The world after - Toulouse School of Economics - Special Issue Spring 2020
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Toulouse
School of
Economics
Economics
for the Common
Good
The world
after
Covid–19
Special Issue
Spring 2020
Editor’s message Toulouse School of Economics Economics for the Common Good
TSE joins News
4. Grants, 6. TSE new
Appointments, building
Books & Prizes interview with
the forces corner
the architects
on Covid–19
The
8. Marianne
Bertrand
‘We are losing
interview
The Covid-19 pandemic and large-scale population patience with
containment raise new social and economic issues that discrimination’
urgently require novel analyses. In the months ahead,
the opportunities and obligations for social scientists to
contribute to society will be greater than ever. Economic
science offers cutting-edge analytical tools for guiding
The world
decision-makers and we hope they will be used to manage
this health crisispandemy and its devastating health and 16. Jean Tirole 26. Marc Ivaldi 36. Michael
economic consequences. Rebuilding the Travel & airlines Becher
world after Who will
after
Inside, we feature a special dossier on the economics of Covid-19 rebel against
the new coronavirus. Jean Tirole writes that we must learn 28. Christian lockdown?
greater solidarity and embrace long-term planning. Alice Gollier &
Mesnard and Paul Seabright remind us that trust matters 20. Marie- Stéphane Straub
Covid–19
more than transparency. Stephane Straub and I share Françoise Value of 38. Cécile Aubert
some insights on the value of human life and the necessity Calmette human life The black hole in
to socialize the losses. Marie-Françoise Calmette looks at Globalization: public policy
the impact of globalization on our health security. With The day after
new research on French citizens’ compliance with Covid-19 34. Alice
health measures, Michael Becher shows that social science Mesnard & Paul
can be of immediate relevance to policymakers. Ulrich 22. Ulrich Hege Seabright
Hege warns of looming corporate debt burdens. And Marc Christian Gollier Corporate debt Trust matters
Ivaldi discusses the impact on the airline sector. TSE Director
Experts
For an escape from thoughts of Covid-19, we also feature
an interview with the award-winning architects of our 40. Luc Julia
new building. University of Chicago’s Marianne Bertrand, ‘There is no such
winner of our Jean-Jacques Laffont Prize, discusses gender thing as AI’
inequalities and the dangers of corporate philanthropy.
Campus
TSE is a project that connects people and ideas. We
began the year by opening the doors of our new home: an 42. Business
innovative, energy-saving building designed to promote Networking Day
intellectual exchange. Those doors have now closed.
Safety concerns are paramount, and we will all need
time to adjust to this unprecedented situation. But it is
heartening to see that TSE teams are already busy using
remote working tools to interact with each other, setting
up video conferences and project sharing. We hope also to
announce our first remote Department Seminar very soon.
Biannual magazine www.tse-fr.eu Publication Director: With the help of Cover photo: ISSN: 2554-3253
The pandemic is still spreading but the TSE project is of the Toulouse School
of Economics contact@tse-fr.eu
Christian Gollier Claire Navarro
James Nash
Cendrine Robert,
Place St Pierre,
already fighting back. Managing Editor: Toulouse,
1, Esplanade Tél +33 (0) 5 67 73 27 68 Joël Echevarria Layout design March 28, 2020
de l’Université. Blackpaper
We wish you all the very best and look forward to “seeing” 31000 Toulouse Editor in chief: Pictures:
France Jennifer Stephenson studiotchiz
you in the near future. fotolia
Production Manager: istock
Jean-Baptiste Grossetti unsplash
2 3
News corner Toulouse School of Economics News corner Economics for the Common Good
Special issue
Covid–19 Christian Gollier joins board of ‘real-time’
Journal of COVID Economics Appointments
The Centre for Economic Policy Research Stefan Ambec to lead commission... on Mercosur
(CEPR) is launching an online peer-reviewed The TSE-INRA professor will coordinate a team of ten
review to disseminate emerging scholarly scientific specialists to analyse the main impacts of the
Mercosur trade deal between the EU and Mexico.
work on the Covid-19 epidemic. TSE director
Christian Gollier has accepted an invitation to Michel Moreaux elected EAERE fellow
join the editorial board, which will work tirelessly Founder of the TSE environment group, Michel
Moreaux has been elected Fellow of the European
to approve coming publications. Association of Environmental and Resource Economists
(EAERE). Michel’s outstanding scientific output over the
Emmanuelle Auriol to advise French past 30 years has helped to bring international recognition
for French environmental economists.
government on how to manage crisis
As part of the Conseil d’Analyse Économique
(CAE), Emmanuelle Auriol is guiding France’s
economic response to Covid-19. The CAE is Books
an independent institution helping the French Jérôme Renault on game theory
government through policy papers and analysis. A new textbook by TSE researcher Jérôme Renault
The TSE-UT1C researcher joined the CAE in provides a concise presentation of the mathematical
foundations of game theory including recent advances in
2018. dynamics and learning. Coauthored with Rida Laraki and
Sylvain Sorin, Mathematical Foundations of Game Theory
Grants
combines the basics with state-of-the-art topics and
applications to economics, biology, and learning.
New ANR and Abdelaati Daoui and Sébastien Gadat, both
TSE-UT1C professors, received ANR grants for
Prizes
ERC grants for their projects. Best paper awarded to Daniel Garrett
TSE research Isis Durrmeyer wins ERC grant
Congratulations to TSE professor Daniel Garrett who won
the ESEM 2019 Prize for Best Applied Economics Paper
by a Young Economist. The prize was awarded for his
Consolidating TSE’s position as the third- article “Payoff Implications of Incentive Contracting” at
largest European beneficiary of ERC grants, Isis the European Meeting of the Econometric Society held in
August.
Durrmeyer has been awarded a starting
grant for her research project PRIDISP – Lifetime honor for Jean-Paul Azam
Understanding price dispersion: new structural In recognition for his scientific work on militarized conflict,
TSE researcher Jean-Paul Azam has been awarded the
models of price discrimination and applications. Lewis Fry Richardson Lifetime Achievement Award 2019.
