Responses to the coronavirus are often presented as a binary choice between lives saved and the economic cost of trying to save those lives – health versus the economy. As with most things to do with the pandemic, it’s not quite that simple.
As Victorians suffer through a harsh phase four lockdown, that apparent trade-off between health outcomes and economic activity becomes even starker.
More livelihoods will be lost, more entrepreneurial dreams shattered, more individuals scarred and even permanently damaged and economic output will be reduced by the decision to shut down most of the economy even though the other side of the equation – the value of the lives saved or infections avoided – defies calculation.
While some view the dilemma confronting governments around the world as one of dollars versus morality, there isn’t any clear evidence to conclude that viewing it through either lens would produce either better economic or better health outcomes.
Donald Trump and others may have argued the cure shouldn’t be worse than the disease but the renewed outbreak in Victoria, whether it’s a “second wave” or an acceleration of the first, underscores the reality that, until there is an effective and widely-distributed vaccine, there is no cure for either the virus or the economy.
The Treasurer, Josh Frydenberg, has said that the six-week Victorian lockdown will cost the national economy about $1 billion a week.
Until Victoria lost control of the virus the national economy was expected to shrink by slightly less than 4 per cent this calendar year, with a horrific June quarter followed by a significant bounce back as the economy reopened.
The numbers – the more visible and calculable economic costs of the pandemic – are now clearly going to be worse, given that Victoria represents about a quarter of the national economy and that its lockdown will have spillover effects even into those states that have, so far, been able to suppress the virus.
The great unknown is whether the virus can actually be suppressed, given how infectious it has shown itself to be.
In the absence of a vaccine, is the Victorian experience likely to be the norm, with economies veering continuously between cautious reopenings and then hard lockdowns and is there an alternative to Victoria’s harsh response to the surge in its infections?
The obvious reference point is the much-discussed Swedish strategy. The Swedes didn’t impose a lockdown, instead advocating voluntary social distancing, bans on large gatherings and table-only service in bars and restaurants.
There have been about 6000 deaths attributable to the coronavirus in Sweden and its economy contracted by 8.6 per cent in the June quarter.
The economic impacts weren’t as severe as those experienced elsewhere in Europe – Germany’s economy, for instance, shrank 10.1 per cent – but they are very similar to those of its Nordic neighbours and the death rate is about four times that of Germany’s, about 10 times Denmark’s and nearly 25 times Norway’s, countries where the restrictions on activity have been far more stringent.
That would suggest there isn’t that much difference in the economic costs of doing little to contain the virus or adopting strong measures but there is, however, a very large disparity in the health outcomes.
Economists are scrambling to put some kind of analytical framework around the “lives versus economic costs” question but there is no conclusive answer because the inputs of data aren’t sufficiently reliable, given the unprecedented nature of the pandemic for modern economies and the novelty of communities’ responses to it.
One of the great unknowns is whether – even if the virus were suppressed – consumers would still behave differently relative to their pre-pandemic norms.
Some studies of mobility, using mobile phone data, have found that even as restrictions eased consumers did behave differently, with less activity, an avoidance of congested areas such as shopping centres and a shift away from non-essential activities.
It’s obviously premature to determine whether that could be a permanent shift in consumer behaviours but, as long as the threat of the virus and fresh outbreaks persist, consumer fear of infection is likely to impact and depress economic activity.
That suggests that even when the hard lockdown of Victoria ends, there will be an ongoing reduction in economic output and not just in Victoria. As the Victorian experience has also demonstrated, at this point in the life cycle of the virus, infections can be contained but not to the point where they are eradicated.
As restrictions are eased, infection rates can rise rapidly and, with some in the community considering themselves relatively immune to anything but mild effects, quickly get out of control. The initial boost to the economy from reopening can evaporate almost overnight.
It is, perhaps, the human and economic costs of continually opening and closing economies – big businesses won’t invest or employ with that kind of prolonged uncertainty and smaller businesses won’t survive it – that says prioritising the health response is also the best economic strategy.
In the absence of a vaccine, that may have to be a long-term strategy, albeit hopefully with fewer restrictions and a reduced economic cost. There are academic papers that, having come to that conclusion, argue for more targeted containment measures once the virus is under control.
They advocate strict quarantines for the infected and the most vulnerable groups in the community but a gradual normalisation of activity for those with some level of immunity or at low risk and argue for a granular approach to different industries and activities, depending on their levels of perceived risk.
Constraints on activity could be dialled up or down, incrementally and tightly-targeted at a local level, in response to infection rates.
It is possible to try to put a value on the lives lost to the pandemic and then try to compare that to the economic cost of the lockdowns but, apart from being a distasteful calculation with significant moral dimensions, the inputs are very rubbery and the concept is simplistic.
Health systems do put a value on lives to decide how much to spend on particular treatments. Comparisons between the value of lives lost and losses of economic output are made in a lot of pandemic-related research.
Containing that side of the health-versus-the-economy equation to the value of lives directly lost to the virus would, however, grossly underestimate the pandemic’s wider health and welfare costs.
On the other side of the equation – the broader economic impacts – the experience of Victoria relative to those states that have reopened their economies will provide better insights into the costs of a harsh lockdown after an economy has started to reopen.
With the threat of renewed infections still affecting the psychology and behaviour of consumers and businesses in the more fortunate states, we’ll also have a better sense of what a post-pandemic normal might look like if the virus is suppressed but not eradicated.
It is unlikely, however, to alter the convictions of politicians and many economists that the best economic strategy for responding to significant outbreaks of the virus is to lock the economy down as tightly as possible for as long as it takes to choke the rate of community transmission.
A six-week or even three-month lockdown appears preferable to the long-term damage done if there were a rolling series of reopenings and closures. The health and economic outcomes don’t appear, from the evidence to date, to be conflicting priorities but rather inter-dependent.
Setting aside the moral questions, sustainable economic growth, even at a pandemic-reduced level, can’t be achieved unless the virus is sustainably contained, whatever the immediate economic cost.
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Stephen is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.