I’ve spent the last week writing a fairly substantial review of a recent book (“Australia’s Pandemic Exceptionalism: How we crushed the curve but lost the race”) by a couple of Australian academic economists on Australia’s pandemic policies and experiences. For all its limitations, there isn’t anything similar in New Zealand.
What we do have is the Phase 1 report of the Covid Royal Commission which was released by the government at the end of November. You can find the full 700+ page report here. I haven’t read the full report but did read Chapter 6 on “Economic and social impacts and responses” (which starts on page 242 of the Report itself, or page 285 of the pdf). It was, frankly, a pretty disappointing read. If the overall Royal Commission report itself got surprisingly little coverage, I don’t think I’ve seen any mention at all (certainly no serious or sustained reporting or analysis) on the economic dimensions of that exceptional period.
It is disappointing on a number of counts. First, and perhaps least important to me at this point, we were told (and the terms of reference make clear) that the focus on the Royal Commission was supposed to be on lessons learned with a view to being better equipped/prepared to handle future pandemics. But in the economics section of chapter 6 there is almost none of that, and the focus seems to be almost entirely on describing and evaluating policy responses and the impact of them. Which would be fine, except that the chapter is very much an establishment perspective, with little or no sign of any critical scrutiny before reaching the generally rather complacent conclusions.
I went and had a look at the list of engagements and people the Royal Commission had met with had over the course of their inquiry. I was looking to see which economists, academic or otherwise, the Royal Commission might have met with. They had, of course, met with The Treasury and the Reserve Bank, they’d met with three [named] former Secretaries to the Treasury (another former Secretary to the Treasury was one of the commissioners), they note a meeting with one economist described as a “public policy expert” on aspects of the wage subsidy scheme. And other than that all we got was, in November 2023, a mention that they had met with “various [unnamed] independent economic commentators”. Which was more than a little surprising when, for example, leading New Zealand economist John Gibson had been producing work on related issues since early days of the pandemic (discussed first on this blog here), as had former academic Martin Lally. I worked my way through the 12 pages of end notes to Chapter 6, and not only was there no reference to anything by Gibson or Lally, but there was no reference to any commentary or critique etc by any outside economists, academic or otherwise (although there is a quote from a Bernard Hickey Substack). There is a one sentence reference to “considerable concern” they heard from “some expert stakeholders” about the LSAP, only to dismiss this on the grounds that “these policies are now well accepted by international organisations” and going on to channel the Reserve Bank’s own lines in its defence. Fiscal losses of “in the order of $11 billion” are noted. but there is no attempt to evaluate the strategy or to think about how support might better (and more cheaply) be provided in future. That isn’t scrutiny and evaluation; it is reporting.
The chapter is weak right from the start, when the Commissioners simply assert (there is no supporting analysis) that “the strict public health measures introduced in March 2020, especially the border closure and national lockdowns, were essential [emphasis added] to protect the economy and society from the immediate and devastating effects of the pandemic had the virus been allowed to spread unchecked”. There is no analysis as to what extent of restrictions was required (it is a very all or nothing assertion), there is no reference to the fact that significant reductions in movement were occurring prior to any legal restrictions (or, for example, to the work of Goolsbee and Syverson from the US, using mobile phone data, and suggesting that almost 90 per cent of reductions in movement pre-dated legal restrictions). There is no suggestion of any cost-benefit approach at the margins (as there was no sign of it in the official advice, and we recall the trouble the Productivity Commission got into when they did one brief illustrative exercise), and no comparison looking at how the economic costs and benefits of the New Zealand approach stacked up. Of course, no country let the virus “spread unchecked” but the US is often used as a foil and counterpoint to New Zealand and Australia, and for all the differences in approach it is striking how similar the respective paths of real GDP per capita proved to be (for quite different health outcomes of course).
I don’t have a strong view on what, if anything, in this area should have been done differently, but we should have expected more challenge and scrutiny from the Royal Commissioners.
There is no attempt anywhere in the chapter to consider whether the things fiscal policy was used for could have been done (materially) more cheaply – either in evaluating 2020 and 2021 or thinking about the future. The fiscal costs were staggeringly high. It also isn’t clear that the Royal Commission really understands the point of the initial fiscal approach. They talk about the aim being to support economic activity, when in fact it was quite the contrary: the point of the lockdowns (and private risk-averse behaviour) was to largely shut down the economy for a time. What the wage subsidy approach was designed to do was (a) tide individuals over (the government compelling many not to work, and b) facilitate a quicker rebound than otherwise by maintaining established firm-specific arrangements and human capital. It certainly did the former, but to what extent it really did the latter (see chart above) deserves more serious scrutiny. Headline unemployment rates in the US went far higher than in New Zealand (and Australia) reflecting different intervention approaches, but (see chart) it isn’t immediately obvious that overall US economic performance suffered.