This new ERC grant brings to 20 the total The prize encourages scholars to pursue innovative,
number of grants hosted by TSE since the systematic and rigorous research in the tradition of British
creation of this fund, 10 of which are currently meteorologist and peace researcher Lewis Fry Richardson.
underway. Christian Gollier wins the Turgot 2020 prize
The Turgot Prize, which rewards the best financial
economics book of the year, took place at Bercy, at the
Ministry of Economy and Finance and awarded its 33rd
prize to Christian Gollier for his book “Le climat après la fin
du mois”.
4 5
New building Toulouse School of Economics Economics for the Common Good
A new home
for science
6 7
New building Toulouse School of Economics New building Economics for the Common Good
Building
TSE moved into a new building last November
with state-of-the-art research facilities,
a space for
including a social experiment lab, powerful
calculation servers and six amphitheaters.
The distinctive design is the work of Shelley
blue-sky
McNamara and Yvonne Farrell, who are also
this year’s winners of the Pritzker Prize,
thinking
architecture’s highest accolade. We talked to
them and Grafton Architects’ project director
Philippe O’Sullivan about their efforts to
integrate their bold, powerful vision into the
Toulouse landscape.
Space makers: Shelley McNamara and Yvonne Farrell, the latest winners of architecture’s “Nobel prize”
What led you to the idea of this building? place people look into, and where they stand and watch; from Place Saint-Pierre to what we call our 21st-century
it’s a piece of the city held for a moment within the solid. courtyard. We also felt that this building should feel like a
Shelley McNamara – The shape comes very much So many contemporary buildings are deep spaces that are gateway to Place Saint-Pierre and the Sky Cloister allowed
from the site. It’s not a rectangular site; it’s at a corner sealed environmentally, but this building is no more than us to make the building closed, down below, and to open
where the Canal de Brienne meets the Garonne river 12 meters deep, so that everyone can open a window and it up as you move up through the building.
and the Place Saint-Pierre. We started thinking about a connect with nature. This narrowness is a very important
very rectangular building, but it didn’t work for the site part of the building. How has the collaborative nature of TSE impacted the
and for the TSE community who were looking for loose building?
arrangements of groups in order to spark exchanges and Philippe O’Sullivan – It’s a building that you could only
interactions. build in Toulouse. We wanted the building to be open to SM – The heart is the center. So the common spaces – the
Regarding the outside of the building, well, you couldn’t the city and the people in the city to see into the building. meeting rooms, the lifts, the toilets – all rotate around
avoid bricks. It was the obvious thing to do. We come from the heart. Then you can recede to more private research
a brick city as well, Dublin. It’s a material that we love, and offices, and the corridors aren’t too long so you can always
it seemed very important that we make the new building
a part of the city. Bringing the city into the heart of the
“It’s a building that you could only feel in contact. You can go away and be private, but you
can also open your office door and see what is happening.
building was very important, and that when you’re in the build in Toulouse”
building you still can see the city. YF – When you come to the entrance at the lower level
before moving up to your office, you can see who’s down
Yvonne Farrell – Alejandro de la Sota, the Spanish It was a collaborative process and it couldn’t have been for coffee, or bump into your colleagues. By the time
architect, once said: “Architects should make as much possible without the people in Toulouse we exchanged you get to the top levels, there’s a completely different
with: Bruno Sire who understood Toulouse and how to relationship to the city. It’s interesting that the building is
make this building part of the city, and the hundreds of also full of transparency: you can see what is happening
“It’s a real honor for us to have built people who should be congratulated for their hard work
on this building.
in the meeting rooms, or see colleagues on the other
side of the building. When we came to look at the site,
a building which is now part of the during the competition, the alley of trees around the canal
“We wanted to frame the sky at that wonderful repertoire of Toulouse” What was the inspiration behind the Sky Cloister? was absolutely beautiful. Wandering around Toulouse,
going to Saint-Sernin and Jacobins, we realized that a
moment when you move from Place nothing as possible.” The power of the central space, with
SM – When we looked up from a lot of the small
courtyards in Toulouse, we found that the sky is framed
collection of beautiful pieces of architecture are all within
walking distance of this site. It’s a real honor to have built
Saint Pierre to what we call our 21st the lifts and the staircases dancing around the void, is that by the courtyard, and it feels like a sky window. So we a building which is now part of the wonderful repertoire of
century courtyard” the “nothing” is in fact the heart of the building. It’s the wanted to frame the sky at that moment when you move Toulouse.
8 9
Toulouse School of Economics The interview Economics for the Common Good
‘We’re losing
Winner of the 2019 Jean-Jacques Laffont Prize, Marianne
Bertrand is Professor of Economics at the University of Chicago
patience with
Booth School of Business. Ahead of the award ceremony at
City Hall and her Toulouse lectures in December on ‘Gender
Inequalities in the 21st Century’ and ‘Corporate Philanthropy
discrimination’
and Politics’, she talked to TSE Mag about some of the far-
reaching social implications of her research.
Marianne Bertrand,
Jean-Jacques Laffont Prize 2019
Your research has focused heavily How optimistic are you that gender even if there is still a very long way to
on gender, harassment and gaps will narrow in the years ahead? go to get to gender parity, especially
discrimination. How will labor To what extent will policymakers at the top of the talent distribution.
markets be shaped by these need to adapt to new forms of Most alarming are the growing gaps
concerns in the 21st century? inequality? in income and wealth between rich
and poor, the growing fragmentation
There are multiple reasons why There is definitely room for some of many of the most developed
finding ways to get women to realize optimism here. When one looks societies by social class, and the
their full labor market potential will implications of these growing
be a pressing question for many inequalities for social mobility.
developed countries for many years “Gender gaps in labor-
to come. First, many countries are What do you make of the recent
facing an aging population and will force participation decision by 181 CEOs of the US’s
need to increase women’s labor- and earnings have biggest companies to embrace
force participation in order to avoid stakeholder capitalism?
sharp reductions in the workforce. been declining for
Also, for reasons that we still do decades, even if there I wish I could trust corporate
not fully understand, women are
increasingly accumulating more
is still a long way to go. benevolence but I am skeptical.
