COVID-19: the economic impact of lockdown
Historian Sir Max Hastings, in The Times last week (March 24th), posed the question at its starkest. Should the government, through its ‘lockdown’ policy, risk such severe long-term damage to the economy, and especially to the future prosperity of today’s young people, merely to preserve the lives of a few thousand older people, part of ‘the most fortunate generation in history’ and facing ‘inevitable extinction’ anyway?
The language used by Hastings is clearly controversial, and unhelpful to what is evidently a sensitive subject. Perhaps no group in our society is better qualified than doctors and health professionals to grapple, as they do daily, with questions about the life and death of individual citizens. Others cannot even begin to imagine how frontline staff are coping today with what neurosurgeon Henry Marsh, in a searing analysis of the COVID-19 crisis in the Financial Times (March 28/9), described as ‘the grotesquely larger’ number of life or death decisions they are now having to make.
But, at a national, as opposed to an individual level, these issues take on a very different complexion. Government ministers repeat endlessly their mantra that their decisions are being guided (they imply almost dictated) by their scientific advisers.
As Lord O’Donnell, a former Cabinet Secretary, told the BBC last week, the government has some very difficult ‘political choices’ to make in coming weeks because of the pandemic. What are they? Alongside how to minimise the human costs, they include what to do about the already spiralling economic costs, especially to the government.
Computerised economic models, it is true, depend heavily on theoretical assumptions and the validity, volume, timeliness and reliability of the data pumped into them – but so do epidemiological models! John Ioannidis, Professor of Epidemiology at Stanford University, has branded the current data about the epidemic as ‘utterly unreliable’.
The Sunday Times (March 29th) says that, unusually, the government has been relying heavily on a team of modellers under Neil Ferguson, Professor of Mathematical Biology at Imperial College, London. Responding to criticism from other scientists that they cannot understand how his models work because they cannot decipher the thousands of lines of computer code in the model, Neil Ferguson is quoted in the newspaper saying: ‘For me the code is not a mess, but it’s all in my head, completely undocumented.’ This, prima facie, would indicate that it cannot be ‘peer-reviewed’, one of the essential disciplines to which even academic economists have to subject themselves.
The evidence that the health crisis is damaging the economy is already too strong to ignore. As the economy plummets, economists at Barclays Bank are expecting the country’s unemployment rate to soar to 7% in the second quarter of this year. (Barclays “Global Outlook” March 26th.) This means that the government’s tax receipts will fall even as its spending on social welfare soars. Chancellor Rishi Sunak’s support packages in the past two weeks will add tens of billions to the government’s annual deficit and to the national debt; however, this does not inevitably condemn today’s workers to penury for years ahead as Hasting, for one, seems to suggest.
Governments can and do default on some of their debts. Indeed, many American bankers judged that this is, in effect, what Britain did after World War I. Or, they can inflate them away, a choice which, for over two decades after WWII, the British government was particularly partial to. Either that or you can grow out of them, which is hard to imagine today but it may be possible in future years. Or the government can raise taxes! This policy is typically anathema to leading Conservative Party politicians. However, Chancellor Sunak has hinted that this will be necessary, while Michael Gove, Cabinet Office Minister, during a BBC interview of Sunday morning studiously ducked the issue.
Scientific advisers are necessarily being drawn into the debate on how to start to ease the lockdown to revive a tumbling economy. Their assessments and projections about how quickly the COVID-19 death toll may rise, when it has peaked, whether it will return, and if so when and how virulent it might be, are opaque, but important elements, in the government’s political calculations.
The government’s scientists were put on notice on Sunday morning in Mr Gove’s interview when he said the minutes of the meetings of the scientific advisers will be provided to explain the government’s decisions. If those decisions were solely based on the minutes of scientific advice and not unrecorded political calculations, then most of the medical scientists could acquit themselves quite well. If not, they could find the politicians skulking in the wings as they face embarrassing questions akin to one the Queen posed to professional economists at the London School of Economics after the 2007/8 financial crisis: ‘why did the experts fail to see this disaster coming’?
Stewart Fleming, journalist and previous foreign correspondent for the Financial Times in Washington.