I’ve been dipping into the official New Zealand Pandemic Action Plan  –  all 193 pages of it –  a bit in the last few days.  The document has evolved over the years and now describes itself as

This edition of the New Zealand Influenza Pandemic Plan reflects the sophistication of a third generation, risk-based plan that promotes collaboration across all levels of government, agencies and organisations when planning for, responding to and recovery form a pandemic event.

and

Pandemics by their nature are unpredictable in terms of timing, severity and the population groups that are most affected. This version of the New Zealand Influenza Pandemic Plan establishes a framework for action that can readily be adopted and applied to any pandemic, irrespective of the nature of the virus and its severity.

It isn’t really clear what status the document has at present.  It was finalised late in the term of the previous government, it was finalised under a different Director-General of Health, and it was designed for an influenza pandemic, and the current virus is not influenza.    As the Ministry of Health notes, in any case it is only a “framework for action”, and has to be adapted for the particular virus –  and presumably for the policy preferences (on how best to respond, what trade-offs to make etc) of the government of the day.   As a document, or even a framework, it seems most likely to be useful the more closely to health the immediate issues are –  but even then, different virus, different issues.

There are various workstreams described in the plan.  One of them in “Economy” –  something I had quite a bit to do with in earlier iterations of the planning almost 15 years ago now – described from page 48 of the plan.  But it really does no more than list the key relevant official agencies (Treasury, MBIE, Inland Revenue, and Reserve Bank) and a brief plain-vanilla description of the sorts of roles and responsibilities those agencies have.  And that’s it.

The plan itself is dealt with in about 35 pages.  But about a quarter of those aren’t about immediate issues, but about longer-term planning and preparation (important of course, but not the uncertainties we now face).   The “Keep it Out” phase –  the one officials and politicians regard us as being in at present –  then takes another seven pages.    I presume it is mostly worthy and sensible stuff, although there is little or nothing about the frameworks or evidence base used to shape official advice to ministers (eg around border restrictions of the sort we have in place now).

The next phase is “Stamp it Out”

Objective
To control and/or eliminate any clusters that are found in New Zealand.

There is a set of key decisions listed

(Many of which won’t be relevant here/now, absent a vaccine)

And there is a detailed listing below that, but it is all lists, and no analytical or policy framework.  One hopes there are more-detailed analytical papers in the Ministry of Health or other agencies, but the Pandemic Action Plan document is what the public has.  The Ministry’s website claims that

The NZIPAP provides information to guide key decision-making.

But really the only information is a listing of issues, agencies, and formal statutory powers. Useful as far it goes, but not that much help –  in particular to the public.

And it is no different in the “Manage It” and “Recovery From It” phases.    Catchy phrases –  useful enough –  and long lists –  again useful enough –  but little substance to guide decisionmaking or public debate/scrutiny of governments plans and actions.

The second half of the document is a little more discursive, and perhaps more useful.   For example, there is a discussion of Public Information Management. But it is limited by the fact that it seems wholly focused on the Ministry of Health, and not on the key role that political leaders (notably the Minister of Health and the Prime Minister) play throughout any pandemic period.    And it is a bit disconcerting when the very first item in the key objectives around public information management

Key objectives are to:
- maintain public confidence in the response and in agencies’ competence and capability

That might be the Ministry’s aim –  pursuing its own interests –  but it isn’t clear it should be what would be most important for the public, who cannot simply assume (need to be shown by transparency, consistency, humility etc) that the response is being well-managed.

The section also seems disturbingly oblivious to both the extent of information available to the public from other countries and public health agencies and to the genuine political choices likely to be faced during the pandemic period.

What first took me to the document was a desire to understand the relevant statutory powers and options.  There is what seems to be quite a good description (p109f).    Here is one summary

Do note that reference to the Epidemic Preparedness Act.  It has really far-reaching powers, which appear to allow the government to temporarily waive lots of legislation once the Prime Minister issues an authorising notice. But as the Plan says, it relates “only to give named quarantinable diseases set out in Part 3 of Schedule 1 of the Health Act 1956”.

