COVID-19, Economics

The Case for Economic Hibernation during the COVID-19 Lockdowns

The extreme social distancing measures required to arrest the spread of COVID-19, especially the lockdown and isolation, are presenting economic policymakers with an unfamiliar challenge. The economic slowdown, caused by the need to employ extreme social distancing and isolation measures, has nothing to do with underlying issues in the local or global economy. Businesses are closing and people are losing their jobs, not because of a natural decline in demand for their services, nor due to a new technology that has made their job obsolete, nor a bubble whose time has come to burst. People still want to travel abroad, purchase clothes, go to the hairdresser, and sit with friends for coffee. The underlying demand in the global economy remains unchanged.

This means that the extreme social distancing and isolation measures are sending distorted signals into the economy of a supposedly precipitous fall in demand for numerous products and services. In reality, demand for these products and services remains the same, but simply cannot be realised as a result of the enforced isolation. These distorted signals will result in entire industries laying off workers, scaling down, and even closing, despite the absence of underlying economic change to justify such severe actions. This is not a normal situation, and not even a normal crisis. For example, pouring liquidity into the market to mitigate the economic slowdown is irrelevant if people are physically prevented from taking advantage of it.

This is a new type of crisis for which there are no established economic policies, so if the distorted and distorting signals of the lockdown are not isolated, a vicious cycle of increasingly severe economic slowdown will result. This means that even after a medical solution is found to COVID-19, the world will have already been plunged into an economic crisis comparable to the Great Depression. Moreover, extreme isolation measures are creating additional distortions by generating a massive transfer of wealth to those lucky enough to possess assets, especially of the revenue- and rent-generating kind, or to work in a protected job. This wealth transfer is created because asset owners continue to receive rent while renters are no longer able to participate in economic activities that would allow them to generate the income.

This unjustified wealth transfer becomes even greater in countries which have committed to paying the salaries of workers, or unemployment benefits for the multitudes of the newly unemployed, as they would be effectively transferring wealth to those with relevant assets. Employees with protected jobs in the public sector or certain industries are also in the fortunate position of having their salaries paid, despite there being no justification for protecting their jobs over others at this time.

To prevent the lockdown from destroying the economy, we must isolate the health crisis from the underlying economy by placing all underlying economic activity, other than that which is necessary to battle COVID-19, into hibernation. The idea is to reduce the activity of the (economic) body to the bare minimum necessary for survival, without damaging the systems necessary for resumption of full activity in the (economic) spring. To protect the underlying economy in hibernation all cash flow contracts must be frozen beginning at the moment of lockdown.

What does this mean? On Day Zero, to be declared by the state, all employees whose work is not necessary for fighting COVID-19 or maintaining the survival of the population (e.g. healthcare, relevant research and science, sanitation, utilities, basic public service, basic police, basic military, news) will remain in their homes. They will not receive salaries, but nor will they be fired. Fixed income pensions that do not depend on existing savings will not be paid out either. All contractual commitments to suppliers, renters, mortgages, loans, and taxes would also be frozen. Payment for utilities would be subsidised by the state on a basic level for all.

The result of this deep freeze of all cash flow obligations would be that people’s only expense would be for basic needs such as food and medicine. For those who cannot afford even that, the state would provide subsidies and assistance. The state will therefore not need to pay unemployment benefits or secure the salaries of people who are not working. Its COVID-19 extra emergency expenses will be dramatically reduced—other than healthcare expenses, they would be limited to subsidising the needy’s basic requirements and basic utilities for all. This would be balanced by a dramatic drop in the state’s expenses due to the freezing of salaries of most public sector employees and all fixed income pensions. As a result, the state could avoid assuming massive financial obligations that would otherwise be borne by generations to come.

An important clarification: Contractual cash flow commitments do not accumulate. After months of lockdown, a renter will not have to pay the landlord months of back-rent for this period. All cash flow is frozen. Poetically, the lockdown time would not exist on the economic calendar, so that the first day of the economic hibernation and the first day after the economic hibernation would be effectively two consecutive days in cash flow contracts.

