Any guesses as to which country currently has the highest number of coronavirus cases per capita?   I’d have got this one wrong, until I happened to spot a table yesterday with some numbers for San Marino.

Anyway, here are the top ten for total cases per million people  (data updated to 1pm).

Leave out the tiny countries/territories and the next few are Switzerland, Norway, Singapore, Sweden, and France.

On these standard lists of countries and territories –  no matter how tiny –  there are about 230 countries/territories.  At present, New Zealand is about 60th (ie lower end of the worst quartile –  probably not the impression you’ve had from the Ministry of Health or ministers).  Here is a chart of which countries are, right now, just a bit better/worse than New Zealand.

Australia, with which we have a pretty open border and lots of movement across it, has about three times the cases per capita.

I’m not sure that the per capita numbers mean a great deal, especially when very small absolute numbers are involved.   One infected family or small cluster here and we’d quickly go shooting up past Taiwan, and despite the confidence the Ministry of Health (and their Minister) keep expressing in public, neither they nor we know what they don’t know.    They presumably know most of the contacts of the people with confirmed cases, but none of the contacts of the cases they don’t yet know, let alone the contacts of those contacts.  It is striking how much open alarm there now is in the United States –  active cancellation of events, top universities moving to online only etc – even though in the per capita ranking the US isn’t much different than New Zealand (in fact, as recently as Saturday morning was a bit further down this unwelcome league table than us).    Perhaps it is a reminder that three weeks ago, Italy had no confirmed cases and now (eg) million people and the heartland of the Italian economy are in quarantine.  Two weeks ago, Italy had the same number of confirmed cases the US has now.

Of course, the other aspect of some relevance is the trajectory of cases numbers over time.  Singapore, Hong Kong, and Taiwan all have had more cases per million than New Zealand.  A few weeks ago there was a real fear of an exponential increase in those places, perhaps especially Hong Kong, where the travel restrictions from the PRC had been imposed only fairly sluggishly and the numbers moving were large.   And yet in all three places, the exponental increase hasn’t happened.   In fact, in Singapore and Hong Kong more than half of all the people with confirmed cases have now recovered.  Presumably the virus isn’t any different, so we should look to behaviour, policies and practices.

Our government and Ministry of Health like to talk up the travel ban, but (eg) Hong Kong never really had one (and places like Australia and the United States did).   What seems much more striking about Singapore and Hong Kong was the extent of social distancing that has been practised for some weeks now.  In Hong Kong’s case, schools and universities were closed. In Singapore, they weren’t but reports suggest huge numbers of people working from home etc.  That also seems to have been the lesson in how the PRC got on top of the virus, notably outside Hubei province.   I like to reason by reference to cross-country comparisons, and so it surprises me how little of the debate or media coverage here is looking through the range of other advanced country experiences.  Instead, we seem to get endless backward-looking upbeat comments from the Prime Minister, Minister of Health, and the Ministry of Health, who seem only interested in encouraging anything much more than hand-washing when it is confirmed that things really are much worse in New Zealand.  They seem reluctant to (a) acknowledge what they don’t know, (b) the nature of incubation periods (if/when things are confirmed to be much worse, we’ll wish policies and practices at least a couple of weeks earlier had been different.   There is a line I read recently that suggested that whatever a country does before a pandemic really breaks out will seem too much, and whatever it does afterwards will seem too little.  With other country’s experiences to go by, it isn’t obvious why our authorities are encouraging such a relaxed attitude.   Surely none of us wants to end up a Lombardy?

Where, of course, ICU beds are a real constraint, so much so that over the weekend there was mention of an Italian technical discussion document mooting the possibility of denying ICU care the very old.  I also happened see this chart over the weekend.  (Assuming these numbers are roughly comparable, you have to look a long way down this chart to find New Zealand.)

All of which is a bit of a distraction from the main –  economics and economic policy –  focus of this blog.    I’m running late today because The Spinoff asked me to write a short piece this morning elaborating some points I’d made earlier in a radio interview.     Here is what I wrote there, with some elaborations and additional points I didn’t have space for.

The economic implications of the Covid-19 public health emergency are formidable, and are growing by the day.

Most of what we’ve seen in New Zealand so far relates to the epidemic stemming from China and the steps taken to get things under control. Much of the policy discussion, including recent comments from the minister of finance, seems to have focused on attempts to assist firms and individuals in sectors which directly affected.

But that approach risks being a big mistake. It might have been fine if the only material outbreaks of the virus had been in China, and once they got things under control it was only a matter of time – albeit perhaps months – until those specific sectors and firms can get back to normal. But that simply isn’t what we face. Only yesterday the Italian government quarantined one of the major industrial regions of Europe.

Realistically, we have to suppose northern Italy won’t be the last place where life and production will be severely disrupted.  The trajectories of case numbers in various other European countries seem, to date, disconcertingly similar.  And then there is the United States.