Remarkably, this schedule appears to be able to be updated by regulation, rather than by legislation – itself a little worrying given the scale of the powers given to the executive –  but you might suppose it was about time that the current virus was added to the list.

But to take the Health Act special powers first

All of which is good to know, but there is no discussion anywhere as to the circumstances, considerations etc that might lead to such powers being exercised.   Now, perhaps one could argue that they would be context-specific, but in a sense that is my point.  In the current context, the Plan itself offers little or guidance to the public, and we have had no guidance, consultation etc specific to the looming event from either the Ministry or (more importantly, since they are the ones we can hold to account) the Minister of Health or the Prime Minister.  (As there was no open discussion of considerations relevant to decisions around border closures, either the initial ones or subsequent decisions.)

And what about that Epidemic Preparedness Act?  Here is what the Plan says

That is quite a mouthful.  The Act itself isn’t long, and if anything I found it a little clearer.  Here is the purpose statement

Such legislative overrides can themselves be disallowed by Parliament, which has to be called together pretty quickly if the Act is invoked –  unless, potentially an issue this year, the House has been dissolved for the election.

My point isn’t to debate whether or not these powers should exist –  although it does seem strange that the criteria relate to “essential government and business activity in New Zealand” (a term itself not defined anywhere, and you have to wonder how the Director-General of Health is qualified to judge what is “essential business activity”) not to human health, societal functioning etc (as well).   My point is that there is nothing in the Plan, and nothing we’ve heard from the officials or politicians on (a) what grounds they would look to invoke this Act, and (b) what statutory requirements they would look to suspend, in what circumstances (for those particularly worried, there are some core Acts they can’t touch).

Perhaps that might be unavoidable if there was a sudden outbreak of some disease with no real warning at all.  But we’ve had time –  now weeks and weeks of it – and there is nothing.  Ministers and officials act in ways that look as though they think “there, there, don’t worry your silly little heads about it, we’ll tell you what you need to know when you need to know it”.   But that is no standard for an open and democratic society.  It doesn’t even really seem consistent with the “public information management” themes, which talk about transparecy, building and maintaining trust.  You do that best by (a) being excellent, (b) being humble, but (c) being open and letting the public in on your thinking and planning, and being responsive to feedback.

As a good example, there is some discussion in the Plan of the possible closure of schools (and similar entities) –  pages 125 and 126 –  but it offers almost nothing.  And, as they note, much will depend on the circumstances of the virus.  In the current episode globally, we’ve seen many countries move to close schools, but one highly-regarded example of management (Singapore) where schools etc have been open throughout.  What is our government’s view on the matter at present, when New Zealand experiences community outbreak?  Surely it matters to the sort of planning individuals etc can/should be doing now.   If universities might end up closed quite soon, might that be relevant to questions around reopening borders to foreign students?   More generally, what is the government’s thinking on the movement restrictions etc being adopted in other democratic countries, notably Italy and South Korea.  Both ministers and officials seem missing in action –  no doubt talking among themselves, but not talking with citizens.

In an Appendix to the document there is a longer Public Information Management Strategy.  Much of it appears sensible enough.  There is even a specific extended section on

Key messages
It looks like a flu pandemic is about to start

Again, a lot of it seems sensible and seems consonant with what we are hearing from health authorities in various other countries. For example

But we aren’t hearing any of this from our officials and ministers, even though –  as we’ve in the last week –  countries have gone from thinking they have no major immediate problem to full-bore crisis in a matter of days.  If anything, the Director-General of Health on RNZ this morning sounded rather Trump-like still talking of low risks of community outbreak in New Zealand  (when plenty of international experts talk in terms of having got well beyond that point everywhere, even if some still think Stamp It Out strategies can work –  viz encouraging signs from Singapore).    They still seem more interested in playing things down –  don’t worry your heads about it –  than in helping guide the public to realistic preparations and precautions, or even to offering substantive answers to specific reasonable questions about how the health system –  under pressure at the best of times –  would be able to step up, add capacity in short order etc when/if significant community outbreak becomes established here.  Perhaps there is a good case for such a choice, but we don’t see the Prime Minister or the Minister of Health even trying to make that case.