The outcome of this hibernation is that businesses will not collapse. They will not have incomes, but nor will they have expenses. They will effectively be mothballed for the duration of the battle against COVID-19. Individuals and families will also avoid personal collapse. Except for those who are mobilised to help in the COVID-19 economy, individuals and families will have no income, but also no expenses other than food and medicine. And for those who will find it difficult to manage those basic expenses, the state will provide subsidies and assistance. This means that during hibernation everyone survives and no one collapses.

Naturally, during the battle against COVID-19, two consenting parties could enter into short-term contracts if they find it mutually beneficial. For example, a software business with resources that wishes to continue employing people working from home, could do so. But in the absence of mutual agreement to these new contracts, employees stay at home, where they remain employed but unpaid. Businesses that are expected to thrive during the lockdown, such as messengers and food, would of course hire employees for the duration of the period under such short-term contracts. The more countries that apply the hibernation model, the better it would be for all, given that some cash flow contracts in the economy involve businesses and individuals in other countries. In the absence of global coordination, those who have international contracts might either experience greater difficulties if they are committed to outgoing cash flows, or vice versa.

Even so, individual countries still stand to benefit from implementing the hibernation model as it is far more efficient and suitable in this unique situation than assuming vast salary or unemployment benefit costs. These commitments will not necessarily prevent businesses from collapsing, while burdening the state with commitments that might take generations to repay, and also unnecessarily transferring wealth to those whom dumb luck gifted rent-generating assets or protected jobs. And, from a legal perspective, the hibernation proposal does not undo property or labor rights. People retain all their rights to their properties and employees continue to be employed. What is temporarily suspended is the ability to generate cash flow from these properties or positions.

Finally, when lockdown and extreme isolation are over and a return to normal economic activity is possible, the state will declare the transition from Day Zero to Day One. From that moment on, all the contracts that were frozen are thawed and resumed from the precise point of freezing. People will receive salaries and start paying rent. Businesses will pay suppliers and receive payments. There might be a need for a gradual transition from Day Zero to Day One, but this could be examined during the hibernation period once the nature of humanity’s solution to COVID-19 becomes clear.

The economic crisis of 1929 became the Great Depression due to policymakers’ insistence worldwide on deploying old tools such as the Gold Standard, balanced budgets, and protectionism, rather than new tools such as budgetary and monetary expansion. We are currently in the throes of a new kind of crisis where the underlying economy is healthy, but a non-economic crisis is stopping it in its tracks. Only new tools based on original thinking can prevent a public health crisis from becoming an extended economic one.


Einat Wilf is a writer and former member of the Israeli Knesset. Her new book The War of Return, co-authored with Adi Schwartz, will be published by St. Martin’s Press in April. You can follow her on Twitter @EinatWilf.

Saar Wilf is an Israeli hi-tech entrepreneur and investor. You can follow him on Twitter @saarwilf.

Photo by John Cameron on Unsplash


  1. a supposedly precipitous fall in demand for numerous products and services. In reality, demand for these products and services remains the same, but simply cannot be realised

    Yeah, well, the problem is that unrealised demand isn’t demand.

  2. This article from two Israeli authors is well worth considering. But it’s marred by the tired old leftist fallacy that assets and wealth are entirely a matter of luck:-

    “Moreover, extreme isolation measures are creating additional distortions by generating a massive transfer of wealth to those lucky enough to possess assets, especially of the revenue- and rent-generating kind, or to work in a protected job.”

    As Samuel Goldwyn is reputed to have said, the harder one works the luckier one gets!

  3. Anyone who still believes the conventional tripe about the Great Depression is a supreme ignoramus. Read Amity Shlaes. (Whenever possible, I recommend people who are not from my own ideological spectrum.)

    The over production of intellectuals means we’ll have wannabe central planner types clogging up the channels with noise.

  4. Yeah, good luck with those new tools. After 90 years we still cannot agree on the cause of the Great Depression. Even today the answer provided is typically a better indicator of the persons political bias than their factual study of the past. I am very skeptical when the fable is invoked that the cause of the Depression was an overly conservative response that relied too heavily on the past. It is never that simple.