The Royal Commission also runs a line one sees too often, taking the very gloomy economic forecasts that were around in the second quarter of 2020, contrasting them with actual outcomes, and concluding that credit belonged to the policymakers (the Royal Commission hedges a little but is in the same camp with its “No doubt, these better-than-scenario outcomes reflected, at least in part, the speed and generosity of the Government responses”. But that simply has to be wrong. Treasury and Reserve Bank forecasters in the second quarter of 2020 knew all about the scale and nature of all those responses (economic and public health): the effects they expected were already embedded in their forecasts/scenarios. What actually happened was a massive forecasting failure, misunderstanding the nature of the shock and the way the balance of supply and demand pressures was likely to play out. Of course, plenty of private sector commentators and forecasters made the same mistake, but official failures had rather more consequences.
The Royal Commission is keen on the Reserve Bank’s self-described “least regrets” strategy (which, incidentally, has just a single mention in the RB May 2020 MPS), by which they thought – sensibly enough – that faced with a big adverse shock you wanted to act early rather than late. The problem was never with that as applied to RB actions in March 2020, but that they failed to apply anything like the same logic when it started to be apparent that inflation was becoming a problem. They were slow to recognise the speed of the economic rebound or the emerging capacity and core inflation pressures, and were slow to act, and acting rather slowly (Orr to this day attempts distraction, around things like Ukraine that didn’t happen until after the economy was already well-overheated and core inflation had risen strongly). That series of mistakes – in common with many other central banks – added hugely to the overall cost to New Zealanders of the Covid experience, and we are still dealing with the aftermath now. The Royal Commission seemed much more inclined to channel Reserve Bank stories, down to and including repeating a cross-country chart from the Bank’s own self-defence publication designed to make New Zealand look good by using headline inflation in 2022 (much of Europe affected by a gas price shock) rather than core, and the level of unemployment (rather than either the change, the NAIRU gap or the output gap) when – quite unrelated to anything around Covid economic policy – New Zealand has one of the lower NAIRUs in the OECD. Most extraordinarily, and with no supporting analysis at all, the Royal Commissioners conclude that the severe inflation outbreak was an “unavoidable price” of good policies. If so, we’d really better change the Reserve Bank’s mandate, and perhaps whitewash from history their own very weak forecasts for inflation from late 2020 and early-mid 2021. They certainly didn’t think inflation was inevitable; they (paid to get these things roughly right) got their forecasts, and thus policy, badly wrong.
Now to be fair to the Commissioners they do note the obvious, that both fiscal and monetary policy were too loose for too long, but it is all very subdued, and with no insight on what went wrong and why, or what might be better in future. There are complacent comments that if there were some gaps in Reserve Bank/Treasury coordination “it was good by international standards”, even as though offer no evidence for such claims. They don’t even mention – a point the Reserve Bank acknowledged in early 2020 – that the Bank had failed to ensure that negative interest rates were a technical possibility: had it been otherwise they might never have gone so big and so long on the LSAP, at such vast risk and (as it turned out) fiscal costs (the Bank, to be fair to them, had not historically been keen on LSAP types of instruments).
I could go on with many smaller points, but that would mostly be to bore readers. I’ll end with just two: there is no attempt to evaluate whether the exporter freight subsidies really made sense, and for so long, nor is there any attempt to evaluate whether it made sense – as was done at the start of the pandemic response – to permanently increase welfare benefit levels going into a pandemic that was (a) likely to have large economic and fiscal costs, making us poorer on average, and b) wasn’t going to affect the real incomes of those on benefits.
Overall, I thought this bit of the report was a serious lost opportunity. Perhaps the economic establishment (RB, Treasury, Grant Robertson) like it because there is no serious challenge or scrutiny, but just the appearance of it (a 700 page report don’t you know) but what use is that to New Zealanders, either in holding powerful officeholders to account (and yes time were tough but you take these jobs for the tough times) or in being better prepared for the inevitable future adverse shocks.
croaking cassandra 
Thanks for the summary Michael. Most of us would be too cynical to have read it!
I presume there is no real cost benefit attempted to see whether the total fiscal and RB cost per full life equivalent saved was legitimate? By Full life equivalent I do not mean 20,000 people saved 18500 of whom would have died in the next 18 months anyway.