And since this blog is still primarily economics-focused, much the same point could be made about economic issues.  The Minister of Finance’s speech the other day seemed okay as far as it went, but it stopped well short of taking seriously the sort of disruption, risks and economic losses, if we see widespread closures (from regulation or fear) when the virus hits here.  There might not be much governments can do in the very short-term if those losses happen, but there are important specific issues, including those around how things like the food distribution system keeps working (if, say, one main city is largely locked-down and movement in and out restricted).

We really deserve and need more pro-active leadership and preparation from key ministers, and perhaps from officials too –  but they mainly work for and to the ministers, whose handling of these event may yet feature significantly in this year’s election campaign.

There was quite a bit of media coverage this morning around the potential economic impact of, and possible policy responses to, the coronavirus.   There have been commentaries from, or interviews with, various economists and a fairly substantive interview on RNZ with Grant Robertson, the Minister of Finance.  Each of them left me a little concerned, but of course the comments from the Minister of Finance –  who gets to decide things and is backed by phalanxes of official –  matter the most.

In his comments at the post-Cabinet press conference on Monday, the Minister indicated that he and his officials were working with three distinct scenarios.   There doesn’t appear to be anything in writing (eg on The Treasury’s website) but broadly the scenarios were as follows:

• something (probably not too different than the Reserve Bank’s quite-sanguine recent published forecasts) that seems wholly focused on China, and with things beginning to get back to normal next month,
• something where the effects, perhaps around a wider range of countries, linger for the rest of the year, and
• a third scenario which he characterised as a serious global recession.

The government is still working with the first of those scenarios, although the Minister acknowledged that the risks of the second scenario looked to be rising.

Many of the other commentators seemed to be thinking along similar lines.  The NZIER, for example, released their quarterly forecasts overnight and their press release says

It is early days and there is a large degree of uncertainty over the magnitude and duration of the effects from the coronavirus outbreak. In the short-term, the uncertainty revolves around the ability of exporters to redirect their exports to other markets. Over the longer-term, the uncertainty is whether the coronavirus has any persistent negative effects on global growth.

And I’ve seen/heard other economists commenting on whether or not GDP growth for the first couple of quarters might or might not be negative (the popular definition of a recession –  more demanding here than in most countries, given our fairly rapid population rate).

But, frankly, it all seems a bit pointless, especially the very short-term forecasting, because all of them –  including the Minister of Finance –  seem to be dealing with a scenarios in which coronavirus is someone else’s health (and attendant domestic disruption) problem, for which New Zealand is only exposed to the global growth backwash.  Of course, that backwash might well be quite severe.   But none of them seem to be grappling with the near-certainty that coronavirus will soon be confirmed in New Zealand (based on what we’ve seen abroad, there must be a reasonable chance it is already here  –  and the Ministry of Health tell us that under their narrow criteria only 120 tests have taken place here).  And, more specifically, none of them is grappling with the possibility that we –  like any city in the world, it appears – could have Korean, Iranian, Italian, Bahrain situations here at any time from today (none of those countries seem to have thought last week that they’d be imposing all the the restrictions they now have).   If the experts who tell us there is now a high chance of a general global outbreak, perhaps infecting 40 to 70 per cent of the world’s population, are correct, probably most cities will face such a scenario.   And those sorts of events have the potential for huge disruption, and economic cost, which would swamp the sorts of narrow effects forecasters like the Reserve Bank have already allowed for.