    This time around there will again be a lot of mistakes and while some of the mistakes will be the result of old thinking, just as many if not more may rely on “original thinking”. One thing we can be assured of, those making the mistakes will not be the same people who suffer from them. Funny how someone’s judgement changes when their own situation is affected.

  5. This is the sort of pie-in-the-sky hypothesizing that only the ivory tower could conceive.

    Economic activity hasn’t ceased. Everyone’s still eating. We’re still using electricity and the internet. Some forms of consumption are increasing dramatically. You can’t arbitrarily draw a line between the frozen and unfrozen; society is too interconnected.

    Go watch “I, Pencil” again.

    And @neoteny is right. Regardless of the fact that demand for gyms and restaurants would be high if not for the mandated closures, so long as the closures exist, demand is in fact zero. The virus and its ramifications are market forces.

    Everything is a market force.

    A freer market would respond to all of this in very interesting ways, but we don’t have one. We’ll be stuck with statists deciding how to “protect us next time”.

    I do not look forward to the results.

  6. On the contrary, the economy needs protection from those who want to protect it. It reminds me of Reagan’s adage -
    “The most terrifying words in the English language are: I’m from the government and I’m here to help.”

  7. The thumbnail sketch is, interventions by the government did not solve anything, rather exacerbated many problems, and impeded market mechanisms from operating. High levels of regime uncertainty were introduced by the endless jazz improvisations by government, thus freezing up entrepreneurial calculation, and the flow of capital.

    The sudden seizure of all the people’s gold at gunpoint sent shock waves of fear through the country. The fiat re-valuation at $35/oz from the prior $20/oz was “highway robbery” as Sen. Gore of Oklahoma put it. A gangster ethos took over government, and has not left since.

    An endless sequence of bureaucracies were invented, and each introduced more and more interventions and disruptions. When the SCOTUS blocked some of FDR’s measures as unconstitutional he threatened to pack the court to get his way.

    NONE of this did anything for the economy. The grinding agony continued. “FDR saved the economy in the Great Depression” — this is one of the boldest, brassiest lies ever told by intellectuals. It is today a religious mantra.

    Read ‘The Great Depression’ by Amity Shlaes, who is mainstream. Or, if you feel so bold as to venture into the forbidden forest where the satanic demons called free marketeers dwell, you could read Murray Rothbard’s account which is available for free online, here:

    By all means, ask more questions, if you like.

  8. Amity Shlaes book is a compendium of Roosevelt’s government hostility towards business that lengthened if not worsened the depression. It has been years since I read her book but the most memorable was the Supreme Court overturning the National Industrial recovery Act. It was a government price fixing scheme that put many violators in jail, in particular jailing some Jewish poulterers for their temerity of charging more for kosher chickens.

    On rendering the opinion Justice Louis Brandeis leaned over and pointedly told Roosevelt’s aids “This is the end of this business of centralization, and I want you to go back and tell the president that we’re not going to let this government centralize everything.”

    Generally speaking you do not encourage economic activity by prosecuting small business people for charging a different price for a different product or service.

    My guess is @Isaiah has a similar take. Amity Shlaes’ book “The Forgotten Man” is a useful read on misbegotten government policies achieving the opposite of their claimed benefits.

  9. This is laughably naïve. The problem is that most people don’t own rent-generating assets any more than most people “own” their homes. Rent generating assets are mortgaged, just like homes. You don’t build an multi million dollar apartment complex with pocket change. You build it with debt. So, if rental properties stop generating income, the bank forecloses.

    Prevent the bank from foreclosing you say.

    Well, welcome to 2008-2009. Banks lend money, based on an income stream for debt repayment and interest. If you remove that income stream, banks suffer a liquidity crisis and have to stop lending. Even the best companies without access to debt to fund operations go bankrupt. People get laid off. Only not for a few months lie now. When a company goes bankrupt, the job losses are permanent. I know that writers don’t take business courses but this is ridiculous. This is taught in Finance 101. All but the very smallest businesses run on debt. That includes Google and that includes the corner grocery store.