I have no doubt that stakeholder
schooling than men. That means Most alarming are the capitalism would be good for society,
that the private sector is going to be
interested in finding ways to attract
growing gaps in income even though the implementation
details are very tricky. Governments
and retain that female talent. The and wealth between rich have failed to pass many of the laws
public sector will also need to find and poor” and regulations that are needed
ways to tilt institutions and norms to correct externalities. Global
that may still be a barrier to women’s warming is of course the top-of-
fuller engagement with the labor at the broader conversion today mind example. This means that
market. Finally, patience for any on the rise in inequality, what has social welfare is not maximized
discriminatory practice, including been happening with regard to when corporations solely focus on
gender harassment, is running thin in inequalities, and especially gender profits, especially short-term profits.
the richest countries, as exemplified inequalities, emerges among some of However, I doubt that we can trust
by the strength of the #MeToo the most positive trends. In particular, corporations to do much on their
movement around the world. the gender gaps in labor-force own to address these externalities
participation and earnings have been given the competitive pressures they
declining for many decades now, face.
10 11
The interview Toulouse School of Economics The interview Economics for the Common Good
“Stakeholder A worthy winner
capitalism would be
good for society, but Organized by TSE, the Jean-Jacques
implementation is very Laffont Prize is awarded every year to
an international economist who has
tricky. Governments made an outstanding contribution
have failed to pass the to both theoretical and empirical
research.
regulations needed
so social welfare is Marianne has already received several
prestigious awards, including the
not maximized when American Economic Association’s
corporations solely 2004 Elaine Bennett Research Prize
focus on profits” and the Society of Labor Economists’
2012 Rosen Prize.
Born in Belgium, Marianne is an
applied micro-economist with
interests in labor economics,
corporate finance, and development
economics. She is a co-director of
Chicago Booth’s Rustandy Center
for Social Sector Innovation, Director
of the Poverty Lab at the UChicago
One of your recent papers offers How can we encourage social did on payday lending. In that work, table. When our profession becomes Urban Labs and on the Board of
empirical evidence that US responsibility without, for example, we showed that “psychology-guided” more diverse, the kind of questions Directors for the Abdul Latif Jameel
corporations use charitable grants to giving bad actors an opportunity to information disclosure induce that we study becomes more diverse Poverty Action Lab.
influence lawmakers. What are the engage in reputation-washing? borrowers to lower their use of as well, and that is a great thing.
dangers of corporate philanthropy? payday loans. In particular, we showed
That is a good question, to which I that reminding borrowers of the What measures can be taken to
You are correct that some of my do not have a great answer. I agree adding-up dollar fees incurred when address this?
recent work has aimed to show that with you that a lot of corporate rolling over payday loans reduced the
philanthropy might be partly used by social responsibility, especially in the take-up of these loans. We need to more institutions to
corporations as a way to influence the B2C part of the economy, is not that While I believe that such a “nudge” adopt best practices when it comes
lawmaking and rulemaking process. different from advertising spending. approach is useful and helps people to reducing bias (implicit or not) in
In other words, it is another tool of There is a lot of greenwashing going at the margin, I am less convinced hiring and promotion decisions. The
corporate influence on the political on, even though it is hard to quantify that it has the power to lift people AEA has been doing a lot of work
process beside the better understood how much. Better reporting systems out of poverty. More meaningful to make these best practices more
ones, such as lobbying, campaign that force corporations to report on progress can only come from easily accessible to its members.
contributions, or the revolving door. their social outcomes, rather than addressing the root cause of why Here is a link: https://www.aeaweb.
I believe that corporate influence purely economic outcomes, are so many people use such expensive org/resources/best-practices
is one of the key reasons why going to be important here. However, financial products in the first place. We also need to build stronger
our laws and regulations do not as I stated before, while the objective I don’t think the central root cause pipelines, starting in high schools.
correct important market failures. is clear, the devil will be in the detail is a lack of understanding of how Too many young people have a poor
For example, corporate influence when it comes to developing robust expensive these products really are understanding of what economists
is an important reason why it has social-impact reporting standards. (even if it is a factor, as we show in do, or the type of questions
been so difficult to pass any global our work). The root cause is low and economists study. Again, the AEA
warming policy in the US. So, from Your research also uses insights from stagnant paychecks at the bottom has recently taken on this challenge
that perspective, yes, I believe it is behavioral science to highlight how and middle of the income distribution to help reshape the perception of
important to document all the ways scarcity affects our decisions. How in the US for too many decades. economics, away from the dry and
via which this influence gets exerted. has this helped to identify policy boring and uncaring stereotype.
initiatives and financial tools for What are the costs of the failure of Role models are also an important
The philanthropy sector is under- lifting people out of poverty? economics, as a discipline, to attract part of the answer and I guess that
scrutinized. Corporations and wealthy more female researchers? we’re going to see a big increase
families get tax breaks for their The behavioral science agenda has in the number of young women
charity. At a minimum, we need more helped identify some of the common As I discussed in a recent interview applying to PhD programs next
easily accessible information and mistakes individuals make when with UBS, there’s no doubt that by year thanks to Esther Duflo being
more transparency on what all these faced with important decisions. This limiting our profession to men, we awarded the Nobel Prize.
charitable dollars are being spent on. agenda inspired some of the work I are leaving a lot of discoveries on the
12 13
The world after Covid–19 Economics for the Common Good The world after Covid–19 Economics for the Common Good
The
world
after
Covid–19
P16–19.
Jean Tirole
Rebuilding the world after Covid-19
P20–21.
Marie-Françoise Calmette
Globalization: the day after
P22–23.
