First published: 26/03/2020
With the Western world following China into a deep economic dive, with a lag, there has been a lot of heat generated about whether governments have gone too far to ‘save the lives of mostly older people’ at the cost of bringing the economy to a sudden stop. Let’s briefly explore this.
This view was fuelled by a research paper written by a professor of risk management at Bristol University, Philip Thomas, that you can find here (http://www.jvalue.co.uk/papers/J-value-assessment-of-combating-Covid-19-Thomas-23.3.2020.pdf). It is fair to say, having read the paper, that the author is much more nuanced about this than the media portrayed. Yet, I still think there’s a fundamental misunderstanding of the health and life expectancy consequences of suppressing the Covid crisis and of a recession that goes beyond mathematical modelling. The gist of the argument is that recessions are injurious to physical and mental health and that the government should weigh carefully the human costs of a recession versus those of Covid suppression. I disagree that there’s a policy choice here, and I explained why on Twitter, after listening to a historian and a doctor discussing the economics of this on the Today Programme on radio 4 today. Maybe they should get economists to talk about the causes of the First World War, and the benefits of inoculation.
So, what’s missing in the simplistic question about whether we should do more to protect the economy more, rather than go into lockdown to try and suppress Covid cases and fatalities?
It’s true that economic slumps take a heavy toll on physical and mental health, as people become unemployed or underemployed, incomes melt, companies close down, and communities are undermined. Yet, this is partly why we have well developed if not always adequately funded social security safety nets and healthcare programmes. It is in the nature of our economic system for there to be cyclical ups and downs, and we know, mostly, how to manage them without having risked rising life expectancy and overall standards of well-being.
There are of course 2 important caveats.
First, the 2009-2010 recession was nasty, but worse, the consequences have been playing out for 11 years, and we are still trying to come to terms with them. This experience has indeed been harmful to the health of nations, including a stall or decline in life expectancy in several countries for the first time since 1945.
Second, in today’s coronavirus world, things are different. There is a very strong reason why governments have opted to shut down the economy, and it should be clear that the alleged choice between lives lost from Covod and lives lost from a recession is totally spurious.
We are shuttering the economy because otherwise, letting the virus run, our health systems might collapse. As infection rates soared, we would not only experience high fatality rates in Covid patients, largely but not only older people, but also in a wide array of non-Covid patients, young and old, for whom the health system would barely be able to serve. Imagine the consequences on other patients requiring urgent surgery, regular hospital attendances, and so on.
And note that at the point that the health system was completely overwhelmed, and poor health and fatalities of all types were rising, the economy would go into a funk anyway, compounding the problem. Put another way, the deep economic dive we are in is to buy time to invest in and resource the health system so it can cope better and manage the Covid crisis, so that restrictions on the economy and society can be lifted incrementally, or sporadically, as appropriate, and allow the economy to regain its sea-legs as soon as possible.
Moreover, in the UK, the US, Germany, France and elsewhere, we are throwing the kitchen sink and more at the Covid criusis, and there’s almost certainly more to come. Fiscal deficits will rise sharply, financed at basement level nor negative interest rates. These will not choke us. Monetary policy, expansionary as it is as it is, could go even further at some point if governments here and there opted not only to issue bonds that are partly bought by central banks as part of QE, but also moved to experiment with direct programme financing, otherwise known as Modern Monetary Theory, which iOS really fiscal policy by another name and an alternative to issuing bonds. It also has very different implications from QE, which is why care will be needed about how such a policy is calibrated and for what (ie for productive investment).
So much is uncertain, and we are all flying blind. But it is reasonable to assume that sooner or later, the spread of infection will crest, the daily increases will diminish and then drop. A vaccine will emerge. Restrictions on the economy and us will ease even if re-imposed sporadically. The capacity of the health system is going to get stronger as masks, medicines, beds and ventilators are added. Our ability to cope and manage will improve.
That means the balance between economic stop and go will change, incrementally maybe but with patience and good policy sense, there is a way out. So please, can we stop this red herring argument about choices between keeping the economy going versus saving lives? The latter is part of the strategy to get to the former. Simples.