    Also keep in mind that rental properties are businesses. They need income to pay their people and to keep up with repairs. Where is it that money supposed to come from? Sorry Mrs. Jones I know that it 30 degrees out there but I can’t fix your heater because no one is paying rent. Yeah, that’s gonna work. Even before the Covid-19 virus, many municipalities have made it very difficult to evict someone for nonpayment. We can argue how much leeway should be given in hardship situations. But giving everyone free rent is just plain stupid and would lead to financial disaster.

    But the most ridiculous idea of all is that everyone has to taken off salary!! SAY WHAT??? There are many business that can be run just fine using Zoom. For much of the last 20 years, I ran small oil and gas companies. Although I prefer my employees to be in the office, we could have done everything from home using Zoom. The field personnel worked outdoors and would have had no problem maintaining social distancing. So what you are telling me is that I would be forced to not pay them salaries even though I could do this with little problem. I wonder what they would say about that

    I am currently taking a photography course online. The instructor is getting paid. My daughter is teaching her preschool class online. She is getting paid. Shouldn’t we endeavor to keep as much of the economy running as we can?

    I wonder, did the authors get paid for this article? Perhaps they would like to return the money to prove their fealty to their cause

  10. I sincerely hope that we have not yet reached the level of panic and despair at which we have to resort to an approach such as that proposed by the authors.

    To me, their suggestion sounds a lot like intentionally stopping a patient’s heart to put him in an artificial coma until a cure is developed, and then resuscitating him in the hope that he will simply pick up where he left off. But here we are talking about an entire society. And a society is far too complex for this to work. It’s a web of relationships build on trust, predictability and the routines of daily life. The more these normal processes are interrupted (and interrupted they are already in many ways), the more the fabric that holds society together suffers. And whether you like it or not, cash flow as well as contract compliance are central to the functioning of a complex society like ours.

    People cannot be controlled like robots. They do not stop making their own plans and pursuing their own goals, instead of simply waiting for the government to hand out the scarce supplies until the crisis is solved. In this situation, a huge black market for all kinds of goods and services would immediately arise. The authorities would have to interfere and criminalize all private economic activities, and finally we would necessarily end up in a sort of police state.

    Being on lockdown for weeks or even months is bad enough. So is needing the government to print money for massive bailouts. But to additionally kill all economic activities for an indefinite period of time would certainly be worse. It would take decades to recover from a shock like this, and society would probably not be the same in a way that we can hardly foresee now.

    Let’s not make the situation even worse.

  11. In order for this to work there would need to be legislation and it would run into the millions of pages. It would be an administrative non starter. It could never be enforceable. There are too many contracts and too many variables. It might make good business sense for those who lend money or lease real-estate, but only for a month, two at most. The economy is not something that the government can just turn off an on. The government depends on the economic activity of the population, not the other way around.

  12. We should no longer concede that state enforce equity is in any way nice. All my life I have heard the phrase that socialism looks good on paper but does not work, such a formulation is dramatically insufficient when considering that it always fails and if not abandoned quickly it becomes murderous. It is a deeply flawed system fueled by resentment, nothing nice about it.

  13. “… individuals and families will have no income, but also no expenses other than food and medicine. And for those who will find it difficult to manage those basic expenses, the state will provide subsidies and assistance. This means that during hibernation everyone survives and no one collapses.”

    I’m assuming everyone the authors know have enough money lying around to pay for food, medicine and other necessities (toiletries, wifi, phone, car, heat/electricity, etc). Otherwise, they’d never in a zillion years say something so disconnected with most peoples’ lives.