Take as a scenario a significant outbreak in Canterbury (or Wellington).   Canterbury accounts for about 12.5 per cent of New Zealand’s GDP, and suppose that for a month economic activity in Canterbury is reduced to 50 per cent of normal  (some mixture of schools and daycare centres etc being closed, lots of people being sick or self-isolating because a family member was sick, restrictions on public gatherings, the evaporation of tourist arrivals, and fear).   If that was the only effect New Zealand’s GDP for the quarter of the outbreak would fall by 2.1 per cent –  not annualised, an actual fall of that amount.   That alone would be almost as bad as the worst quarter of our worst recession in modern times in 1991.      You could triple the effect if the outbreak was in Auckland (38 per cent of national GDP).

And even if by some chance the outbreak –  and tough restrictions –  was contained to a single city/region, the economic effects won’t be –  partly about domestic supply chains, partly about transport networks, and lot about precautions and fear.     If there is a Korean or Lombardy style outbreak in Sydney or Brisbane, we’ll already see a lot of costs start to rise rapidly here –  both domestic fear, and how many foreign tourists do we suppose would still be coming here?   So we can’t even assume that even if an individual city’s outbreak takes just a month to work through, that the national effects would be limited to a single month.     It isn’t inconceivable that we –  or small/compact countries like us –  could see the level of GDP fall by 10 per cent or more in a single quarter, and then take quite a long time to recover from the shock of what the society has just gone through.    Quite apart from anything else, that is quite a lot of lost tax revenue, even if 12-18 months hence things were more or less back to normal.

Of course, no one doing quarterly forecasts can allow for these sorts of events in their specific numbers, because we have absolutely no idea whether these scenarios hit tomorrow, next month, June (or, indeed, not at all).   But anyone –  policymaker, business, or householld – thinking about the outlook for the next year would be pretty unwise not to explicitly factor in a fairly probability that exactly that sort of highly disruptive short-term scenario could occur.     And then you have to factor in the near-certainty (so to speak) of extreme uncertainty, and associated disruptions –  forced on individuals or firms, or self-chosen as a precaution – across the world for much of the year ahead.   At very least, a lot of travel just won’t happen, a lot of investment projects will go on hold, and cash-flow/liquidity is likely to be a big issue for many firms and households, whether or not banks are more or less as supportive (or otherwise) in other stress periods.   Whether that will amount to the Minister’s “serious global recession” scenario or not, who knows (but probably, given other underlying vulnerabilities).

In many ways, GDP is just a headline number in thinking about the challenges we face, and in time it is likely to recover more or less fully (even allowing for the limits of monetary policy).  Much the bigger issue in the disruption to lives –  even lives lost –  lost jobs, debt defaults, perhaps stranded sick tourists, overwhelmed health systems, disrupted supply chains for things as (normally) mundane as food.  I suspect policymakers shouldn’t be focused so much on the Minister of Finance’s scenarios –  which in many respects from a New Zealand perspective are fairly vanilla as regards policy responses –  as on handling, and preparing for, the extreme but short-term disruption of actual coronavirus outbreaks here.

(As a reminder here of my post last week with some speculative thoughts on the potential economic ramifications if things go really bad.)

Of course, “preparing for” here should include preparing the public.  So far, both officials and ministers have been almost totally silent on that count.  In the early days, Health officials seem to be more interested in minimising the issue, but even having got beyond that they and their political masters seem to think all these issues are really just matters of bureaucrats, not for the public themselves.  News coverage seems more interested in what the government might or might not do to help currently-affected industries, and media representatives don’t seem to be pursuing ministers on how they will handle (the likelihood of) a significant outbreak here.  There was not a single question along those lines at the PM’s press conference on Monday.

There is, of course, a pandemic plan on the Ministry of Health’s website.   It was last updated in 2017, under a previous government.  It was designed with influenza in mind, and the current virus appears to be different in some material ways.     There is even an explicit appendix (p155f) on “public information management”, including for use at a stage when a pandemic might be looming.  But almost none of the messages mentioned there seem to be being conveyed at present.   There is no evident leadership –  from the Prime Minister, the Minister of Health, or some other minister leading the government’s response –  and no sense of what choices the government might make under what conditions.

