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  • Fear affects our behaviour.

  • And our behaviour affects the economy,

  • both in the short run and in the long run.

  • For example, a recent paper by Austan Goolsbee and Chad

  • Syverson found that foot traffic to businesses

  • fell 60 percentage points earlier this year

  • but that legal restrictions accounted

  • for only seven percentage points of that.

  • The rest was done voluntarily by people

  • who wanted to avoid infection.

  • And it was strongly correlated to the number

  • of coronavirus deaths in the area.

  • They were able to look at areas that

  • fell within a commuting zone but that

  • sat on boundaries with different policies on the shutdown.

  • But the effects of fear will last far longer

  • because now that folks are going through this pandemic,

  • they will assume that the probability of another pandemic

  • is higher than beforehand.

  • I know that many people in the US, in December or even

  • January, didn't think we would see a shutdown like this.

  • Julian Kozlowski, Venky Venkateswaran,

  • and Laura Veldkamp have created a model

  • that looks at the long-term effects of this "behavioural

  • scarring," as they call it.

  • You can see that the line labelled no learning estimates

  • the effect on GDP if people did not change their behaviour

  • at all after the pandemic.

  • This would assume that people are perfectly rational.

  • But we know that's not the case.

  • Anecdotally, people who lived through the Great Depression

  • saved more and were more thrifty throughout their lives.

  • Similarly, there was less trust in large banks

  • after the 2008 financial crisis than there had been before.

  • So when a large event like this happens,

  • people change their behaviour.

  • And they do so by becoming less comfortable with taking risks.

  • Businesses may be less willing to invest money

  • into researching a new product or hiring more people.

  • And it happens at all levels.

  • A worker who was laid off might be

  • less willing to open their own business because that would

  • involve taking out a loan.

  • And it's hard to make it on your own.

  • These are the things that create innovation and growth

  • in the economy.

  • And an unwillingness to take on the risk that comes with them

  • will have a negative impact.

  • One way to mitigate the impact, as the paper's authors

  • point out, is to enact credible policy that

  • mitigates the economic effects.

  • I say "credible" because, again, we're

  • talking about people's perceptions and the decisions

  • that they make based on those perceptions.

  • This could mean reducing the number of bankruptcies

  • or developing a robust testing and tracing system.

  • Counterintuitively, it would mean spending more

  • in the short-term, but it would improve the long-term effects

  • of fear on the economy.

Fear affects our behaviour.

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B1 US FinancialTimes behaviour economy credible shutdown impact

Charts that Count: How coronavirus fears will impact the economy

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    洪子雯 posted on 2020/07/03
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