How to make sense of the COVID economic crisis, explained by a former US Treasury official

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22 million job losses were reported in March and April 2020.

  • Jan Eberly is a finance professor at the Kellogg School and a former chief economist at the Treasury.
  • The current economic crisis is unique since the primary underlying issue is the pandemic, she says.
  • Eberly says it will take time to strengthen small businesses and the labor force after the public health crisis recedes.
  • See more stories on Insider’s business page.

What should one make of the COVID economy?

The unemployment rate is falling, but nearly 10 million Americans who lost their jobs to the pandemic remain unemployed. A speedy vaccine rollout promises to reopen many sectors of the economy, but the national debt is on the rise. School and daycare closures have hit mothers, especially Black and Latinx ones, hard – but a new child tax credit promises to lift millions of families out of poverty.

As yet another stimulus package leaves the Oval Office with a signature – and the IRS sends an unprecedented third stimulus check to many Americans – one could be forgiven for wondering what to make of it all.

So we asked Jan Eberly, a professor of finance at Kellogg and senior associate dean of strategy and academics, for her take. The last time the US was pulling itself out of a recession – the Great Recession – Eberly was assistant secretary and chief economist at the Treasury. The experience gave her a clear view of the power and challenges of using public policy to restore jobs, incomes, and the broader economy.

Eberly explained that there is plenty that policymakers are doing to encourage a quick recovery. But it is important to understand just how different this crisis is from other economic crises.

“We can address what is happening in the economy,” she said. “But the underlying issue is the pandemic. Fundamentally, this is a public health shock and that must be first and foremost in the recovery.”

Here, Eberly offers her take on this strange, new pandemic economy.

Job losses have been stark but uneven

Prior to March 2020, the US economy was humming nicely, and weekly unemployment claims numbered just a few hundred thousand. Then, the coronavirus hit, and seven million jobs were lost seemingly overnight. Over March and April, losses climbed to 22 million.

New unemployment claims have since come down. “But there are still nearly 10 million people who have not returned to their jobs nor found a new job in the pandemic economy,” said Eberly, “which is more people than were unemployed at the height of the Great Recession.”

Moreover, she explained, job losses were not spread evenly over the economy. Unlike in previous downturns, where people pressed “pause” on purchasing durable goods like cars or furniture, two-thirds of the decline in consumer spending this time was on services. In particular, it’s the in-person services – restaurants, hotels, airlines, barbers – that have been absolutely clobbered. And because of the low wages associated with most in-person services work – as well as the overrepresentation of Black, Latinx, and women workers in these industries – the pandemic has been absolutely devastating for those already struggling economically. Women were also disproportionately impacted by school closures and the loss of childcare.

Given that the pandemic’s effect on the economy has not been equally shared, policymakers needed to focus not so much on “stimulus” as on “insurance,” said Eberly. After all, the map of the pandemic economy is so unusual that using traditional stimulus can even be counterproductive if it channels support to parts of the economy that are already spared or even thriving in a remote environment.

Instead, “it’s more like FEMA and emergency relief: effectively, a hurricane hit the economy, and you try to target policy on the people and parts of the economy that are most affected,” said Eberly. “But targeting is hard to do at the scale of the US, especially when the ways in which the pandemic hit are different than in the past. So policymakers have had to innovate or try to use existing programs in novel ways.”

The relief provided has been targeted

How have policymakers been targeting their efforts – and to what effect?

Most prominently, there was expanded unemployment insurance, which was of course targeted to precisely those individuals who had lost their jobs. The expansion boosted the size of the unemployment checks, how long they could be collected, and – for the first time – even who was eligible in the first place.

The pandemic was a “wake up to reaching the gig economy!” Eberly said. “The expanded unemployment insurance was also available to people who didn’t have formal employment. It was really a transformation in availability of unemployment insurance.”