As just one example, what approach does the government intend to take around schools and daycare centres?  Some places have closed them pretty quickly –  Hong Kong just extended school closures until April – while other places (notably Singapore) have left them open.   That single choice has big implications for many parents, and for their employers, and yet we’ve heard nothing, meaning no one can plan with reliable information.

Or at a more-mundane level, is there any sign of advice to people to consider stocking up on various non-perishables that might better enable them to cope with a few weeks at home.   Probably many of those paying attention will already be doing so (I certainly am) but a lot of people are probably barely conscious of the issue –  which could be on us tomorrow, or months away.  And what thought has the government given to people without the financial capacity to do much about stocking up –  living from pay cheque to pay cheque –  including if we were to see the sorts of runs on supermarkets you can see photos of from Milan.   If cities are more or less closed down, foodbanks aren’t likely to be available/effective either.    And what are the plans if 10 per cent of the population needed fairly serious medical treatment over a matter of a few weeks?   What plans might community support groups be making now?  Is it wise, or humane, to look at encouraging more young foreigners in now, when we might soon face serious stresses on our own health systems, with the visitors having few/no domestic support networks?  And so on.

There are lots of these sorts of questions/issues. Eric Crampton had a useful post on the point with some more of the relevant questions set out.  Perhaps there is some really effective planning going on behind the scenes, but even if so that simply isn’t good enough in the face of this sort of event, especially when we can all see and read about what is going on elsewhere and the advice being given elsewhere.   How much better to have some visible leadership and open serious conversations about how, as a society, we manage the high likelihood of extremely disruptive, costly, perhaps deadly, events quite soon.

As I prefaced my very first post on coronavirus-inspired issues –  less than four weeks ago – “who knows quite what will happen with the current coronavirus”.  No one does, and I certainly don’t claim any insight on that medical/epidemiological point.   But there are serious experts in those fields now beginning to talk about the possibility –  some put it much stronger than that – of it turning into something that infects perhaps 40 to 70 per cent of the world’s population (I gather that sort of incidence isn’t uncommon in past serious pandemics), with perhaps 1 to 2 per cent of those people dying.  In that scenario –  it is purely a scenario –  something from 0.4 to 1.4 per cent of the world’s population dies.  The middle of that range would be similar to New Zealand’s experience in 1918.

My interest here is in the the economic impact of such a scenario (and can I repeat, this is simply based on one scenario –  with no probability attached, and one every sane person presumably hopes does not eventuate, but probably still the sort of thought experiment people in the economic agencies of governments should be thinking through, even just as a tail risk).

Perhaps a first stake in the ground is that even if something this bad happens, in a couple of years time the crisis would be over and something akin to normality would have returned.  Societies would no doubt still be scarred by the disruption –  economic, social, and perhaps political – and by the utterly unexpected scale of the human losses (the normal annual number of deaths in New Zealand is around 0.8 per cent of the population), perhaps in a way they don’t seem to have been in 1918 (coming off far greater death, destruction, and dislocation in the war).  But borders would open, commercial premises operating, people free to come and go within countries as they like with no unusual fear etc etc.  Health systems –  potentially grossly overloaded during the crisis scenario –  would be back to more or less normal either.  In other words, most of the effects are temporary.

Readers will know that there are debates, with real world consequences, about the nature of the costs and losses associated with financial crises, and debates about whether most of the effects are temporary or more permanent.  I can’t see how the overwhelming bulk of the economic effects of a even a very severe pandemic would be other than temporary.  The pandemic won’t have been endogenous to our economic system (so it won’t tell us much about initial gross misallocation of resources), isn’t likely to affect innovation or incentives to innovate or invest, and isn’t even likely to have much impact on productive human capital (especially if, as at present, deaths are concentrated among the elderly).   Perhaps there would be some persistent effect in dampening globalisation (reassessment of risk of cross-border supply chains etc), but the aggregateeconomic effects would take time to cumulate and spot, and be second-order relative to the near-term disruption.