Ulrich Hege
Corporate debt threatens to derail
recovery
P24–25.
Marc Ivaldi
Travel bans put airlines into nosedive
P26–27.
Christian Gollier & Stéphane Straub
Value of human life
P28–33.
Alice Mesnard & Paul Seabright
Trust matters more than
transparency
P34–35.
Michael Becher
Who will rebel against lockdown?
P36–37.
Cécile Aubert
The black hole in public policy
14 15
The world after Covid–19 Toulouse School of Economics Rebuilding the world after Covid–19 Economics for the Common Good
Rebuilding the “The recent massive
rescue plans by many
What will the world look like when
it emerges from isolation and the
ravages of Covid-19? Predicting what
their knowledge and its limits, as
medical experts have done in France,
may contribute to recreating such
world after
governments and will happen after the pandemic is trust.
central banks are well- difficult, not least because we have
little information about how long Wartime altruism
Covid-19
advised. To be cost- the outbreak and restrictions will
effective and fair, they last. As a rare event, we have limited
historical evidence; as an unexpected
Whether civil, international or
sanitary, wars leave their mark on
will again have to focus event, little thought has been given society. Faced with anxiety-provoking
on the fragile, and not to how to deal with it. events, people may reconsider
their goals in life. Research in the
create windfall gains for In the optimistic scenario, demand social sciences shows that our
the others. ” and supply shocks will create individualistic tendencies decline and
a temporary disruption in the we display more empathy. We behave
productive system and an increase more cooperatively and altruistically
in overall debt. If the 2008 crisis is of and are more likely to join social
any guidance, an economic stimulus groups.
will facilitate the transition back to
normal, boosted by the budgetary Much of this new altruism is
and monetary efforts already parochial; it is directed toward
underway. There will be a severe those who are “on our side”. But
recession and a loss of purchasing unlike internal wars, external warfare
power for a couple of years but the generates common interests that
crisis in the business world will be bridge the gaps across groups. In
confined to a liquidity crisis, avoiding the war against Covid-19, the in-
severe insolvency problems. group extends to all mankind and
there is no out-group other than
Jean Tirole, If damage from Covid-19 is the virus (provided we do not follow
2014 Nobel Prize laureate prolonged, this raises the specter the US president in calling the virus
of more pessimistic scenarios, even a “Chinese disease” and that “every
dystopic ones. Debt in Southern country for itself” fails to prevail).
Europe could skyrocket, even though If this crisis exhibits the same gap-
the ECB is likely to use interest rates bridging pattern, this might be good
to keep the cost of borrowing very news given the recent trend toward
low for a long time. This would not populism, nationalism, and ethnic and
necessarily be catastrophic, unless religious intolerance. In this respect,
financial markets start speculating President Macron’s rephrasing of the
against sovereign debt. A harbinger coronavirus event as a war may have
is the rise in interest rates demanded been judicious.
by investors in Italian and Spanish
bonds prior to the Christine Lagarde’s Economic solidarity
announcement of a strong ECB
support. These will be testing times Today, solidarity with patients and
for European solidarity. health workers goes without saying;
it is both ethical and logical. But
Another big question mark hangs solidarity should similarly target the
over the long-awaited resurgence economically most fragile. Liberal
of inflation. If it comes, will inflation precepts call for society to insure and
remain low enough to avoid a debt- protect citizens from events, such
rollover crisis and huge losses for as a pandemic, that they have no
holders of cash and nominal debt? control over. In this respect, countries
One thing is certain: authorities will with strong social protection (like
need to inspire public confidence France) are better equipped to limit
to facilitate the recovery. Building the pandemic damage than those
trust will require a delicate balance without (like the US).
between showing strong leadership
and humility, acknowledging that we In the next few weeks or months,
learn as we progress. Showcasing French workers on short-term
scientists modestly expressing both contracts (CDD) or laid off at the end
16 17
The world after Covid–19 Toulouse School of Economics Rebuilding the world after Covid–19 Economics for the Common Good
“We must take advantage
of the pandemic to act
on social norms and
incentives together. A
less individualistic, more
compassionate society
goes hand in hand with
more accountability for
our actions.“
of their notice period will be unable Facing the future enough on healthcare research? Are We ought not to banish these
to find a job, regardless of how much we willing to pay a carbon tax to save troublesome thoughts. As unpleasant
effort they put into it. Neither will the We can be cautiously optimistic the planet? If our answer to these life- and disturbing as cold calculations
unemployed who are no longer eligible about increased solidarity, but when threatening questions is still negative, about alternative health outcomes are,
for unemployment benefit. Unlike will we learn that policymaking must our tendency to procrastinate, our we cannot elude the rationalization of
salaried workers under long-term take a longer-term perspective? We motivated belief that problems will existing healthcare budgets.
contracts (the CDIs, who will receive underinvest in education, retraining, disappear by themselves or be solved
84% of their salary while staying at environmental policy, and various by “others”, our collective irrationality But that does not prevent us from
home) and civil servants, independent other measures that would limit the will do us in. rethinking our allocation of resources
workers will lose their source of damage done to the next generation between ordinary consumption
income. These people require (and when confronting climate change, We must also reconsider our goods on one side and health and
will receive) financial support; others artificial intelligence, debt, inequity and Weltanschauung, our world-view. We education on the other. And perhaps
do not: the US-style universal-check- other impending challenges. Covid-19 must face reality rather than hiding the reconsideration of life goals will
for-each-adult approach is easy to reminds us of our vulnerability. We behind pseudo-ethical postures. make us realize that action on climate
implement, but onerous and unfair; must invest in efficient healthcare Even the best hospitals around the change is everybody’s responsibility.