Public health experts tell us the virus can be checked, but only with expensive and disruptive restrictions – voluntary or imposed, here or abroad. In her latest column here, Siouxsie Wiles notes:

Another thing we are all going to need to start doing soon is minimising or avoiding contact with other people. This is called social distancing. If you are greeting people, don’t hug, shake hands, hongi, or kiss. Bump elbows or feet instead. Work from home if you can. Much as it pains me to say it, social distancing also means avoiding public transport (get on your bicycle!). Similarly, it means avoiding gyms, churches, cinemas, concerts, and other events and places where people congregate.

Already, airlines report that forward bookings have dropped away sharply, and foreign tourism is heading towards zero for a time. It won’t be the only severely adversely affected industry, and the effects will be felt widely.

I found it very interesting that Wiles –  who seems to know whereof she speaks on the viral things, and seems to be no panic-monger –  was prepared to use, of New Zealand, the words “we are all going to need to start doing soon”.  That isn’t at all the message our happy-talking political and official leaders are giving.

Economic policy needs to be focused not primarily on the limited and concentrated economic disruption we’ve already seen. Instead, ministers and officials need to focus on the much, much larger, but scale-uncertain, losses and disruption that will soon break on us, and on vulnerable individuals rather than firms. As importantly, we need to be positioning ourselves to ensure that when the epidemic passes – and that could be some time – we are positioned to get overall demand and economic activity back towards normal as soon as possible.

Much of the economic loss and disruption we are near-certain to face over the next few months is now all but unavoidable. Nothing we do will put tourists back on plane, or open up supply lines from Milan, or whereever the next place to clamp down severely is. When people choose to stay home and maintain those distances, spending and economic activity will drop. It is the price we will pay as governments here and in other countries seek to spread out and reduce the incidence of the virus itself, and as individuals seek to limit our personal risks.

This point cannot be made too often.  Between choices here and individual and policy choices abroad much of the economic disruption is simply unavoidable.  There will be large losses of production, significant jump losses, material numbers of business failures, and significant permanent losses of wealth.     Much of what any spending can do now is really more (re)distributional in nature, than about changing the short-term course of GDP.   There is place for such distributional measures –  we don’t want sick people at work who can’t afford to take time off –  and in my view short-term measures should probably focus on income support, erring on the generous side where necessary.

Trying to directly assist individual firms is a fool’s errand. We just don’t know what we will be dealing with just a few weeks from now. Very soon the number of firms that can plausibly claim adverse effects will be huge. We simply don’t have the capacity to administer complex tailored schemes for huge numbers of firms, and the way would inevitably open up to all sorts of rorts and abuse.

To repeat, facing what is likely to unfold over the next few weeks or months, we need systems that are clean and relatively simple, and don’t rely on either government or the recipient firms being fully resourced to manage them.

That is why we have macroeconomic policy tools, which are designed to operate pretty pervasively when activity across the economy is hard-hit.

Monetary policy is typically the main one. The Reserve Bank is already quite badly behind the game in not having cut interest rates. No doubt they will do so later this month, but they need to cut the OCR hard, and to err on the side of what might look like doing too much. The risks of actually doing too much are slight, and the risks to falling short are substantial. Among them is a risk that expectations about future inflation drop materially further, which would raise real interest rates in the face of this severe and complex shock, greatly complicating the eventual recovery.

But monetary policy is approaching its limits. This is one of those (quite rare) times when monetary policy really needs to be supported by a significant and, when activated, fast-working boost from fiscal policy.

The OCR can probably be cut by up to 175 basis points.   Whether the last few cuts make any real difference, even to the exchange rate, is a contested point, but we won’t know if –  faced with big drops in activity in demand –  the limits aren’t pushed.

Big infrastructure projects are largely beside the point here – they simply take too long to get under way. One-off cash payments to households probably also aren’t the right thing, at least now. In the next few months people will be hunkering down anyway, and as I’ve already noted, a key consideration is providing support and confidence as and when the worst of the virus – and attendant direct economic disruption – has begun to pass. One possible tool, as part of a package, would be a significant, explicitly temporary, cut in the rate of GST.

Such a cut could be implemented quickly, would put more cash directly in the pockets of households, would operate in a somewhat progressive way (poor households spend a larger share of this year’s income than upper-income households) and explicitly encourages people to buy early rather than later (because you know prices will be rising again in, say, 18 months hence when the GST rate goes back up again).

This instrument was used in the UK in 2008/09.   The key point I’d add here is that in thinking about stabilisation and supporting recovery in the next 12-18 months we – including political parties from all sides of politics –  shouldn’t be focusing on our longer-term preferrred policy changes, but on things that are likely to do the stabilisation job (and can then probably be unwound –  as monetary policy).  That is also the way towards keeping a reasonable degree of cross-party consensus if the crisis is being welll-handled, rather than a sense that one side or the other is using the crisis opportunistically.