But if we could be pretty confident that a couple of years hence things would be functioning more or less normally again –  even if, as globally in 1918, there were several distinct waves of the infection –  at the other end of the calendar, things would be characterised by extreme uncertainty.  First, even if a scenario of the sort I’m dealing with here comes to pass, none of us it will know it for some considerable time.  There would be duelling optimists and pessimists, each with plausible arguments and straws in the wind.   And presumably none of us would know where the infection rate would surge next.

That alone is a recipe for economic paralysis: the rational response to extreme uncertainty (often quite well-warranted uncertainty)  is to postpone (travel, investment, discretionary spending), delay, stick close to home etc etc (and that without the seemingly irrational responses we see reports of in New Zealand at present, of people avoiding Chinese restaurants).  Even if air travel was still possible –  it would quickly get much harder, as commercial imperatives (let alone regulatory ones) led to cancellations, and the rational prospect of future cancellations –  the number of people willing to travel far or for long will drop away.  Travel insurance also becomes a real issue.  Who wants even a modest risk of being stuck for weeks, with a potentially life-threatening conditions, in some foreign hospital with doubts about your ability to pay.   Nations will be reluctant to host lots of visitors who could fall sick while in your country, who – even with ability to pay, which not all would have –  could further overburden a potentially severely stretched health system.    As flights get cancelled, air freight is also disrupted.

We are already seeing the extent of social-distancing, cancellation of events etc –  mostly not forced by governments –  in places that currently have a relatively modest number of cases (Singapore, Hong Kong, and to some extent Japan).  Imagine the demonstration effects when –  this is a scenario remember – the next country, and one more transparent than China, gets a severe outbreak.    And the next, and so on.  (Scenario, remember.)

When such an outbreak happen, lets assume that no free country is going to be able or willing to impose such extreme lockdowns as the PRC has done.  But you don’t need that level of lockdown for the level of economic activity to be savaged.  Lots of people are sick in this scenario, in many cases really quite seriously ill, and typically (it appears) not just for a few days.  Those people will need people to care for them (not necessarily medically, but just the comfort we’d all want to offer to a seriously ill family member).  And between voluntary and semi-compulsory pressures, not that many people with a sick family member are going to be welcome in the office/workplace for a while.   More than a few employees will find hours drying up, or jobs disappearing altogether.  Sure, people still need to eat –  though who knows how effectively distribution systems hold up –  but there is a great deal of expenditure, business and private, that is discretionary (over a horizon of several months).   At one extreme –  long-term asset sales –  for example, the Chinese data show the property market having dried up for now.

(There were estimates last week that regions accounting for more than 50 per cent of Chinese GDP were in lockdown.   If those areas are operating at no more than half capacity for a month –  stabs in the dark, but they don’t look implausible numbers based on (for example) charts like these –  “true” Chinese GDP for this quarter could be 8 per cent lower than otherwise, when reported quarterly GDP growth is about 1.5 per cent.)

Now assume –  as the scenario requires –  that this isn’t just about one country, but about a steadily increasing number of countries.  And start factoring in the serious disruption to supply chains –  which we are already seeing in and from China (and recall that a supply chain isn’t much stronger, in effect, than its weakest link) –  and there is lot more economic activity at risk, even if all the workers were available and ready to work.

In each and every country, lots of businesses –  and more than a few workers –  are going to be facing big drops in income.  Initially each will like to think it is a matter of a week or two, but already that doesn’t really look like the China experience, and on this scenario, the problem has become worldwide.  Plenty of businesses have debt or very very limited cash reserves and so lots of firms will soon be in the hands of their bankers.  Responsible banks will want to stick by and support good longstanding clients, but there are limits (collateral values are likely to be falling, markets illiquid, even if temporarily), and banks themselves are likely to be affected by fresh waves of caution and risk aversion.    Bank funding might start to become a bit on issue playing on the minds of boards and management.

