By Joe Das
The coronavirus lockdown is likely to cause one of the biggest economic crises in modern history. Estimates from the Resolution Foundation show the UK should expect an unprecedented decline in GDP, perhaps as high as 24%, depending on different easing strategies. Falls in GDP of this magnitude come with matching bursts of unemployment, bringing with it deep-rooted poverty and social unrest.
Casual reading of the press could lead anyone to believe that there is some inherent trade-off between public health matters (i.e. locking down quickly and sharply to contain the virus) and these economic indicators, which ultimately also impact our lives and health. In fact, the Government’s policy to get all those who can back to work quickly seems to be focused on this very trade-off: the economy versus the health of the country.
I thought I would take a step back and read up a bit more on this and I discovered, as is the case with literally everything in economics and politics, it is not that simple – public health and the economy are actually intricately entwined and any policy should be equipped to support this delicate relationship. Poor economic conditions are bad for individuals and clearly so is the virus. But protecting public health is certainly not at odds with protecting economic conditions.
The Resolution Foundation recently released a report simulating different lockdown-easing scenarios and the respective economic outcomes of each case. With regards to the public health versus economic trade-off, there are to some extent competing concerns in public and economic health of a nation. But, these are by no means as serious as what you’d gather by glancing at Trump’s tweets or Boris’ policies.
For starters, I want to shoot down any sort of ‘business-as-usual’ arguments you might have seen out there. Now, nobody needs to take an Economics 1 module to determine that ordering an entire nation to remain at home for 9 weeks is going to affect the canonical economic indicators like growth and unemployment. And, I get it, this is clearly bad for human livelihood. But hang on a second. The very reason we are locked down like this is to protect one another from a ravaging and deadly virus. To my eyes, the destruction and havoc caused by this in itself removes any possibility of returning back to normality. I’m afraid going back to how we were simply is not a policy option at this stage.
The fact is that a lockdown is completely necessary to protect our NHS and public health more generally, and it’s becoming clear now that the UK was too late to jump on this bandwagon. A strict and effective lockdown supported by a well-functioning test and trace programme is exactly the best way to get the economy closer to normality.
In this regard, public health and the economy are in harmony, to use the words of the Resolution Foundation “effective public health policy is actually conducive to better long-run economic and fiscal outcomes”. It is still unclear whether the UK’s track and trace program will be successful at containing local outbreaks and Boris bumbling along with the back-to-work mantra is frankly dangerous without absolute clarity on the effectiveness of the testing system.
Whilst it’s true to say that longer lockdowns cause longer recessions and more deepening economic scars, if we just charge ahead with the easing, we may see the R rate thunder above 1 once again, causing a return to an exponential growth in cases. Then what? Well we lockdown completely again, just as strict as when we first started.
Economically, this stop-start stuttering is predicted to be more damaging than a careful yet albeit slightly slower lifting of regulations. So slow down. There’s nothing wrong with taking the time to get testing up to capacity and work on rolling out a functioning test and trace app; rushing the economy may only serve to damage it further if we end up having to lockdown completely again. In essence, there needn’t be a competition between public health and economics. Following a careful easing strategy can be done in a way which harmonises these two concerns.
It is also worth pointing out that the UK economy is consumption-based, meaning that our growth is fuelled in large parts by household expenditure. Much of this consumption is based on confidence. When people feel financially secure, they are happy to spend more and growth is happier. In the current climate, we have no vaccine, we’re not massively convinced UK testing is equipped to effectively contain local outbreaks and unemployment is forecast to skyrocket. A speedy economic rebound or the V shaped economic recovery people have been talking about depends on the Government’s ability to make people feel safe and give them the confidence to grow the economy.
We need a strong and unified public health strategy before people are going to feel comfortable to consume once more. The Government must be much clearer on the effectiveness of test and trace and should delay sending the entire workforce back until we have clarity on whether we have the testing capacity to do this. The rise in consumption we need to boost the economy depends crucially on trust and confidence in the Government’s ability to protect us.
Alleviating the horrendous economic consequences of the pandemic requires a carefully engineered marriage between public health and the economy. There is no simple trade off. And there is nothing careful about sending a nation back to work without the capacity to keep them safe.