The key point now is that the government has to be looking forward, not backwards, and acting in ways that take seriously the sheer scale of the costs and dislocations we are just about to face. Whatever New Zealand does, we can’t avoid many of the short-term costs that are coming, but we can do a little to mitigate the damage (in an environment like this, for example, retail interest rates probably should be near zero, which they aren’t now) and official actions now can help create a climate most supportive of an eventual recovery. We need people to be confident of aggressive action focused on the real issues. In these circumstances, there are few or no returns to half-measures.

All manner of stresses and problems are likely to come to light, here and abroad, if this virus continues to wreak havoc –  or require far-reaching restraints (self or government imposed) over the next year or more – to keep it in check.  It would be foolhardy to assume that full recovery will be quick and easy, all the more so if macro policy has not done what it could to, for example, keep inflation expectations up.

I’m staggered at how the government and most of the media still seem to have a backward-looking approach to coronavirus, and the economic effects thereof.  When the New South Wales Minister of Health yesterday indicated that in his view successful containment was now very unlikely, one might have supposed this would be big news in New Zealand.  After all, not only are there lots of New Zealanders in Sydney, but lots of people travel to and fro each day, and there are no restrictions or isolation requirements on those travellers.  If –  and it is presumably still an if –  containment is not likely to be successful in Sydney then surely, given that we haven’t had travel restrictions up to now and are unlikely to put them in place on Australia, it isn’t likely to be successful here.  It was, after all, the Prime Minister the other day who talked (loosely no doubt) in terms of a “common border”.     But I haven’t seen or heard of any comment from any of our political leaders, and no media outlet I follow has highlighted the story even though –  if it is so –  it must have material implications for how life might unfold here very quickly.  (For example, there is a community festival just down the road from here on Sunday, which annually attracts 80000 people in a pretty confined space. I don’t go, but people who are planning to might want to rethink.)

On issues of substance most of our political leaders seem either missing in action or, again, mostly backward-looking, as if coronavirus is something that happened in China and we are now just working through over the next few months/quarters the economic consequences of what has already happened.   On the evidence to date it is far from obvious that the Prime Minister has what it takes to lead and effectively drive the national response to an emerging, highly uncertain, serious ongoing crisis.  The Minister of Health seems to be missing in action (which, one hears, is often how officials thought of him in normal times).  And who else is there?   Kelvin Davis? Winston Peters? Phil Twyford?   I’ve heard suggestions that Grant Robertson “gets it”, but there continues to be great reason to doubt that, whether in his speech last week, his Q&A interview at the weekend, or one with Mike Hosking this morning.  It is all focused on stuff that has already happened, and the outworkings of that, and not at all on the worsening outlook, and the near-certainty of huge disruption and cost when community outbreak becomes a thing here.    Thus he continues to talk about “measured proportionate sectoral” responses, when in reality much the economy is likely to be overwhelmed for a time by what is unfolding.  You get no sense of that from Robertson.

I was initially supportive of the travel ban the government put in place several weeks ago.  It seemed prudent, and of course the Chinese government had put its own restrictions on outbound tourism.  I see quite a lot of commentary about how that ban “bought us time” or “kept the virus out for several weeks”, and I guess in years to come researchers will try to unpick the evidence on that one.  But I must confess to being a bit more sceptical now than I was.  Canada, for example, had no travel bans of its own, and yet when I checked this morning they had about eight times as many cases as New Zealand…..and almost eight times the population.  (And are not far from Seattle).  Neither country seems to have done a great deal of testing, so it isn’t simply that one country was finding more because it was searching harder.   It is impossible to easily know the counterfactual, of course, but perhaps the horse had already bolted by the time the travel bans were put on?  Again, superfically it isn’t obvious that the UK experience (no bans) has been worse at this point than the Australia or US experience.

Consistent with my post yesterday, I remain deeply sceptical of sectorally-targeted or admin-intensive specific government interventions to assist.   I see that in today’s Herald Hamish Rutherford is championing those sorts of programmes, under a subheading “Govt must act now to help hurting sectors take heart”.   Frankly, it is never the government’s job to help firms or sectors “take heart”.  The head has to be what is engaged in times like this.     Debate around these issues isn’t helped by an ongoing refusal, pretty much all round, to call what is happening right now what it is: an economic recession.    We might not have hard data on that point for months (even March quarter GDP includes January where there was little or no effect) but here, now, in March it seems almost certain that the level of economic activity is falling.  It is almost certain to fall further, perhaps at times a long way.    Forget about every other sector, all the supply chain disruptions etc and just focus for a moment on travel.  These were some forward travel booking numbers for Australia published in The Australian this morning.