At the time of the response, we were managing multiple businesses in various funds. I did a back of envelope calculation then that the cost of life saved between level 4 and level 3 had to exceed $1b per life. I thought later you had done a more thorough analysis using the assumptions of the time and came to a higher number?
What intrigued me was that I had to spend a night in Middlemore hospital at peak COVID (for other reasons) and watched with disbelief an entity that could not put in place the barest shadow of effective measures for infection spread (despite official claims to the contrary). Indeed, their practices in some cases could have been designed to promote spread. I realised that not one of our firms would have been so inept at basic measures due to plain health and safety control in these firms and direct responsibility being imposed for H&S onto management.
I am still of a view that a proper economic analysis would demonstrate that our response was simply unaffordable and unrealistic. If I am wrong, I at least should be able to receive from this report the reasons why.
Regards
PC
Paul Chrystall
LikeLike
Not having read the full report I have to be a bit cautious, but there is no hint in what I did read of any sort of cost-benefit assessment of the sort you mention. I didn’t do anything of that sort during Covid itself, but I did write about work that people like John Gibson (at Waikato) and Martin Lally were doing, and of course the specific estimate the Productivity Commission did about the final week at level 4.
LikeLike
Ok thanks.
Paul Chrystall
LikeLike
Achieving and maintaining stability in the general level of prices was RBNZ’s primary function. Its actions promoted the very opposite. If those responsible knew that its actions would inflate the money supply thereby putting upward pressure on prices especially when the inflating occurred at a time when production was reduced by the lockdowns, they knew they were disobeying their statutory mandate. If they didn’t know RBNZ’s actions would put upward pressure on prices, they were incompetent. The country is paying the price for that disobedience or incompetence. The report should have said so.
LikeLike
I think that is a little unfair to the RB. It certainly wasn’t a deliberate mistake (you can see their published forecasts), and it was a very unusual set of events with pressures acting on both supply and demand, and the likely balance being anything but clear in the early stages. Where they are culpable is (a) the massive LSAP risk/losses, and b) the failure to recognise and respond quicly to the emerging inflation once it became clear (late 2020) that the economy had pretty quickly rebounded to pre-covid levels.
LikeLike
Made a critical comment in a review about this post on The Standard. There, mostly, because I added this site to our feed. But I scanned back a few pages of posts here for other interesting opinions, links, and facts – useful to our readers.
Anyway, I don’t think that this review takes cognisance of just how much the response saved compared to what happened in the last comparable large pandemic.
If you view it as being real GPD per capita between NZ, Austraila and the US, you should twist around.
What is actually remarkable is that we had a minimal effect of real GDP per capita, whilst also having at worst 0.6 fatalities per 1000 population. Compared to the US rate of about 3.4/1000 caused by much laxer infection controls, releasing them just before the next wave, and more open borders.
Our response was direct result of having a successful post-examinations of the last major pandemic in 1920 which made its way into the legislation that largely governed the responses in the Covid-19 pandemic. https://www.parliament.nz/en/get-involved/features/centenary-of-the-1918-flu-pandemic/
“Once the pandemic was over, the Government set up a Royal Commission to investigate how the crisis had been handled. The Department of Public Health had come in for heavy criticism.
One of the Commission’s recommendations was for an overhaul of the Health Act, to consolidate and simplify the existing legislation. The result — the Health Act 1920 — has been praised as a model piece of health legislation. It was “so well drafted that it survived with only minor amendments until the 1956 Health Act, which itself still followed the general pattern of the 1920 Act”.
Historian Geoffrey Rice has described the Health Act 1920 as “the most useful legacy of the 1918 influenza pandemic”. “
That report also heavily influenced the Epidemic Preparedness Act 2006.
It is why a royal commission has done it again based post-pandemic. However I suspect that they are looking more closely at the probity of the responses in light of the average 5.8/1000 fatality of the 1918 epidemic (and the 50/1000 estimates fatality rate amongst Maori and Polynesians).
By their very nature, the nature of pandemics is unknowable at their start, in particular the mutations that accompany multiple waves of infections. The health policy has to be to assume the worst at the start.
That was the lesson learnt at cost in 1918-19 when in a few short months NZ about 9,000 fatalities in a few months. By comparison we lost about 18,000 in the whole of WW1, and about 12,000 in whole of WW2.
