Economic Implications of ‘plan b’

A group has advocated (14 April) a substantial easing of the Level 4 lockdown, to move to a Level 2 lockdown in 7 days’ time on April 22, to ostensibly a near-normal life. This is identified as ‘plan b’. The plan would allow people to return to work, businesses would re-open, and most schools and universities would re-open. Leisure activities and domestic travel would resume. Restrictions on overseas travel restrictions and gathering on more than 100 people would remain. 

A key part of the stated rationale for plan b is that many of the deaths from Covid-19 would have occurred within 12 months any way, given that it is killing mostly those with other underlying conditions. “It may be that that increase in mortality is what we call a 'harvesting effect', where people who are likely to die in the near future all die at one point and there's a little spike in mortality”, according to Thornley.

Plan b is similar to the approach adopted by Sweden, which is based on voluntary restrictions and some protection for older age groups, with apparent acceptance that there will be several thousand deaths, but with the wider population acquiring some immunity as the virus passes through. 

The call for plan b has raised some concerns at Government level as well as among some key scientist advisers, and other health experts. Auckland University researcher Shaun Hendy on April 14 was urging caution. Professor Nick Wilson (Otago University) also cautioned against the Plan b option, in light of the many unknowns, the risks of rapid spread of the Covid-19 virus, and the absence of any modelling or analysis offered in support. 

An important part of the plan b rationale is that jumping to Level 2 will get the economy going earlier, and any recovery will be stronger. 

In my view, the economics of plan b are weak. The fundamental issue is that community health and economy are inextricably linked, so that the strength of any economic recovery depends on the strength of the health recovery. Any recovery plan must take account of how the virus affects the behaviour of people and businesses, and must be sustainable in the long term, not just the next few weeks or months. 

Some points are worth considering. First, Covid-19 itself. Notable characteristics are the ease with which it spreads, that many cases are asymptomatic, and that it kills a percentage of those it infects. There is no vaccine yet. The virus has shown no sign of slowing down of its own volition. The reason that infection rates have slowed from the initial rapid growth is that nations have imposed lock-downs. Countries slow to impose lock-downs have higher infection rates and more deaths. Only two options are apparent. 

• Option 1 – Lock-down on their own terms, where a substantial share of the response is in prevention mode, and there is high community compliance; or

• Option 2 – Lock-down on Covid-19’s terms, where the virus itself dictates the terms. The virus itself ensures a reasonably high level of compliance because of the ‘grass-roots’ response where people want to stay at home and avoid it, especially as health services became over-burdened. Enough people are still mixing to facilitate its spread.

Both involve lock-downs. The health and economic impacts of the “own terms” option will be substantial, but will be much less than the “Covid’s terms” option, and not be as deep or persist as long. 

It is important to not overlook this just because New Zealand has been relatively successful in containing the virus. 

Second, consider the timing. Many countries are still near the start of the Pandemic, not the end. It has infected nearly 2 million people already, but that is only a small share of the population. Because of asymptomatic incidence and limitations to testing, there is still no clear picture of the real incidence so far. This uncertainty increases the risk of letting it run as per the Sweden example.

What is the planned end game for Sweden? The simple chart below offers some insight. It shows the incidence of Covid-19 as active cases per million population for a selection of countries, including USA, UK, Italy, Sweden and Austria. The large dots show when each country opted to go into lock-down (from the left, South Korea, Italy, Austria, UK, and Australia and New Zealand together). Two features stand out. One is the continuing rapid increase in incidence even once a country opted to lock down and the lengthy time lag before the incidence curve flattens, then starts to decline. Austria stands out, its curve beginning to fall some 18 days into lock-down. South Korea took about 16 days. New Zealand’s incidence began to fall after about 14 days, even with a relatively early start.

The second feature is that Sweden, like the USA and the UK, has a large area of unknown into the future. The active case incidence in Sweden, USA and UK is continuing to climb steeply. To date, the number of Covid-19 cases detected in Sweden is 11,445 or about 0.11% of its population . In the last week, the number of cases has increased at around 5.6% each day, only slightly slower than the USA. The very low percentage of Swedes infected to date suggests abundant scope for Covid-19 to increase its presence before it starts to run out of raw material. Even an increase to 10 times the current number would see it infecting just 1.0% of the population. The policy seems a bold experiment by Sweden, since the final incidence is not predictable. Contrast (below) the incidence rates of Sweden with no lockdown, and Austria with a lockdown since March 16.

One important implication is that large numbers are affected by the disease at one time, with a significant minority seeking hospital care - hence the efforts to flatten the curve. Which highlights another key consideration – the notion that many of those killed by the virus would be likely to die anyway, with Covid-19 mostly just squeezing the annual numbers of deaths into a short time period. 

Irrespective of the ethics of that position – presumably few are volunteering to personally prove the theory – the deaths from Covid-19 are not simply some natural selection of the weak, infirm and superfluous. The evidence so far is that it does affect those aged over 65 more than the general population, and it appears to be more deadly to some ethnicities. 

But its natural selection is focusing on more than just the aged and infirm. 

Covid-19 has killed well over 420 front line health workers across the world, and many other first responders, and infected many in front line positions like care workers, and supermarket checkout operators and fast food staff. It has reportedly infected near 20% of police in New York. 

Somehow, I suspect that many of those deaths were not of the weak and infirm who would have died soon anyway, but rather it is those who have had high levels of exposure to the virus, including multiple exposures. This seems a possible flaw in the plan b position. The economic rationale for allowing high impacts on key sectors of community and the business sector is, in a word, poor.

The evidence from overseas and in New Zealand is if we had gone to just the plan b position of Level 2 measures on March 25, the economy would be struggling now on both health and economic fronts. New Zealand’s very high community compliance to Level 4 shows this very clearly. Our lock-down has worked due to a very broad voluntary response because we do not want to get Covid-19 and we don’t want our community to get it. If the Government had not declared the Level 4 lockdown, and cases were continuing to rise like in the UK (we were only 6 days behind them on March 24) or the USA (we were 8 days behind them), then with 4,000 or 5,000 cases and growing by 2-300 per day, it is very likely that by now that households and businesses would be making their own strong lock-down responses, just as has happened overseas. That is because it would be clear that Level 2 was not working, here or in Sweden, and that stronger lock-downs are working elsewhere. The economy would be slowing by itself, without the safety nets of the Government stimulus initiatives.

A basic flaw in plan b is that it does not recognise that the economy is the community, and the health of the economy depends on the health of the community. There is, sadly, abundant evidence of this all across the globe.

The irony of the plan b position is that it depends on Level 4 lockdown having been in place for a month.

PS – The M.E team send everyone good wishes to be safe and healthy through this Pandemic crisis, and beyond.