Govt needs to lock down convincing exit strategy
Once wage subsidies have run dry, sound decisions will be critical at every step to keep public on side
Next Monday’s decision on whether and when to move out of total lockdown and to alert level 3 is every bit as important as the original decision to lock the country down since March 25.
While various public and private polling shows huge trust and support for the broad thrust of the Government’s actions to protect New Zealanders from Covid-19, there is also evidence — both empirical and anecdotal — that public patience cannot be presumed for much longer.
The loudest voices for unlocking are from business owners — a minority of the population who are nonetheless the nation’s employers. They are becoming desperate for a resumption of cashflow.
Many haven’t yet started laying people off. But if and when they do, tolerance for further sacrifice will turn sharply as workers, shielded so far by wage subsidies, face the direct consequences of closing the economy down so completely.
As time goes on, there will also be more opportunity to dissect the decisions made in unavoidable haste over the last six weeks at the same time as the outline of life after Covid starts to emerge.
And a more measured pace of response will increase the capacity for coherent debate not only about what’s been done so far, but also what should come next.
Elements of that debate will be maddening for government ministers, with a good current example being the urge to compare progress against the virus in New Zealand versus Australia, with the Aussies doing fine without locking down as hard as we have.
Yes, Australia’s lockdown was not as tough. But equally, Australia’s current level 3-style lockdown looks likely to last for months whereas ours may only be required — let alone prove politically sustainable — for a matter of weeks.
The theory, supported by IMF forecasts released this week, is that New Zealand will suffer more economic pain than Australia in the short term, but bounce back faster for going for a hard lockdown.
However, that doesn’t mean every single aspect of the New Zealand lockdown was ideal.
Indicative of the challenges ahead is a particularly damning analysis published this week by former Reserve Bank economist Ian Harrison, who now hangs out his shingle as Tail Risk Economics.
Harrison has form for challenging policies whose economic costs he argues far outweigh the ills they intend to counter.
Most recently, he was a thorn in the side of the Reserve Bank during its tussle to increase the amount of capital that Australian-owned trading banks should hold on their New Zealand subsidiaries’ balance sheets.
In 2013, he made waves by calculating that new earthquake strengthening standards for commercial buildings were absurdly expensive in parts of the country like Auckland, where earthquakes are a low source of risk.
As businesses seek to implement level 3 requirements, information that undermines trust will also be the enemy of compliance.
This week, he has published deeply unsettling analysis suggesting that closing down the construction industry as “non-essential” during the lockdown — a decision at odds with what Australia has done — has caused enormous economic harm for minimal health gain.
Harrison claims modelling for the Ministry of Health by the Otago University Covid-19 Research Group — one of the primary sources of pressure for the full lockdown — failed to include the impact of contact tracing, testing and isolation.
“This has the effect of blowing out the numbers and was largely responsible for the estimates of between 8600 and 14,400 deaths if the initial eradication policies failed,” Harrison writes.
However, including effective tracing and isolation “and some other plausible assumptions” produces a modelled death toll of more like 160.
As if that isn’t a big enough gap, Harrison goes on to argue that while every life is precious, the death of a very elderly person tends to be “sad” while the death of a young person is “almost always a tragedy” and that their economic impact can legitimately be valued differently.
The cost of closing down the construction industry — which he argues involves generally younger, healthy people working outside and not in close proximity — is then compared to the modelled value of the health benefits.
The shocking result is that the construction industry closedown probably cost around $3 billion, but for an estimated health benefit of just $7.6 million.
The disparity of those conclusions is so stark and controversial that it is hard not to imagine some sort of epidemiologist vs economist pistolsat-dawn scenario once Harrison’s findings are widely reported.
At the very least, such analysis will cast doubt on the credibility of health and political decision-makers, even if Harrison’s answer is even half or onequarter defensible.
As businesses seek to implement level 3 requirements, information that undermines trust will also be the enemy of compliance, by both business owners and their customers.
The problems will be all the greater if there’s a need to reverse gear and head back up the alert scale.
The New Zealand Institute of Economic Research is alive to these issues and has issued a thoughtful discussion paper on the need for the Government to move on from a fastpaced, “least regrets” approach that was justified in the recent period of “extreme uncertainty”.
Uncertainty is now diminishing quite rapidly. Local data is improving, international experience is accumulating rapidly, and there is starting to be time to think more before taking each new, big step.
“If the Government wants to build on its success so far and continue running an effective public health campaign against Covid-19 at minimal cost to the economy, it needs a robust decision-making framework that will allow rapid response to changing circumstances and reflect a broad range of health, social and economic considerations,” writes lead author Sarah Hogan.
That will require three basic
things, she says: investing in more information to reduce uncertainty; a transparent and consultative approach to reach balanced decisions; and maintaining flexibility to respond to new information.
Flexibility to change course may be the most difficult.
It’s part of the human condition to want to double down on decisions we’ve already made.
In politics, that instinct is only multiplied by the fact that any time you change your mind, there’s some smart-arsed journalist waiting to accuse you of a “flip-flop”.
That means investing fast in better knowledge and greater consultation is all the more important.
The more the Government can show it is learning and carefully considering the complex sectoral, health, social and economic tradeoffs at each alert level — most likely by comparison with a “no intervention” alternative — the more likely it is that decisions will prove durable.
Without more structure, rigour and intense communication effort, the gains won so far against the virus risk unravelling if public scepticism and weariness combine to thwart the battle in the months ahead.