    I’ll use myself as an example. I’m a teacher. In all due modesty, I regard my job as essential, although apparently the authors don’t. I’m working probably 8 hours a day online teaching. If I were to stop teaching in my nonessential job, a) students would fall even farther behind than they will and b) I wouldn’t get paid. My not getting paid would be a catastrophe. I’m already ‘on the edge,’ with $10000s debt in education loans. Even if I didn’t have to pay my landlord (then what about him? he’s not a mega rich person; he just own a few properties, as his sole income), I’d still have to pay for necessities. The authors say “the state” would pay. Who is the state? That’s right, it’s me! And you, and you, and you. So either the state wouldn’t be able to find the money to magically pay for my necessities, taken off the backs of other taxpayers, and I’d starve or freeze; or they would be able to pay, and the cost of that would be borne by taxpayers. How is this is any way a solution? It’s simply pushing the money around, a bit like how my son cleans up his room.

    Throughout this affair, I’ve watched in equal parts amusement and fury as oblivious ‘intellectuals" and “celebrities”’ talk about this as though the hardest part were staying at home and doing nothing. If only! Our economy consists of very complex connecting parts, each reliant on the other. You can’t simply declare a handful 'necessary," while ignoring the rest that you can’t see because you don’t know how the complex system works (eg cars are a necessity, at least in the US - trucks and trains and planes certainly are, to distribute essential goods - therefore gas stations and mechanics and auto and other parts need to be open; therefore we need factories and shipping and international shipping and distribution people etc etc etc). You also can’t isolate a single person, point to him/her, and say: “She is not essential. Stop working and don’t get paid,” and expect that to have zero repercussions on anyone else or the economy at large.

    Very naive piece.

    1. Thank you for responding. The best part of Quillette is the discussion section. I wish more of the authors would stick around to debate the ideas that they present.

    2. Your basic premise is flawed. The economy is not shut down. Parts of it are very highly stressed. But other parts can continue to thrive, largely as a function of online communication. Because my daughter can teach online, she is getting paid. Because she is getting paid, she can make her rent payment. Why should her landlord suffer? In contrast to what you say, your article does not make it clear that businesses that can be conducted online should be allowed to continue.

    3. I am surprised, given both of your backgrounds, that you did not consider the effect of massive loan defaults and associated ripple effects on the economy that would result if everyone stopped paying rent. I can assure you that the U.S. Fed is well aware of the problem. Many business, small and large will be defaulting on rent payments. The Cheesecake Factory (CAKE) has told its landlords that it will not be able to pay rent on its 300+ locations. The impact of these nonpayments has been extensively discussed on cable business news stations.

    4. Although it was clearly not your intention, your article comes off as callous and heartless. You talk about this “massive transfer of wealth” to residential landlords as if they were the enemy. In the U.S. the residential rental market is very highly fragmented. You have large REITs trying to rent luxury high-rise apartments in Manhattan and you have Grandma supplementing her social security by renting the other half of her duplex. And yet according to you, both the REIT and grandma are the “fortunate ones” who will benefit from the “massive transfer of wealth” Be aware that, when the bank forecloses on Grandma’s duplex, both lessor and lessee are likely going to need a place to live.

    Let’s look at who the big beneficiaries of Covid-19 really are. They are the same cast of characters that have been benefiting for the past 20 years – the tech industry!! Much of the tech industry can thrive by having people work at home. You can write Python code from your bedroom the same way you write it in your office and software collaboration tools abound. So, few tech companies will suffer mass layoffs. If you owned $1MM of Zoom stock on March 1st, you now have close to $2MM of Zoom stock. Streaming platforms, video games and social media platforms will all benefit from increased traffic. The massive transfer of wealth will continue to go where it has gone for the entirety of the 21st century. Covid-19 will accelerate this transfer.

    One of you is likely worth north of $100MM. You made your money in technology. Now I have no problem with this!!! But when a tech mogul who almost certainly going to benefit from Covid-19 wants to bankrupt grandma there is a bit of an image problem. It sure looks like the commissars are coming after the kulaks.

    Here’s a thought! Maybe you could come up with some ideas as to how wealthy tech moguls can spend some of their money to help out with rent payments.

  14. There is not a neat dividing line between these businesses and other businesses. The world is very interconnected.

Continue the discussion in Quillette Circle

60 more replies