Monday, July 27, 2020

How and when to restart the economy after the coronavirus

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The Wuhan lockdown has now been lifted and the Chinese government’s new challenge is to restart its economy while guarding against a second wave of infections. It took 40 days from the peak of the health crisis until its containment. Restoring economic growth will take at least 40 days, even if everything goes more or less right.

Other countries are desperately trying to contain the virus, at different stages of flattening the curve or curbing the exponential growth of those infected. Australia seems to have succeeded in slowing the rate of growth and there is talk of gradually lifting some restrictions. Japan appeared to be an outlier alongside its South Korean, Taiwanese and Hong Kong neighbours but is now fumbling into partial lockdown as the number of infections has risen sharply. Prime Minister Shinzo Abe declared a state of emergency on 7 April, but relies on requests from governors in designated prefectures and public compliance as more draconian legal enforcement measures are unconstitutional in Japan.

Can those governments and societies that appear to have had success start looking at restarting their economies and gradually easing lockdowns? All the analysis and data would suggest that unless there is mass testing or inoculation (still many months away), the risk is a rapid rebound of virus infections.

It’s still difficult to get tested in many countries. Even with some symptoms, there are often strict criteria such as having to have recently returned from overseas or having been in close contact with someone with an officially confirmed infection. Many carriers, including children, are asymptomatic and there is a lag until symptoms show. Decisions simply should not be made on the basis of the incomplete and partial data that many countries have.

The key for countries now is to get the re-transmission rate, R, to below one, and keep it there so the infections die down. An R of one will mean a constant infection rate, a knife-edge because any R above one means exponential growth, which we all understand now is explosive. In Japan, R is currently greater than one and, as the United States and Europe show, every day counts before infections get out of hand and health systems are overwhelmed. Lifting lockdowns too early will mean that exponential growth returns. The costs in terms of human life and the health burden are too high.

Until there’s a vaccine, there needs to be mass testing everywhere. If not mass testing, there needs to be random testing at scale so that choices can be made on the basis of reliable data. South Korea is exhibit A. Many may question the accuracy of the Chinese data but the trend is clear and it’s difficult to imagine the lockdowns being lifted if the virus were not now largely contained.

COVID-19 spread so rapidly thanks to our interconnected world with its daily mass movement of people around the globe. Past epidemics from the Black Death in the 14th century to the Spanish Influenza in the early 20th century managed to spread globally even before today’s hyper-globalised world. With globalisation spreading the virus faster, exponential growth in any one country is a risk to the rest of the world.

But in today’s interconnected world, information moves faster than the virus and we can learn from other countries’ experience more quickly. Many governments have squandered the lead time they had in preparing to fight the virus, exposing weaknesses of some kind or other in almost all governments and systems.

It’s not just the real-time experience from other countries that informs policy responses. As Barry Eichengreen reminds us in one of our lead essays this week, responses are heavily informed by narratives entrapped from history. ‘In seeking to avoid past mistakes, we risk committing new ones’.

The COVID-19 crisis is unlike past epidemics or economic crises and the differences must inform our responses to it, alongside the experience from other countries as it unfolds. It is a truly global virus that does not discriminate. Financial and economic contagion will move faster than the viral contagion. Although there’s a political instinct to deny it, one country’s problem is everyone’s problem.

Global cooperation is therefore essential to the remedy for COVID-19. More information sharing, cooperation and assistance across borders is the only path that avoids ongoing health and economic catastrophe. Yet there’s no obvious leader or institution to forge such cooperation strategies. The G20 has been ineffective with Saudi Arabia…

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