Another targeted policy: the foreclosure and eviction moratoria, which protect homeowners and renters who have been directly affected by the pandemic. During the Great Recession, the housing market was at the epicenter of the financial crisis; during the pandemic economy, fueled by low interest rates and different living needs, housing has proven to be a relative strength. Still, that is cold comfort for the many individuals who have lost their jobs and might otherwise lose their homes.

In Eberly’s view, there is reason for cautious optimism that the moratoria are doing exactly what they are intended to do.

“The early research on this says that we’re not seeing people losing their homes – that they own or that they rent – as we did during the financial crisis,” she said. However, as the moratoria end, there is a lingering question of whether and how the accumulated arrears will be paid, and how renters, borrowers, and also smaller landlords will fare as the bills come due.

In addition, each of the three rounds of the stimulus relief checks have had income restrictions, which target them to individuals who earned less than either $100,000 or $80,000 (depending on the round) but provide broad support.

There have also been multiple rounds of funding to the Paycheck Protection Program (PPP), which was intended to support smaller businesses than those that usually benefit from broad credit relief. In Eberly’s view, this is a case where a potentially innovative program was hampered by the lack of existing connections to quickly target funds to those most in need.

With this latest round of stimulus relief, state and local funding is finally getting a boost. Earlier relief packages danced around the issue, assisting badly battered states and cities by providing funds for schools, vaccines, testing, and food assistance. But this time, money is going straight to state and city coffers. “Three hundred fifty billion for state and local governments that have been hit hard by the pandemic is what states and cities were asking for,” Eberly said. The funds “give them more flexibility to buttress programs and needs that arose during the pandemic, especially after the exhaustion of their rainy-day funds.”

Finally, and perhaps most surprisingly, the latest round of stimulus also provides targeted relief to families with children in the form of an enhanced child tax credit. For all but the highest earning families, the credit will be increased to $3,600 for kids under six, and $3,000 for kids under 18 – and critically, it will be refundable and paid out throughout the year, meaning that families who don’t ordinarily earn enough to benefit will still receive periodic checks for the full amount. Some estimates suggest that the benefit could lift 40% of children out of poverty.

“The group in the US most exposed to poverty is children,” Eberly said. “The credit is helping families with children who were especially vulnerable during the pandemic because they were vulnerable already.”

This could be transformational. If this credit is extended to subsequent years, she said, “it could reduce childhood poverty and distress for those who need it most – and where the benefits could change lives.”

What will be the long-term impact?

It is too soon to know whether economic changes, like work-from-home, and policy changes, like targeted fiscal support, will last. But the pandemic has forced action and innovation. The first CARES Act was passed in record time and provided crucial initial support. When the pandemic outlasted that first effort, policymakers came back with targeted support plus some broad measures intended to bridge the economy through a tough winter and on to post-COVID.

Eberly is optimistic that these measures will act as that bridge. Some sectors of the economy have already bounced back or are poised for a quick recovery. After all, many individuals who have remained employed throughout the pandemic have extra money in their pockets and will want to spend it. Savings are at record highs and some spending categories are already strong.

“As the underlying public health crisis recedes, some parts of the economy will come back energetically. People will be able to get out and travel and live their lives with more confidence,” Eberly said.

Still, she worries that other parts of the economy will be far slower to recover, and that many workers who have been the hardest hit will continue to struggle. One particular concern as the pandemic drags on is that, once individuals have been out of the labor force for a long time, it gets harder and harder to return. “When people talk about the ‘scarring’ of the economy, it’s usually around long-term unemployment,” Eberly said. This is especially true for groups that had higher unemployment rates to begin with and were just getting more economic traction pre-pandemic.

Small businesses, long shuttered, could run into similar problems as they try to reopen. And while new businesses will eventually step in to fill the gap, that all takes time. “We will see some good headlines, I hope. I’m optimistic about that,” she said. “But it won’t lift everyone simultaneously.”

What is Eberly not particularly concerned about at this time? The accumulated debt, which is paying for all of this relief. There is near unanimous consensus among economists that the national debt is large, and quickly growing larger. And there is concern that it may constrain our ability to act so aggressively in the future. But “the best thing we can do for future fiscal stimulus is to get the economy back on its feet,” she said. “Right now, there is a necessary focus on recovery. And with interest rates low, there is some breathing room to invest in a stronger, more resilient economy.”

