The real danger now is letting Covid debt rip
The stop-go of repeated lockdowns prolongs the virus agony and makes a fiscal crisis ever more likely
There are two types of “let rip” in the context of Covid. Most commonly, the term describes – generally in a derogatory fashion – the idea that the virus should be allowed to run its course, largely free of state interference, in the hope of developing herd immunity. Yet it can equally well be applied to the converse; by repeatedly locking down, we merely transfer the destructive powers of the virus from the biological to the economic. Denied the opportunity to let rip in the population, Covid instead lets rip in the public finances.
Those of us who favour the first of these approaches are often accused of a heartless disregard for life. On Twitter, I’ve been repeatedly called “the guy who wants to kill my granddad”. Such wilful misrepresentation is par for the course in the culture wars of today’s social media; nobody I know of advocates no mitigating strategies at all.
This would be absurd. The old and vulnerable should obviously be protected, the infectious should be quarantined, and the seriously ill treated. But that’s a far cry from closing down the economy.
A new study led by Graeme Ackland, professor of computer simulation at the University of Edinburgh, finds that suppression strategies might in the long run actually cost more deaths than the “let rip” approach. This for the statistically unarguable reason that a smaller number of recurring deaths over a long period of time can quickly add up to a rather larger grand total than a one-off concentration of them, time-limited by developing herd immunity.
By contrast, the stop-go of repeated lockdowns merely prolongs the agony while cutting a deep swathe through the economy and the public finances. The cost of this strategy to general well-being, public health and the Government’s long-term ability to fund public services threatens to be much greater. Politically difficult though it might be, there is something to be said for ripping the sticking plaster off in one go.
By the way, it is in this regard almost beyond belief that the same old justification for lockdown as last time is now being regularly trotted out by ministers and officials – that without it, the disease threatens to overwhelm the health service. Can it really be true that the NHS is not ready for an anticipated second wave that in all probability will be less severe than the first? Seemingly, yes.
The fashion in economics these days is to argue that spiralling debt no longer matters, that underwritten by the central bank printing press, governments can borrow as much as they like without consequence – at least until the pandemic is over.
Kristalina Georgieva, managing director of the International Monetary Fund, urges us not to repeat the mistakes of the financial crisis, when governments withdrew emergency support too soon, causing the recovery to stall.
Maybe she’s right, but is there not a more straightforward way to save the economy? That would be to remove the restrictions and learn to live with Covid as best we can, the approach humanity has adopted with all previous pathogens. Debt is debt, and eventually it has to be paid for. The alternative of default, either directly or through inflation, carries its own, even more vicious forms of punishment.
The Chancellor, Rishi Sunak, is already sufficiently worried to sound the alarm. “We have so much debt”, he told the Conservative Party virtual conference this week, “it doesn’t take a lot for suddenly, yikes, we have to come up with x billion a year to pay for higher interest”. It was his “sacred responsibility”, he said, “to balance the books”.
Sunak’s remarks shouldn’t perhaps be taken as evidence of imminent and violent fiscal retrenchment. With the economy so weak, that would indeed be a mistake. Rather, they were the sort of thing chancellors feel obliged to say, so as to reassure markets of eventual fiscal responsibility, rather in the spirit of the St Augustine prayer; please make me chaste, but not yet.
For the moment, there is admittedly very little sign of fiscal crisis in the making. The Government can borrow at a negative rate of interest right out to six-year maturities. In the vernacular, markets seem to be “begging” governments to borrow from them.
Don’t believe it. But for the fact that the Bank of England – in practice just an arm of the Government – is buying up the debt almost as fast as it can be issued, I imagine they wouldn’t be quite so keen.
Other forms of “financial repression” are also at work. Almost criminally, pension funds and insurers are under regulatory obligation to match future liabilities with a high degree of supposedly “risk-free” government debt, exposing savers to serious loss in any future inflation. Financial markets are being manipulated into bankrolling government spending on a hitherto unimaginable scale. For this, there will eventually be a reckoning.
One day, the pandemic will be over. The damage we have done to our economy and the public finances in the meantime will not.