Three Economic Mistakes That Undermine the COVID Fight

Perhaps the biggest criticism of recent actions, however, is how crude many new restrictions still seem.

September 25, 2020 • Commentary
This article appeared on UK Telegraph on September 25, 2020.

During the first full lockdown, many of us questioned the Government’s longer‐​term objective.

After the curve was flattened, did it want to just make sure the NHS wasn’t overrun but accept an inevitable spread of the virus? Was the aim to suppress the virus until an accurate test‐​and‐​trace regime could be implemented, providing confidence for re‐​opening? Or was the goal to minimise deaths until a vaccine was available?

Four months on, that question lingered, not helped by a zigzagging of re‐​openings and new restrictions, even as it became clear our test‐​and‐​trace system was inadequate.

Professors Karol Sikora, Sunetra Gupta and Carl Heneghan wrote an open letter at the start of this week, critiquing the Government’s approach. “The unstated objective,” they said, “appears to be one of suppression of the virus.”

Yet without articulating that explicitly, they argued, nobody could evaluate the strategy or policy choices used to achieve it.

Boris Johnson’s Commons speech on Tuesday provided clarity. Rowing back on demands that we return to the office and eat-out-to-help-out, the Prime Minister stressed a clear aim: to get the reproduction rate (R) of the virus sustainably down to 1 (the average number of people each infected person passes the disease to).

Matt Hancock, the Health Secretary, confirmed it. The policy is now explicitly “suppression” until a vaccine or better test-and-trace regime exists.

The Government accepts an ongoing “new normal” — hence Rishi Sunak’s “winter economy” pivot from furlough (implying a pause in activity) to topping up wages of “viable” jobs (implying adjustment to Covid’s ongoing prevalence).

With infections rising sharply, getting R down requires tighter restrictions. But the Government’s choices are controversial.

Rather than reimpose business lockdowns, the Government now seeks to protect much formal economic activity (GDP) by keeping schools and most companies open, but with the quid pro quo of restricting socialising with family and friends.

So working from home is urged where possible; bars and restaurants are restricted to table-only services until 10pm; a retail and hospitality face mask mandate is introduced; business regulations get legal force; wedding number restrictions are tightened; and socialising is restricted to six people.

But schools and other businesses remain open (the former to allow parents to work). And “rule-breakers” are blamed for the necessity of these measures, rather than a tragic miscalculation of the impact of the recent approach.

Terrified by the “potential” projections in cases from Patrick Vallance, the chief scientific adviser, criticism of lethargy before the first lockdown, and with polling favourable, the political class has rallied to the PM’s banner.

Yet the absence of more dissent is surprising, given the three obvious complaints economists might raise, even among those hawkish on Covid-19.

First, while the Government is right that, in the presence of a dangerous infectious disease, our individual choices may harm others, putting almost all the heavy lifting of restrictions on social activity amounts to the Government imposing its own preferences for how we suppress this.

Why is a work meeting fine, but not an important family dinner? Why can’t a family have a wedding rehearsal dinner of between six and 15 people, but can have a wedding reception?

The risk of spreading the disease is the same. But the Government has prioritised activities where most money is exchanged.

There’s nothing about economics that justifies that approach — our well-being is enhanced by allowing free choices, subject to controlling for the external risks of the activity. We should decide what matters most to help our well-being.

The second big criticism is the volatility of policy. I’ve criticised the Swedish approach to Covid-19. But Oxford University’s Government Response Stringency Index shows that its lower-level restrictions have been fairly consistent, with modest liberalisation so far and no backsliding.

That stability reduces uncertainty, giving businesses and families confidence to find ways to operate or live at lower risk. In contrast, the UK government encouraged denser social networks by subsidising indoor dining in August, creating “air bridges” for holidays, and demanding people return to work.

Now, it has slammed on the brakes, urging working from home and imposing regulations in restaurants that suggest previous practice was too risky. We’ve gone from “help get back to old normal” to “embrace new normal” in weeks.

Such fine-tuning of our behaviour doesn’t work. It leads to a population hanging off the Government’s words, with constant confusion about risks. It makes companies unwilling to invest in adapting semi-permanently to the virus.

While the Government claims these new policies will endure for six months, their previous pronouncements hardly inspire confidence.

Perhaps the biggest criticism of recent actions, however, is how crude many new restrictions still seem.

Even if you accept Johnson’s argument that ring-fencing the vulnerable is impossible in a world of hospitals, care homes and multi-generational housing, there are surely more targeted ways of reducing transmission of the virus and its impact on the most vulnerable.

Why not publish granular mapped data about where people are getting infected, to influence behaviour? Why not provide more guidance on ventilation? Why aren’t we considering very high “hazard pay” for workers to live in care homes where local case numbers are high?

Why don’t we pay those with antibodies to undertake more risky roles? Why aren’t we using pricing to reflect risks on public transport, liability measures on employers who ignore worker symptoms, or providing greater incentives to wear masks?

That we are tightening crude, nationwide restrictions is an admission not just that recent policies were misguided, nor only that the test-and-trace system is not good enough, but that we have advanced little in our thinking since March. Six months on, is this really the best we can do?

About the Author
Ryan Bourne

R. Evan Scharf Chair for the Public Understanding of Economics, Cato Institute