and it cannot help stimulate an systems and promote research that world face a terrible ethical dilemma: We must take advantage of the
economy which is under confinement. will allow us to promptly respond to overwhelmed by Covid-19, they have pandemic to act on social norms
emerging threats. We were already to select who will live and who will die. and incentives together. A less
Smaller firms, which are less diversified aware of the dearth of research on The public is often unaware, however, individualistic, more compassionate
and more credit-constrained than antibiotics, given the growing antibio- that hospitals face similar dilemmas society goes hand in hand with more
larger ones, must also be supported: resistance. in normal times: the allocation of their accountability for our actions. We
shopkeepers, craftsmen, restaurants budget and personnel prioritizes some need to move beyond short-term
and hotels, the entertainment and We were concerned by biological patients over the lives of others with thinking, for our own benefit as well as
mobility industry and many others no warfare. We trembled with fear about different illnesses. Life is not priceless. future generations. Such a reckoning
longer have sources of income and the melting of the permafrost, which, In our actions if not our stated would be a giant step toward
their very survival is at stake. Banks besides emitting large volumes of beliefs, people view life and money as remaking a world unmade by Covid-19.
also will face liquidity problems. The greenhouse gases, will release ancient commensurate: for instance, we may
recent massive rescue plans by many viruses and bacteria. We now realize not be willing to accept a much higher The worst is yet to come, but this
governments and central banks are that the problem is even broader. price for a safer car for our children; pandemic will end. Our future
well-advised. To be cost-effective and Global health crises are no longer “rare and political preferences suggest depends on learning its lessons.
fair, they will again have to focus on the events”. Unfortunately, people have many are not willing to consume
fragile, and not create windfall gains short memories, rarely learning from substantially less in exchange for a
for the others. history. Are we prepared to spend safer world.
18 19The world after Covid–19 Toulouse School of Economics Golbalization: the day after Economics for the Common Good
Globalization: On March 16, President Macron
declared: “The day after, when we
win, it will not be a return to the day
Changing patterns
This is not just the work of
the day after
before.” We need to change our globalization; above all, it is the
analyses and our extravagant behavior result of market failures. Ricardo and
in many areas. Globalization has other international trade theorists
exploded thanks to falling transport claimed that everyone was a winner
costs. But when transport costs in international trade. They were not
suddenly become infinite, everything (quite) wrong in a world of pure and
Marie-Françoise Calmette stops. This is what happened to us, perfect competition. But that world
with the coronavirus epidemic acting has long since passed away, if it ever
as a circuit breaker. We now realize existed at all. We live in a world of
how dependent we all are. increasing returns that lead to the
formation of global monopolies or
What do we do on the day after? even oligopolies that have nothing
to do with Covid-19. This has only
We cannot retreat and close our exacerbated the consequences of
borders; that would be to return to market failures that are not compatible
the Middle Ages. But globalization with food-safety requirements.
must be controlled. It is possible to
solve most shortages by reducing This pandemic must lead us to change
demand, as much of our non-essential our models. We need regulation in
consumption can be reduced or certain essential sectors, generally
even eliminated without profoundly those where the price elasticity of
damaging our quality of life. Individuals goods is zero, in order to establish
should consider which of these goods self-sufficiency. This must be done at
they can do without. European level, and not only because
of the increasing returns. We have the
Globalized health example of the Common Agricultural
Policy (CAP), created in 1962, which
However, this is not the case in other was later so much criticized, but
sectors, especially health security: which made the European Union self-
the shortage of medicines is a real sufficient. A first step has now been
potential threat to public health. taken as the European Commission
Underlined by the present crisis, announced the creation of a strategic
this threat has been hanging over reserve of medical equipment and
us for some time. For example, we launched a Europe-wide call for
learned a few months ago that the
US company Medtronic had decided
to stop manufacturing implantable “We need regulation in
insulin pumps, which are vital for some certain essential sectors,
Type 1 diabetics, in the second half of
2020. This didn’t move the masses, generally those where
apart from the patients concerned, the price elasticity
of course, and their doctors (just 397
people are equipped with this pump of goods is zero, in
in the world). However, the recent order to establish self-
shortage of the old Levothyroxine
formula, which is only produced by the
sufficiency.”
Merck laboratory, has had a worldwide
The Covid-19 epidemic calls into question impact. Reports of shortages and masks, respirators and screening
the very principles of globalization, says TSE supply tensions for drugs of major tests “to reduce costs and avoid
therapeutic interest have increased competition between states”. The aim
researcher Marie-Françoise Calmette. Our from 600 in 2018 to 1,200 in 2019. We is to stockpile the reserve, with an
health security is just one of the vital areas learn with amazement that 80% of the initial budget of €50 million, then to
undermined by lack of regulation and global active pharmaceutical ingredients used “distribute it among the 27 countries
monopolies. How can we fix the spectacular in Europe are manufactured in Asia, according to needs”. It is to be hoped
mainly in China and India; and that 60% that this healthy solidarity does not
market failures produced by our global and of paracetamol and 90% of penicillin gradually wither away in the days to
interdependent economic systems? worldwide are produced in China. come.
20 21The world after Covid–19 Toulouse School of Economics Corporate debt Economics for the Common Good
Corporate debt The economic fallout from Covid-19 will be
exacerbated by looming corporate debt and
Emergency aid
Much of the hundreds of billions of emergency aid
threatens to
the precarious situation of sovereign finances. packages for companies will come in the form of credit or
Together with Bo Becker (Stockholm School of credit guarantees. This makes sense for two reasons.
Economics) and Pierre Mella-Barral (Toulouse First, many sovereigns go into this crisis with high levels
derail recovery
of government debt, largely due to policies adopted
Business School), TSE researcher Ulrich Hege in response to the 2008 global financial crisis (GFC).
highlights the policy areas that need urgent Sovereign spreads in the Eurozone, for Italy in particular,
attention and explains why planning for debt are already widening, indicating that there could be more
trouble ahead for the credibility and solvency of sovereign
restructuring should start now. borrowers. Sovereigns now need to preserve their fiscal
Ulrich Hege resources, and gifts are more demanding than loans and
guarantees. Second, the economic effects of Covid-19
are likely to be very heterogeneous across sectors, and
there is little time to sort out exactly how. In short, the
heterogeneous impact of the health crisis and lockdowns,
large uncertainty about the course of the health crisis,
the need to use sovereign resources wisely, and a great
urgency to respond, all favor using credit to support the
China’s economy plunged in January and February of private sector.