Above all, Eberly hopes that the extraordinary moment will convince Americans that thoughtful, competently executed, and well-targeted government policies can go a long way toward building an economy that works for everyone. Amid the missed opportunities and unimaginable losses, there also came innovation and a deep commitment to help provide relief.

“If what people and policymakers learn is that governments can help – to intervene effectively to provide relief from a once-in-a-generation pandemic – that would be a success of policy,” she said.

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3 ways technology can help close the education gap between rural and urban students

Remote learning
There can be a wide education gap between rural and urban school students.

  • Kellogg School professor Nicola Bianchi says technology can help close the education gap between rural and urban students.
  • A computer-assisted learning program tested in rural China showed students moving away from agriculture jobs to cognitive-skilled jobs.
  • Technology-based education that’s supervised in person is most likely to yield positive results.
  • Visit the Business section of Insider for more stories.

Where a child is born has enormous influence over their educational future.

Even within nations, there tends to be a yawning gap between urban and rural education outcomes. For instance, according to one 2015 standardized assessment, 15-year-olds studying in urban schools in 37 countries outperformed rural students by roughly the equivalent of one full year of schooling, even after controlling for students’ socioeconomic backgrounds.

Many of the solutions intended to narrow this urban-rural gap rely on technology – with a particular focus on tech tools that can help connect far-flung students to quality educators. But are these technologies really up to the challenge?

Most previous research on this question has focused on short-term outcomes, like the immediate effects on students’ test scores, notes Nicola Bianchi, assistant professor of strategy at the Kellogg School.

In a new study, however, Bianchi and coauthors Yi Lu, at Tsinghua University in Beijing, and Hong Song, at Fudan University in Shanghai, consider much longer term impacts: how much school rural students completed and what they went on to earn once they joined the workforce.

The researchers focused on China, a country with a particularly pronounced chasm between the quality of urban and rural education systems. In 2004, as part of an effort to address the disparity, the Chinese government started a program to connect over 100 million rural students with highly qualified urban teachers via satellite. Because of the large number of students involved, the Chinese program is likely the world’s largest ever education technology intervention, the researchers note.

Then, using data from a massive survey conducted a decade later, the team was able to analyze the long-term effects of this reform on students’ educational and career trajectories.

They found that rural Chinese students who had access to classes delivered by top teachers appeared to benefit in multiple ways that persisted over time. Specifically, those who had been exposed in middle school to lectures recorded by high-quality urban teachers ultimately completed more education than their peers and earned significantly more once they started working.

“Technology can be a fantastic way to bring high-quality education by some of the best teachers in the country to rural areas without trying to convince teachers to relocate,” Bianchi said. “In other words, when it comes to increasing the quality of education in these underserved areas, technology can be the channel through which we achieve that.”

Tracking students touched by an educational reform

The average rural student in China has long lacked access to the same quality of education as his or her urban peers. In 2000, a few years before China’s ambitious rural education project began, only 14% of rural middle-school teachers held a bachelor’s degree – less than half of the percentage among their urban counterparts. Rural schools also had larger class sizes than urban ones and often lacked necessary teaching materials.

This appeared to affect students’ trajectory after middle school. Only 7% of rural Chinese middle-school students went on to enroll in high school; among urban students, high-school enrollment was over nine times higher.

To lessen this divide, the Chinese Ministry of Education in 2004 embarked on a four-year project to install satellite dishes, computer rooms, and other multimedia equipment in the country’s rural schools. It also sought the highest-credentialed teachers in the country to record lectures that rural students could access via the internet and DVDs. (Most of those teachers came from selective urban elementary and middle schools.)

The researchers estimate that the average rural student watched roughly seven 45-minute lectures per week. Importantly, the students watched the lectures not from their own homes, but in school classrooms, under the supervision of local teachers.

