovery when the productive capacity of factors of production is restricted by social distancing, building a system of equations where output growth and social distance changes are interdependent. The model attempts to show the complex interactions between output levels and social distancing, developing cycle paths for both variables. Ultimately, however, defying gravity via prolonged social distancing shows that a lower growth path is inevitable as a result.