2020 for the first time in many decades, with a 13.5%
contraction of manufacturing output. As other countries However, the Covid-19 crisis arrives against a backdrop of
move into lockdown, it seems increasingly plausible private-sector indebtedness. Corporate and household
that the coronavirus crisis will not only trigger a steep balance sheets in Europe are extended – neither firms nor
contraction but also a protracted one, as public- households deleveraged substantially since the GFC and
health policies backload the time when the peak of the the European sovereign debt crisis; on the contrary, low
epidemiological curve will be reached. Financial markets monetary policy rates and low credit spreads lured them
the world over point to severe economic impact. Travel, into complacency about debt levels. Corporate leverage is
hospitality, leisure, and some manufacturing firms have at an all-time high. A large fraction of corporate debt is now
already experienced considerable revenue deterioration, rated BBB, the lowest investment grade rating, and more
other sectors are likely to follow. than ever is rated below investment grade – for example,
almost half of all US corporate bonds maturing in the next
five years are below investment grade.
“The Covid-19 crisis arrives against Current policies will inevitably leave parts of the
a backdrop of private-sector corporate sector with even larger debt burdens. These
will delay a recovery: distressed firms tend to implement
indebtedness.” labor reductions, sell assets, reduce investments and
employment, and shrink their business, and they become
reluctant to raise new capital. Additionally, banks and other
Governments are putting ambitious support programs lenders stuck with underperforming loans may restrain
in place for both households and firms. Many countries, lending and misdirect it to “zombie firms”. If one firm is
including Germany, France, Sweden and Denmark, are affected, its customers, suppliers and employees are
extending unemployment and short-time work benefits affected in turn. All of this can turn a temporary economic
and the US is considering direct transfers to households. shock into a long-term balance-sheet driven dislocation.
Emmanuel Macron has announced that “no company, One policy lesson of the big financial crises in the
whatever its size, will have to face the risk of bankruptcy”. developed world, starting with Japan in the early 1990s, is
Other countries act similarly. Policy responses outlined so that the effects of simmering corporate debt overhang are
far largely aim to be broad and fast (“keeping the lights multiple and nefarious. To manage the looming corporate
on”). Germany has announced “unlimited” loan support debt strains and keeping the likely precarious situation of
via KfW, its public development bank, France and Spain sovereign finances in mind, we see three broad policy areas
are offering loan guarantees of up to €300bn and €100bn that require addressing.
for companies, respectively, and Italy and others are also
putting in place massive business-support programs. Debt restructuring
Several countries plan to offer tax deferral programs.
Central banks use various policies to encourage banks to First, public credit packages such as loan-guarantee
lend to affected firms, by releasing countercyclical capital programs should be designed with the looming debt-
buffers or extended facilities to purchase government overhang problem and the future need for debt
and corporate debt. restructuring in mind. Conflicts of interest become
22 23The world after Covid–19 Toulouse School of Economics Corporate debt Economics for the Common Good
“We recommend banning dividend important when companies have multiple creditors, and
bailouts create new creditors, making restructuring
payments and most debt reductions more complicated, as the bank bailouts after the GFC
for all recipients of support. We also demonstrated. Programs must also ensure that bailout
funds are used as intended: to ensure business continuity,
recommend that any taxpayer-funded and not to benefit existing debt holders or shareholders.
credits be senior in the event of future Policy should also have an eye to future crises. Unlike the
bank bailouts after the GFC, bank risk-taking did not trigger
restructurings.” the Covid-19 crisis and this means moral hazard concerns
are weaker. They are not absent, however, since banks may
use current policy choices to infer the level of taxpayer
support that will be available in other types of crisis.
Therefore, bailouts should be designed to avoid benefitting
existing creditors and shareholders, when possible. Given
all these concerns, bailouts should contain provisions that
limit the scope to which investors benefit from support. We
recommend banning dividend payments and most debt
reductions for all recipients of support. We also recommend
that any taxpayer-funded credits be senior in the event
of future restructurings. It may also make sense to attach
options to the bailout funds in the form of stock warrants
or convertibles that can ensure that the public benefits
from future gains in corporate valuations made possible by
public money, especially for publicly listed companies.
Insolvency proceedings in court
Second, European systems for handling insolvency in
court are not good at protecting viable businesses with
unsustainable capital structures. Businesses are too often
liquidated, generating poor returns for bankruptcy claims,
and processes can be slow. These inefficient in-court
proceedings hold back credit-market development even in
good times. In a recession or crisis, it slows down returning
productive assets to the economy and may destroy valuable
businesses. Any reforms that can simplify and speed up
in-court processes should be considered. Such reforms
would need to be exceptionally quick to impact short-
run developments, but they can help support a vigorous
recovery. Current European Union initiatives for better
resolution of corporate insolvency should be accelerated.
Out-of-court renegotiations
Third, given the inefficiencies of court-supervised
bankruptcy procedures, government agencies must
be prepared to be a leader in debt restructuring for the
companies that are bailed out. They should prioritize
out-of-court renegotiations whenever possible. They have
proven a successful tool after the GFC. This can include
temporary nationalizations where needed, with tough
conditions for existing shareholders to avoid distortions.
Public agencies such as public development banks in
charge of loan guarantees may not be the best placed to
oversee debt restructuring – with their own balance sheets
exposed, they may be inclined to “extend-and-pretend”
distortions in their actions. So it is worth thinking about an
independent organization of government leadership in debt
restructuring.
