How should we think about the costs and benefits of controlling coronavirus through tighter restrictions on our daily lives? The only reasonable answer to this question is, “it’s complicated”.
Huge economic costs result from these restrictions, but also from the uncontrolled spread of the virus. Economic benefits come both from freedom and from the elimination of the virus. Yet, absent highly effective vaccines or natural herd immunity, we cannot get rid of restrictions and keep the virus under control.
Worse, the data on which we rely is mismeasured, out-of-date or both. So, while many politicians tell the public they will bring in the right restrictions at the right time, everyone should know these are empty words. But in this difficult world, the analytical cupboard is not entirely bare. There are rules of thumb which can help policymakers decide how much they should seek to suppress the virus.
Foremost are estimates of the prevalence of Covid-19. The lower the caseload, the more scope there is for the implementation of effective test, trace and isolate mechanisms. As case numbers rise and with UK studies showing two-thirds of positive cases are asymptomatic, restrictions become the only option to reduce costs. With exponential spread of the virus, there is no value in waiting because any restrictions will simply need to be applied harder and longer, raising the economic costs.
A prerequisite for effective restrictions is adequate fiscal capacity. Advanced economies are lucky for now because they can borrow at record low costs. The premium paid to borrow by Brazil or Turkey, for example, make restrictions much more costly.
It is not all bad news for emerging economies. They have the advantage of younger populations with far fewer people at risk from Covid-19, so the benefits of restrictions are correspondingly lower. And geography matters. Shutting borders might be an acceptable price for virus suppression in remote New Zealand, but could not hope to work, for example, in Luxembourg.
When considering tighter restrictions, governments should think about what comes after Covid-19. The prospect of an effective vaccine lowers the costs of any lockdown, since it makes the restrictions temporary.
But the closer a country is to effective natural herd immunity raises the net costs of lockdown measures as the virus is more likely to wane naturally. The worst path is to allow healthcare systems to be overwhelmed to the extent that public trust breaks down.
Failed states have weak economies. Almost as bad is to fight culture wars over small inconveniences such as mask-wearing or to excuse rule breaking by the powerful. Both undermine the public’s willingness to stick to rules.
With such complicated costs and benefits, there is no one-size-fits-all set of optimal policies. For now, in much of the emerging world, where case numbers are high but fiscal capacity is limited and populations young, tightening restrictions appear not to be worth the economic damage.
In much of Asia and Australasia, low prevalence alongside effective testing and tracing suggests the best bet is to continue the suppression strategy, keeping the virus at sufficiently low levels to allow economies to function almost normally.
In Europe and the US, however, the rise in case numbers alongside hopes for an imminent vaccine and ample fiscal capacity suggests tighter restrictions should have been implemented already.
Costs of new lockdowns would be much lower than in March; flexible economies adapt and some sectors never recovered from the first wave. Their strategy of fine-tuning case numbers and restrictions did not work in the spring, raising the economic costs. It is unlikely to work a second time.
Written by: Chris Giles
© Financial Times
Source: Read Full Article