This piece is part of the Keough School of Global Affairs’ Dignity and Development blog series, which provides in-depth analysis of global challenges through the lens of integral human development.

As we have all become aware, the onslaught of COVID-19 has brought about untold misery. With every life having dignity, every death is a tragedy. As of the writing of this essay, over 300,000 people in the world have died from contracting COVID-19. About 30 percent of those deaths have been in the United States, a country with 4 percent of the world’s population. No nation will be untouched by this virus.

Moreover, the virus has wrought severe economic pain in the United States and other countries around the world. The virus itself has stirred up households’ uncertainty of contagion, leading to reduced spending on goods and services as households retrench from going to stores. Despite the decade-long trending upward of online spending, it still remains a small fraction of most economies’ expenditures. Moreover, the necessary stay-at-home orders of governments worldwide to mitigate the spread of the virus has exacerbated the reduction in spending by individuals. Even the recent partial lifting of such restrictions in the United States will only marginally restore economic activity. The world is in for a prolonged period of operating well below its capacity or potential. And that prediction causes even less spending—firms postpone investing in new equipment or building new plants and office spaces.

The United States’ unemployment rate is heading toward 20 percent, and rising unemployment is also likely to be common in other countries. Moreover, such unemployment rates understate true unemployment. First, small business owners that close down and lose income streams may not be eligible for full unemployment benefits; qualifications vary by US state and also vary across countries. Less developed economies are likely to incur greater burdens as institutionalized unemployment benefits may not be as generous or as widespread. Second, unemployment rate statistics in any country typically require that individuals are searching for replacement jobs; many individuals simply drop out of the labor force and lose income streams, with the unemployment rate hardly affected. Third, poor and less-skilled workers are laid off at disproportionately higher rates. Poor and less-skilled workers’ jobs often cannot be done online—think of restaurant employees—and so jobs are lost. The likely rise in the US unemployment rate above 20 percent is very likely to be mimicked across the globe.

Considering long-term economic policies
Whenever economic activity slows, economic development diminishes. And when economic development falls, human development is hindered. Policies that abate short-term economic (and psychological and social) misery are critical and have begun. But little has been said about potential long-run policies. Are there policies appropriate for our current unique environment that may provide a “silver lining” to this tragedy?

Economists, like myself, often decompose policy recommendations in terms of short-run and long-run considerations. First and foremost, the short-run suffering can be addressed through government interventions. As Nobel laureate in economics Paul Krugman has suggested, the government stay-at-home order and social-distancing mandate have created an economic effect akin to a “medically induced coma” for all these economies. Just as a medically induced coma requires medical devices to artificially keep the patient alive, the same holds for an economy. The government “shutdown” has lowered aggregate demand. What is necessary is that the government offset this decrease in demand with an increase in demand. Such was the role in the United States of the initial round of a $2.7 trillion increase in government outlays to individuals and firms. This is what is referred to by economists as a “first-best” solution. Other economies have pursued similar government interventions. Moreover, these government outlays were targeted, in principle, disproportionately to lower-income-level individuals and small businesses. This makes sense since poor and less-skilled individuals tend to be impacted disproportionately harder by the economic impacts of this pandemic.

But, as economists often say, there is “no free lunch.” What are the potential costs of such a policy? To pay for this government intervention, federal governments across the globe have to issue (and sell) debt.  Typically, selling more of any financial asset lowers its price. The same holds for national debt, but it also increases interest rates. An economic burden of higher interest rates is that the cost of borrowing rises. Moreover, higher interest rates tend to impact the poor disproportionately more; the poor tend to have higher debt burdens in order to survive economically. However, we have witnessed little increase in interest rates. In fact, after accounting for expected inflation, interest rates remain negative in most of the world. In other words, while economic activity is slowing dramatically, there remains an abundance of wealth in the world demanding that debt. Former Federal Reserve chair Ben Bernanke famously termed this the “savings glut.” People too often look only at one side of debt—the supply of it—rather than looking at the price of debt, which is determined by supply and demand.

Another potential cost of increasing national debt is higher inflation. However, once again, the potential for inflation to accelerate all depends upon where the level of economic activity is relative to its potential. Any economy facing a 20 percent unemployment rate is operating well below its capacity. Consequently, there is a large pool of unemployed workers putting downward pressure on salaries, containing—in fact, possibly even reducing—inflation.

Defining a moment of opportunity
While this discussion so far has attempted to justify both for the United States and economies around the world the rapid large government economic interventions, what do I mean by “A Moment of Opportunity”? Economic, and consequently human, development requires investment. Put quite simply, investments in education and in health are foundations for economic and human development. Public investment to enhance individuals’ accumulations of skills—and to ensure and enhance their health—is critical for development. But while everyone should acknowledge there is “no free lunch,” the costs of lunches vary depending upon conditions. As noted above, the cost of borrowing by most of the world’s nations is negative in real terms. What better time—or moment of opportunity—is there to borrow to invest in the long-term growth of skills, education, and health among the least skilled and most impoverished?

This suggestion does not apply only to within the United States and other developed economies, but to the world as a whole. While globalization has temporarily been suspended, our resistance to COVID-19 will rise in time, through the development of vaccines and natural immunity processes, and globalization will start up again. As the world’s most developed economies shrink in economic size relative to the rest of the world, they will have to rely increasingly upon foreign markets to sell their goods and services, as their domestic share of spending on domestic production shrinks. What better time is there to help foster the development of foreign economies? What better “moment of opportunity” exists?


Kellogg Faculty Fellow Jeffrey Bergstrand is professor of finance at Notre Dame’s Mendoza College of Business. He also is a concurrent professor in the Keough School of Global Affairs and Department of Economics.

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