Financial markets have proved remarkably sanguine about the coronavirus so far.  Perhaps that makes sense if you believe the public-facing PRC story, that everything is coming under control before too many more weeks things will be getting back to normal.  But that isn’t the scenario I’m working with in this post.  In such a scenario, global uncertainty would be huge and uncertainty is the enemy of asset market valuations.  Quite probably there would be some real high profile company failures (or big state bailouts) going on –  airlines anyone? – short-term earnings estimates would be being savaged, and risk spreads would be widening   I doubt any supervisory agency has stress-tested its financial system for a shock of the sort I’m using in this scenario, and even if the event wasn’t severe enough to pose a systemic threat (a) there would be a great deal of uncertainty, including about who had what exposures, and (b) this scenario would come on the back of a global economy with a lot of vulnerabilities, including in financial systems, anyway –  the euro area economic performance anyone?

Perhaps the mitigating factor in all this is macro policy?  Which is a nice thought, except that so many advanced countries already have official interest rates at zero, or below (few/none have more than a 200 basis point buffer, and in major past downturns –  even shortlived ones –  500 basis points has been a not uncommon reaction).  No doubt, fiscal policy would swing into action –  in fact, you rather hope practical contingency thought is already going on.  Even in highly-indebted countries, for a genuinely short-term shock (1-2 years) there is room for some additional spending.   Some of it might even be effective – in eg retaining attachment to the labour market (some of the specific subsidies after Christchurch and Kaikoura), but it is hard to be that optimistic about the overall degree of effectiveness.  Governments can cut taxes in short order and put more money in individuals’ pocket, but in this scenario risk-aversion, social-distancing etc, suggests that cash constraints won’t be the ones binding individuals.  Governments can, of course, purchase real goods and services…..a common last-resort stimulus suggestion, but not one likely to work as well when it is a struggle to keep factories/shops open with staff turning up.

For New Zealand, one mitigant we could probably count on to help would be a lower exchange rate.  Historically, global risk events tend to be really rather bad for the NZD (and the AUD).  Export volumes and world prices might take a hit –  savage in some cases –  but what foreign exchange was being earned would generate quite a bit more income.

What about inflation?  One sees various stories already about disrupted supply chains putting upward pressure on prices/inflation for manufactured goods.  That seems plausible enough in some cases –  if, as reports suggest now, there are disruptions to the flow of winter fashions to our stores, there is less likely to be excess stock for sales late in the season, and so on –  but my sense is still that a scenario of the scale I’m writing about here is, on balance, a seriously disinflationary one.  That is both because commodity prices would be falling –  in some cases plummeting –  but also because the hit to demand for the fear, uncertainty, delay, distancing, physical disruption, would exceed the disruption to supply (but that needs teasing out with further analysis) and the risks of inflation expectations taking a further downward hit is also real.  This is the risk I, and others, have been highlighting for some years –  that in the next serious downturn, people will quickly realise that policy capacity is much less than usual and adjust expectations accordingly.  If that happened, it would risk severely impeding a return to full employment, even after the virus itself had passed into history.

This is all very speculative –  and around a scenario we must all hope never happens.  But we need policy agencies –  and others, be it academics or other commentators – to be thinking hard about these contingencies, including thinking about what options (and when) make sense to deploy early to minimise, to the extent possible, the human and economic dislocations, which could be very large.

I’m wedded to very few of the arguments here, and would welcome comment/challenge (not about the probability – on which I have no particular view – but on the implications of a deliberately extreme scenario, even if one that more medical experts of warning us we could yet face).  It would also be good to have a sense that the New Zealand governments was taking the issue and risk seriously and pro-actively planning.  On what we see at present –  which perhaps isn’t all there is –  it looks like lethargic political leadership, as keen as anything on keeping Beijing not too unhappy, with not much sign that the bureaucracy is much more than reactive either (officials will, no doubt, respond to political incentives).