To analyze the long-term impacts of these technological interventions, the researchers turned to the 2014 China Family Panel Studies, a representative survey of Chinese communities, families, and individuals conducted by Peking University. Of particular interest to Bianchi and his coauthors were respondents’ age, educational attainment, and earnings. Also, crucially, the survey asked respondents where they lived at age 12, which allowed the researchers to ascertain if their middle school benefitted from the new educational technology during their time there.

Shifting educational and employment futures

The researchers’ analysis revealed that the Chinese government’s ambitious program did discernibly benefit rural students – not only academically, but in the job market as well.

Rural students with access to the government’s computer-assisted learning program completed 0.85 years of additional schooling compared with those without access. And remarkably, nearly a decade after their time in middle school, these rural students also earned 59% more than peers in the same county not touched by the reform.

“What was interesting was that it was not just an earnings increase, but a difference in type of occupations,” Bianchi said. “The exposure to the education technology allowed them to escape the most common job in very rural parts of China, which is working in agriculture. They were moving away from these jobs and towards jobs that were more focused on cognitive skills.”

Bianchi and his coauthors conclude that exposure to the program accounted for a 21% reduction in the preexisting urban-rural education gap and a 78% reduction in the earnings gap.

The program also furnished rural schools with the ability to introduce computer science classes and the means for rural teachers to incorporate computers into their own lectures. Yet the researchers point to the recorded lectures by the highly credentialed teachers as the standout star in terms of their impact on the students. The other technologies, they write, “are not corroborated by data and anecdotal evidence” as discernibly benefiting students.

Narrowing a persistent regional divide

So the technology initiative had a significant, positive impact on the students. Does this translate to benefits for students around the globe who are using technology to learn remotely during COVID-19? Bianchi said it likely doesn’t.

It’s important to remember, he said, that the Chinese reform placed students in a learning context quite different from the living rooms and kitchen tables that most virtual students are dealing with today.

“When we generally talk about remote learning, we think about students by themselves at home, sometimes without any type of supervision, taking or following a class,” he said. “The Chinese example was very different because the students were in class and they were under the direct supervision of the local teachers.”

Bianchi notes that he expects a wide variety of sectors to embrace a remote format even after the pandemic is over – but he doesn’t expect education to be one of them. There are simply too many clear benefits of in-person learning.

“But that doesn’t mean technology can’t help rural areas get access to something that they wouldn’t have, even in person,” he said.

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3 ways the US can improve COVID contact tracing efforts and encourage honest participation

A person gets a temperature check before entering an Apple store on June 22, 2020 in the Brooklyn Borough of New York City.
The US has a poor success rate when it comes to contact tracing coronavirus infections thus far.

  • The US has notably been unsuccessful in using contact tracing to reduce COVID-19 outbreaks.
  • A recent study suggests that more than 40% of people would not speak to public health officials when contacted.
  • Kellogg School clinical professor, Sarit Markovich, says that to get people to participate in contract tracing, there needs to be a level of trust.
  • Visit the Business section of Insider for more stories.

As COVID cases surged across the US last December, the CDC reckoned with a stark truth: Contact tracing couldn’t be scaled up to match the virus’ spread.

The practice of contact tracing – or identifying, assessing, and managing people who have been exposed to a disease – is an essential tool for controlling outbreaks by interrupting a disease’s transmission chains. And indeed, combined with lockdowns and mask ordinances, some countries have had great success using contact tracing to reduce outbreaks.

So why have attempts to institute it failed in so many other countries, most notably the US? And given that COVID is likely to be with us in some form for quite a while, are there ways to make contact tracing more effective here?

Sarit Markovich, a clinical professor of strategy at the Kellogg School, says that contact tracing, at its core, hinges on trust. This means that trust will need to be at the foundation of any successful efforts moving forward. This includes building trust in the technology, specifically in terms of false positives, trust that information will be kept private, and trust that people will not suffer consequences for self-reporting.

Here, she offers her thoughts on where contact tracing can fail, and how to do it better.