24 25The world after Covid–19 Toulouse School of Economics Travel & airlines Economics for the Common Good
Travel “If in a month there is no
As planes are grounded, that it will cancel 90% of its flights
many airline companies are for two months and temporarily lay
off 80% of its employees. If the crisis
new outbreak in China,
bans
looking to the government stops in a few months, business then we can be more
for help. TSE researcher Marc activity will resume but tourism will optimistic because it
Ivaldi, a specialist in industrial again take longer to return. Right now,
would mean that once
put
economics and transport, it’s impossible to say how long the
discusses the sector’s
company will be able to endure. a country has been
healed, it can prevent a
airlines
uncertain future. The airline industry would certainly
benefit if China manages to restart its new outbreak”
economy quickly, but this is far from
The airline industry is at a standstill. certain. China has 1.5 billion inhabitants,
into The situation is so serious that we
could not avoid using public debt to
cushion the shock. In 2008, during
but the confinement concerned
“only” 500 million inhabitants. They
will reopen the Wuhan area, and we
nosedive
the crisis, economists disagreed over do not know if the virus will spread
the need for public money to rescue elsewhere. If in a month there is no
the financial system, today the debate new outbreak in China, then we can
is over and it’s clear that there is an be more optimistic because it would
urgent need for cash.
Marc Ivaldi Very large sums have been announced “Even with state aid,
by the French government to save the airline industry will
businesses: €45bn for the deferral
of all taxes except VAT up to three take longer to restart,
months, the deferral of rent payments especially because many
and invoices, and the financing of
partial unemployment. A €300bn countries could still be
guarantee has also been announced fighting the disease
on bank loans to guarantee 90% of the
sums borrowed by companies from
once others have
their banks. Despite this, it is difficult recovered, hindering
to predict today what the impact will
be on the sector, even if at TSE we are
tourism to these
working under the assumption that destinations.”
the pandemic will be over in a few
months. mean that once a country has been
healed, it can prevent a new outbreak.
It’s very difficult to know what’s We will know for sure in late April.
going to happen to the French It’s impossible to predict the overall
airline industry. President Macron impact on the French economy, but
said “we will save everyone” but in one thing is clear: with a country no
my opinion, tour operators will take longer working or producing, we are
longer to recover. We estimate that in a recession. Despite the state aid
the French will lose on average 20% announced, people’s savings will take
of their income in 2020, so tourism a hit. The markets have gone down, so
spending is the one which they will cut investments have gone down, so our
first. Even with state aid, this sector savings have already gone down.
will take longer to restart, especially
because many countries could still be The scale of the Covid-19 crisis is far
fighting the disease once others have beyond that of 2008; and we must
recovered, hindering tourism to these remember that the crisis of 2008 was
destinations. already much more serious than that
of 1929. This time, the good news is
In announcing the possibility of that the economic-policy reactions
nationalization, France is bringing out have been faster but there is still so
the heavy artillery: Air-France-KLM is much uncertainty as to the duration
one of the companies that could be of this crisis that it’s complicated to
affected. The company has announced estimate its complete fallout.
26 27The world after Covid–19 Toulouse School of Economics Value of human life Economics for the Common Good
Coronavirus and the
“In the absence of public intervention, the
economic shock will be far harder on the most
precarious households, intermittent workers,
value of human life those whose jobs are not sustainable or are limited
by confinement, not to mention the homeless or
refugees.”
The Covid-19 pandemic is a call to arms for social scientists.
TSE director Christian Gollier, an economist specialized
in decision theory under uncertainty, and Stéphane Straub,
a TSE expert on development and infrastructure, share their
insights on the story so far and suggest some of the ideas,
tools and actions that will be needed to turn the tide.
Christian Gollier & Stéphane Straub
Amid a health crisis, scientists have a involving the infection of 70% of the markets seem to share this estimate,
responsibility to share their knowledge population and a mortality rate of 2% with a fall in prices of around 40%
with the public and decision-makers, among the infected, implying a death at the time of writing. Again, keep in
while acknowledging their doubts and rate of 1.4% of the population. For mind that these estimates are highly
uncertainties. This puts scientists in a France, this would result in an excess uncertain.
very uncomfortable situation, with the mortality of almost 1 million people. We
quasi-certainty of later being criticized cannot judge the reliability of such an A 10% drop in GDP is huge, but if
by citizens subject to hindsight bias, estimate, but we will have to continue fairly distributed over the entire
judging past decisions on the basis of to make choices considering our population, it would not mean the
information that was unavailable at the doubts and uncertainty about various end of the world. Above all, it will be
time. parameters. temporary. Once confinement is lifted,
the population will return to work
Impact assessment if economic policy is able to avoid
“If we expect the a cascade of bankruptcies. We can
economy to only Health policy may significantly reduce
this apocalyptic toll. Consider the
even imagine a rebound in growth
in 2021, with companies seeking to
gradually return to containment policy implemented in replenish stocks and consumers
normal by the end France since March 17. Confinement
leads to a degraded version of work,
making purchases delayed during
confinement. By way of comparison,
of the year, we easily and often to the complete cessation France lost 16% of its annual GDP
reach a loss of more of production. Fortunately, telework during the 1929 crisis, 31% and 49%
allows many to maintain a value- due to the First and Second World
than 10% of GDP due to creating activity, but it is difficult to Wars, with the shock lasting much
containment.” measure its impact. longer than can be anticipated for
Covid-19. The current shock is severe,
Let’s start with a “back of the but not as catastrophic as those
This pandemic has no equivalent envelope” estimate. Imagine two experienced by our parents and
in modern history, neither in its months of strict confinement cuts grandparents.
