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How the pandemic can make the U.S. more productive

Telemedicine is being practiced at an unprecedented scale

Telemedicine is being practiced at an unprecedented scale so that patients can see doctors without risking exposure to Covid-19. Credit: Getty Images/iStockphoto/cyano66

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The Great Suppression will continue to cause enormous economic and personal hardship for scores of millions of Americans. It is possible, however, for the U.S. to emerge from this pandemic with a stronger and more productive economy.

To be clear, the base case is not rosy. The next few months will be difficult as the U.S. and the rest of the world struggle to contain and cope with the loss of life associated with covid-19. The shutdown of vast swaths of the world economy is both necessary (to slow the virus) and tragic (for those whose livelihoods it will ruin). It is important never to lose sight of the enormity of the suffering caused by this pandemic.

At the same, crises can sometimes force nations and leaders to take steps that they might otherwise be afraid of. In the U.S., two critical transformations have taken place that could yield long-term benefits.

The U.S. and other advanced economies have been suffering from low productivity growth since 2001. In part, that's because the U.S.'s fastest growing sectors — health care and education — were relatively late to make use of the efficiencies enabled by the internet.

The internet has had a huge impact on the few sectors of the economy that it affected. But it did relatively little to improve productivity in health care and education.

The pandemic has the potential to change that. Telemedicine is being practiced at an unprecedented scale so that patients can see doctors without risking exposure to Covid-19. That not only eases the delivery of services, but it also helps to expand the market available to health-care providers.

In education, there is a similar trend: Both K-12 and higher education are embracing distance learning. There have been experiments in the past, but they suffered from lack of scale and adverse selection. Because most students and professors were reluctant to abandon traditional in-class instruction, there were few resources for online learning and only a handful of often disadvantaged students took advantage of it.

Again, the pandemic has changed the calculus. As the number of participants explodes, both the technological barriers and the stigma associated with online education are falling. At the same time, best practices can spread widely, lowering costs and increasing effectiveness.

These kinds of returns to scale can reverberate across the economy. The Great Suppression has forced employers and employees to use technology to work from home. If successful, those efforts can carry forward into the economy as it is rebuilt after the pandemic has passed.

Perhaps the greatest obstacle to long-term growth is land-use restrictions, which drive up the cost of housing in areas with the fastest jobs and wage growth. The result is that millions of Americans must either take lower-paying jobs outside the major cities or lose time and money with long commutes.

Telework has the potential to radically alter this dynamic. If an increasing percentage of the high-productivity workforce can operate remotely, then the pressure to live in or near major cities will decrease.

None of these developments, it almost goes without saying, is certain. First, the U.S. will have to contain the pandemic. Then it will have to retain the policies, both public and private, that allowed for Americans to continue working and studying from afar. Maybe then, to borrow a line from the great economist Robert Solow, the U.S. will finally see the benefits of the internet show up in its productivity statistics.

Smith, a former assistant professor of economics at the University of North Carolina and founder of the blog Modeled Behavior, is vice president for federal policy at the Tax Foundation. This piece was written for Bloomberg Opinion.

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