Consider your social makeup

Contact tracing requires individuals to share private information in service to the public good. In considering how to solicit this information, it helps to understand the difference between centralized and decentralized societies, Markovich said.

In countries with centralized governments, like China or Singapore, contact tracing is mandated and compliance is universal. Governments track people’s movement through a national phone app or wearable tokens, which people scan as they move between locations. Noncompliance is heavily fined. In general, these societies prioritize collective welfare over individual freedoms, like privacy.

“If the government makes you do it, you do it,” Markovich summarized. “And now in many of those places, people are back to their offices and normal life.”

But in democratic societies where government is decentralized, individual rights can be in tension with public health, Markovich said. Strategies that are effective in centralized societies are less likely to work in decentralized ones.

In Israel, for example, the government-mandated digital contact tracing and levied hefty fines for noncompliance. Given the country’s population size and relative homogeneity, it seemed as if national contact tracing would work much like it did in Singapore, Markovich said. But people objected to being tracked. They turned off or left their phones at home, and the initiatives have been unsuccessful.

“In decentralized societies, people do not completely trust the technology and do not completely trust authorities knowing where they are,” Markovich said. “They want privacy.”

Lower-tech approaches, where public health workers individually interview exposed individuals about their contacts, are unfortunately no more promising.

In Israel, for example, a volunteer-led startup tried to launch in-person contact tracing as an alternative to the government’s digital model. The initiative stalled when it turned out residents did not want to share personal information with strangers. That same skepticism exists in the US, where 41% of people in a recent Pew survey said that they wouldn’t speak to a public health official who contacted them by phone or text.

“The goal is to make people get used to contact tracing in a context that’s not scary and in a way where its effect on others is not negative but positive,” she said.

Keep it local

For now, Markovich believes that in decentralized societies, national contact tracing initiatives won’t work. A better option: hand the lead over to local governments and organizations.

At this smaller scale, Markovich says contact tracing becomes easier to centralize. Initiatives can be heavily encouraged or even mandated, and enforcement is also easier when it is tied to the social pressures of local communities or the requests of employers.

“Organizations and municipalities have an advantage because there’s more trust involved,” Markovich said. “They can centralize and mandate it, because if you want to be part of an organization – an employee at your company, for example – there are rules you will have to comply with.”

Over time, Markovich believes that the number of organizations and communities that mandate contact tracing will grow, especially as more local models – a church, a factory, or a city whose leaders have established trust – start to show success.

Reward disclosure without punishing exposure

She also advises that local communities and organizations think carefully about how to encourage people to disclose their contacts. This means, first and foremost, minimizing the negative consequences on all parties: those who have tested positive and are disclosing their contacts, as well as the individuals whom they have exposed.

Here, technology has a powerful role to play. Markovich observes that in some communities, COVID-positive people are blamed for spreading the virus. This practice of “COVID-shaming” could make them less likely to self-report their contacts.

“This is where technology helps,” Markovich said. “You want to use technology rather than rely on people to tell you who they’ve been in contact with or that they’re sick. It’s not about self-reporting. The technology tells you.”

But despite the benefits of technology that can automatically notify people of exposure (see sidebar), Markovich also notes that the human element shouldn’t be ignored. Follow up calls from trained professionals will provide an opportunity for people to ask questions about next steps, express concerns, and learn how to self-isolate, if required.

“The human part is important,” Markovich said. “Technology is great in terms of detection speed, but human contact creates trust.”

And whatever the technology used, if people do have to quarantine because they’ve been exposed to COVID, employers should assure their employees that they will be compensated for the time they self-isolate. Markovich cites incidents in which employees who have been exposed to the virus went to work because they lacked paid sick leave or feared losing their job. Since some sectors are at higher risk for infection, like grocery stores, the government should share these costs with organizations.

“We need incentives to encourage people to tell the truth and feel comfortable staying home,” Markovich said. “If you know that you’re going to be compensated even if you’re home, then you’re definitely going to feel more comfortable self-reporting and self-isolating.”

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