intensity nor in its treatment. Covid-19 economic activity by half. This leads
appears to have a spread rate and to 1/12 of no wealth creation, i.e. an The State as insurer of last resort
mortality rate much higher than that 8% loss of income. If we expect the
of influenza. In the “laissez-faire” economy to only gradually return to In the absence of public intervention,
policy invoked recently in Britain and normal by the end of the year, we the economic shock will be far
the Netherlands, for example, some easily reach a loss of more than 10% of harder on the most precarious
epidemiologists refer to a scenario GDP due to containment. The financial households, intermittent workers,
28 29The world after Covid–19 Toulouse School of Economics Value of human life Economics for the Common Good
those whose jobs are not sustainable than countries like the United States. gradually repaid. Unfortunately, the
or are limited by confinement, not to Ideally, unemployment insurance French treasury’s room for maneuver
mention the homeless or refugees. should cover 100% of the salary is limited, and the State has few assets
Some businesses (restaurants, tour during confinement, at least below that it could dispose of to finance
operators, etc) will lose much more an upper limit. The State should also the intertemporal smoothing of the
than others, and many could go compensate the losses of self- shock. Given the huge fall in stock-
bankrupt. Large companies will also employed workers by paying a cheque market valuations, it would be unwise
face major difficulties. These include (or tax rebate) proportional to the to immediately dispose of Aéroport
airlines, car manufacturers, hotel duration of confinement, based on de Paris, EDF or the assets held in the
chains, concert halls, and football declared income for 2019. The US plan Pension Reserve Fund. For decades,
clubs. Government officials, online to send a cheque to all households France has let deficits grow during
has no economic justification; this recessions, without reducing its debt
“helicopter money” is only useful in in better times.
“Once the crisis is over, response to a demand shock, which is
not (yet) the case. In the present circumstances, the
we will have to consider suspension of the budgetary discipline
permanent realignment Compensation of losses is also a rules of the European Treaties is
way to avoid a demand shock. By welcome. However, our inability to
of remuneration for maintaining households’ purchasing balance the public budget over the
some professions.” power, the propagation of the shock long term will have to be reckoned
over time is cut off. You have to with one day.
know how to be Keynesian when the Public transfers will mean that the
service providers, the food industry situation requires. The State must also fall in GDP could be reduced to
and traders in essential services will keep the industrial apparatus intact by virtually nothing in 2020. The bulk
not lose much. Containment is a preventing bankruptcies. Temporary of the GDP loss would be carried
necessary sacrifice for the common state participation in the capital forward to following years, when
good. This effort must be shared fairly: of certain companies may prove part of the wealth creation would
it is a moral imperative as much as necessary. As in 2008, if the economic be neutralized to repay the “corona
an economic one. Under the veil of rebound is confirmed, this could even debt”. Fortunately, France is not at the
ignorance, not knowing whether we be done at no cost to the taxpayer. forefront of this exposure to sovereign
are civil servants or restaurant owners, Maintaining demand may also lead to a debt risk.
we would all like to see this happen. small temporary surge in inflation that
Ex-post solidarity is ex-ante insurance. would be rather welcome in Europe. Italy has the joint misfortune of being
Only the State can set up such an the European country most affected
insurance mechanism as a last resort. by the pandemic and by sovereign
“The US plan to debt. The exogenous nature of the In the short term, the ECB must also change: your efforts protect me and
Economists have long argued that send a cheque to all economic shock removes any problem avoid a liquidity crisis by offering cash my efforts protect you. Perhaps I could
there is an opposition between of moral hazard and the stigma to all financial institutions that request just rely on your efforts, while avoiding
the need to make individuals and households has no associated with it. it. This is so that the latter can in turn making my own; such free-rider
companies accountable on the one economic justification; finance solvent companies which are behavior is well known to economists.
hand, and the need to share risks The EU should socialize the corona struggling to meet payments. The
this ‘helicopter money’
effectively on the other. Strengthening
insurance often means reducing the is only useful in response
loss on our continent. If not, the EU will
lose credibility, especially since Italy’s
“In our hyper- socialization of losses by governments
should help reassure banks about the
Let’s continue with the controversy
over the usefulness of containment.
incentive to prevent risk effectively.
to a demand shock, containment policy has benefitted individualistic society, solvency of their borrowers. Trust and As we have seen, the loss of wealth
But in the context of Covid-19, we
are in a very different situation from which is not (yet) the
other members. A European corona-
bond should be issued with member
this lesson reminds credibility are key. could exceed 10% of annual GDP,
or about €250bn for France. Non-
that of 2008 (subprime crisis) and case.” states sharing responsibility for its us that liberalism Evaluation of health policy confinement, on the other hand, could
2011-12 (euro crisis) where the “moral
hazard” argument had an indisputable
reimbursement. Failing this, the ECB
should ensure that the conditions of
cannot do everything. There is much to be said about the
lead to a million deaths. To compare
these policies, we must somehow put
empirical basis. Covid-19 and Debt and self-insurance indebtedness of the States do not Beside religious faith, management of the health crisis. a value on human life.
containment are a combination of an diverge within the EU. The rule capping we need mechanisms Let’s start with the call for good
“act of god” and a political decision, Public opinion has clearly understood purchases of sovereign debt under citizenship. At the beginning of March, Everyone can take action to increase
and no actor has the possibility to the need to flatten the infection the European Stability Mechanism of solidarity and the French government counted on their life expectancy, through simple
intervene to prevent them. curve. But a second curve also needs should be exceptionally suspended. citizenship that can the civic-mindedness of its citizens preventive gestures (such as using
Any losses linked to confinement must to be flattened: the fall in income The recent widening of government to encourage them to behave pedestrian crossings, or exercise) or
be transferred to the State accounts. due to containment. Socialization of bond yield spreads within the EU only be implemented responsibly. The failure of this policy safety investments (such as changing
The victims must be compensated, losses will result in a massive public should be contained. The ECB’s launch by a powerful state with was widely reported. Do citizens tires, or moving to a less polluted
and only them. Fortunately, France deficit in 2020, perhaps around 10% of the €750bn Pandemic Emergency understand that their behavior affects area). These actions are often costly,
has a much more efficient and of GDP, and a corresponding increase Purchase Programme (PEPP) at least
legitimacy in the eyes of not only their own survival, but also making it possible to estimate a “value
generous social security system in public debt, which will have to be partially addresses this concern. the people.” that of others? This is a bit like climate of statistical life”.
30 31You can also read
