We can’t resurrect people, we can restore economic activity
Locking down the country will massively disrupt our everyday lives and the economy - but allowing the pandemic to get out of control would come at an astronomical cost in every sense, says Rod Oram
Let’s keep our priorities crystal clear: When a person dies, they’re dead. Nothing can resurrect them.
But when a company dies, its staff, plant, skills and knowledge are put to good use by others. When an economy tanks, we can help it recover.
So, we must do everything in our power to stop people dying from Covid-19. So far, the only proven way we have of stopping the virus from spreading is to stop people gathering as usual.
Yes, that massively disrupts our normal life and economic activity. But we can minimise the damage to both by deploying common sense, creative practicality, clever strategies and brilliant delivery at unprecedented scale and speed across our lives and economy.
If we do those things really well, we will be wealthier in all senses of the word – socially, economically, environmentally and culturally.
So far we’re prioritising people over money. As a society, I believe we will remain staunch. But in some other countries the pushback has begun. Most notably in the US, President Trump and a small but growing chorus of conservative politicians, economists and business people are saying the economic cost of virus containment is too high.
Simple economics says that’s nonsense. For the purpose of its policy analysis, our Treasury puts a value of $4.7 million on each “statistical life.” If no action were taken to curb the virus, 90 percent of our population would be infected and up to 100,000 would die, according to modelling by experts at the University of Otago, as Marc Daalder explains in this Newsroom article.
Thus, an out-of-control pandemic comes at an astronomical cost. Moreover, the loss of lives and skills, the agony of bereavement and the damage to our social fabric and confidence would all be deeply debilitating for a long time to come.
Any trade-off is morally repugnant. Fewer restrictions might lessen economic costs in the short-term. But more people would die.
We can’t resurrect people. But we can restore economic activity. To do so, we need to comprehensively support people, organisations and companies through this crisis. The Government and Reserve Bank have made a good start on programmes to do so. These will be funded by money the Government borrows and the RBNZ creates through quantitative easing and other mechanisms.
And across the country, countless people are responding too in their families, their communities and their workplaces. They are energetically and creatively rising to these utterly unprecedented challenges.
We have no idea yet of the full enormity of the task. Early estimates suggest our economic activity could plunge by 40 percent in the next three months. Even if that were the bottom and the economy partially recovered through the rest of the year, GDP would still contract by 15 percent over the year.
To set that in perspective, the GDP of Greece fell 10 percent in the years 2008 to 2012 during the Global Financial Crisis and the subsequent eurozone crisis; Ireland’s and Italy’s fell by some 7 percent; and Spain’s by 4 percent – all with deep damage to their societies.
In these times of far greater economic dislocation, money and programmes from the Government and Reserve Bank can’t replace all our lost economic activity.
But they play many vital roles: they create some demand; they get more money flowing through the economy; they keep more people in their homes and their jobs; they help keep companies alive while they scramble to build a new future.
The hardest thing of all of us, though -- whatever roles we play in society and the economy – is to be far more creative, bolder, more decisive, quicker and effective than we have ever been before.
We have made an excellent start with actions, plans, policies and programmes across society. Individuals, social groups, businesses, government, the Reserve Bank and many others are embracing the challenges.
Literally, though, we have only a few weeks at to ensure this first wave of support and recovery mechanisms is fully effective, while simultaneously we must work rapidly on the bigger waves we’ll need in the following weeks.
If we don’t, we will suffer twin, inter-dependent calamities – a plunging economy and a rampant virus.
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