LikeLike
Thanks for this, and for alerting me to your comment on the Standard. I think you may have got a bit of the wrong end of the stick and I’m not sure how much we are disagreeing. I’ve left a fuller response on the Standard, but just to note that I’m well aware of 1918/19 experience, have even read that Royal Commission report. The issue isn’t whether (eg) movement reductions were important in 2020 but about precisely what set of restrictions were needed (which needs to be analysed at the margin, not in an all or nothing way). My own concerns at this point are more about the economic dimensions of policy response (eg the wage subsidy was astonishingly expensive and at the time I was championing what would have been a materially cheaprer alternative) including the RB’s costly mismanagement of irs part of the policy response.
LikeLike
>Headline unemployment rates in the US went far higher than in New Zealand (and Australia) reflecting different intervention approaches, but (see chart) it isn’t immediately obvious that overall US economic performance suffered.
Interesting summary! I will point out, with regards to the above para, that the difference in US (and Canadian) unemployment rates with the rest of the world also reflects a definitional difference between their unemployment & the international standard. As you can see on the BLS website, they include those who are “temporarily laid off and expecting to be recalled to their job” in unemployment. Q8 of the BLS FAQs from 2020 also goes into a bit more detail on how people who said they didn’t know when they’d return to work because the furlough was for COVID reasons were automatically slotted into unemployment (rather than requiring either a specific return date or at least a belief they’d get back to work in the next 6 months).
This doesn’t usually have much of an effect on international comparisons, but during COVID, this was part of that initial 2020 sky rocketing unemployment we saw in North America that then plummeted back down as respondents were indeed recalled to work. As such, for the 20/21 period, the US and Canada aren’t particularly comparable with NZ and Australia – or anywhere else that better matches international standards for that matter.
LikeLike
Indeed (and thanks)
LikeLike
The govts rules and regulations that ball busted the economy 2020 was totalitarian and had no science behind it.
Drs who disagreed with govt’s dystopian “measures of the stick” got vilified by the media conglomerate.
https://drsambailey.substack.com/p/exposing-the-plan-to-extort-dr-sam
LikeLike
Much, altho far from all, of the economic disruption, would have happened anyway (people acting to reduce movement and exposure to risk, in advance of legal restrictions). I’ve noted before that I’d already decided that my kids were not going to school the next day, the day before the lockdown was announced. Air travel volumes were dropping sharply etc.
LikeLike
Agree there would have been a smaller contraction anyway as the media’s covid19 fear campaign was intense and yes the central banksters inflation would have hit us anyway only they would make up another excuse.
When discussing the govts( global) costly draconian rules and regulations that killed many small businesses you have to ask yourself why for the 2002 global spread of (alleged) sars cov1 “covid02” no dystopian totalitarian rules or measures were made up – not even a plandemic declared . And just like “covid19” when the media stops spreading it ( and people stopped misusing the PCR test that was never to be used to diagnose disease) it just disappears . At one point it was even morphed into an oxymoron, a asymptomatic illness, terrifying haha.
The lesson from govt is that we are in an age of misinformation where data fudging is normal . You can make up anything and support any policy data fudging , modeling of data. Its a distortion of data and the govt thrives it.
LikeLike
Agree there would have been a smaller contraction anyway as the media’s covid19 fear campaign was intense and yes the central banksters inflation would have hit us anyway only they would make up another excuse.
When discussing the govts( global) costly draconian rules and regulations that killed many small businesses you have to ask yourself why for the 2002 global spread of (alleged) sars cov1 “covid02” no dystopian totalitarian rules or measures were made up – not even a plandemic declared . And just like “covid19” when the media stops spreading it ( and people stopped misusing the PCR test that was never to be used to diagnose disease) it just disappears . At one point it was even morphed into an oxymoron, a asymptomatic illness, terrifying haha.
The lesson from govt is that we are in an age of misinformation where data fudging is normal . You can make up anything and support any policy data fudging , modeling of data. Its a distortion of data and the govt thrives it.
LikeLike
Agree there would have been a smaller contraction anyway as the media’s covid19 fear campaign was intense and yes the central banksters inflation would have hit us anyway only they would make up another excuse.
When discussing the govts( global) costly draconian rules and regulations that killed many small businesses you have to ask yourself why for the 2002 global spread of (alleged) sars cov1 “covid02” no dystopian totalitarian rules or measures were made up – not even a plandemic declared . And just like “covid19” when the media stops spreading it ( and people stopped misusing the PCR test that was never to be used to diagnose disease) it just disappears . At one point it was even morphed into an oxymoron, a asymptomatic illness, terrifying haha.
The lesson from govt is that we are in an age of misinformation where data fudging is normal . You can make up anything and support any policy data fudging , modeling of data. Its a distortion of data and the govt thrives it.
LikeLike