“Between Feb 24 & March 1, year-on-year, bookings were down 47% from UK, 52% from the US, 71% from Indonesia, 32% from India and 100% from China and Japan, along with widespread cancellations.”

Is there any reason to suppose the New Zealand picture would be much different?   Uncertainty is the enemy of new investment, and uncertainty –  pure uncertainty, not just risk –  is extreme at present.  At present, not even the Leader of the Opposition is willing –  quite –  to call a spade a spade.

In recessions, bad stuff happens.  Firms fail.  People lose their jobs.  Plans are wrecked or disrupted. Asset prices fall.  Government revenue takes a hit.  (Government financial assets fall in value: see NZSF).  It isn’t pleasant, and usually those who bear the brunt aren’t in any very direct sense causally responsible for what happens to them, or their firms.    Much of the argument for focused sectoral action –  there is a lot of this in Rutherford’s article –  is along the lines that unless all these firms and jobs are saved now, recovery will be materially harder than it needs to be: the capacity mightn’t be there to take up the recovery in demand.  But, again, all recessions are like that.  But it isn’t as if the capital stock is going away.  Motelliers in Queenstown might go bust – I saw one this morning quoted as saying he could cope with downturn in Chinese numbers, but it would be problematic if others stopped “and that now looks as if it is happening”.  But the motel will still be there.  A jetboat or paragliding or whatever company might fail –  and that is tough, the flipside of the success operators capture in unanticipated boom times –  but the physical equipment and the location are still there.  And since this seems to be a worldwide thing, even if staff have to move and look for other jobs, many (or a next generation) will be quickly enticed back for whatever drew them to (say) tourist work in the first place.

And while it might have been easy a few weeks ago to identify specific firms that had lost directly associated with the virus, those numbers are rapidly going to be overwhelmed as the effects spread across the entire economy  – just as surely, if indirectly, the result of the coronavirus, and measures to manage/avoid it.   In recessions, for example, property markets tend to do badly –  see the 15 per cent fall in real house prices in New Zealand in 2008/09 despite a 400bps fall in mortgage rates – turnover will drop etc etc, and real estate agents will quite genuinely be able to blame the coronavirus for the slowdown.

You simply can’t sensibly target each firm/sector in the economy.  It is why we have macro policy –  economywide instruments designed to do what can be done to stabilise the downturn (that may not be much) and then lay a platform for as fast a recovery in demand and activity as can be achieved.   As it is, it is simply bizarre that with all that is observably different since, say, December, and all that is pretty visible just down the track, our macro policy settings are barely changed:  short-term wholesale and retail interest rates haven’t moved, nothing about (short-term impacting) fiscal policy has changed, the exchange rate is certainly a bit lower (but a modest move by historical standards) and on the other hand it is likely that credit conditions are tighter than they were.   There is an urgency about action, but that action should primarily be focused at the macroeconomic level.

And, finally today, I have been wondering how one might do an analysis of just what economic price is worth paying, as a society, to try to contain/manage coronavirus.  The Chinese economy and society seems to have paid a fearsome price and yet to have successfully (for now anyway) kept the worst of the spread of the disease in Hubei province (for anyone doubting the logic, I found this thread from a China-focused researcher helpful).

Serious scholars suggest that if the virus were simply left unchecked, it might infect 40 to 70 per cent of the world’s population (say 50 per cent).  For all the uncertainty about the true death rate, assume for the sake of argument 1 per cent of those infected.  In New Zealand terms, that is a potential total of early deaths of 25000.

According to the Treasury’s CBAx spreadsheet, the value of a statistical life (price community would pay to avoid premature death) this year is just on $5m.   25000 people at $5m each is $125 billion.  However, the evidence so far – including the Chinese data –  is that the deaths are very concentrated among older people.   On the Chinese data –  which may have its weaknesses –  the median age of those dying looks to have been as high as the late 70s, whereas the median age for all New Zealanders last year was 37.3. Remaining life expectancy at 80 seems to be about a quarter of that at 37, so we can chop down that maximum possible saving (from avoiding premature deaths) to no more than, say, $31 billion.

But, of course, even that is too high, since the implicit assumption is that all those lives could be saved with appropriate policy responses.  And from everything I read that seems incredibly unlikely.  Often people seem to talk about using policy measures and costly private actions (distancing etc) to spread out peaks and reduce the intense, perhaps overwhelming, peak pressures on the health system, and thereby (a) reduce the number of deaths and (b) make the whole experience less intolerable for those who would die anyway and those who, while sick, live.   Obviously I have no idea how many lives might be saved in total, but no one seems to seriously suppose it is anything like all of them.  If it was half, it would –  all else equal – be worth spending $15 billion or so to avoid those premature deaths.

Of course, if we could reduce the number of those who got seriously ill (but didn’t die) as well, it would be fair to ascribe a value to that too, but if people are up and about again in a month –  or even two –  that number will be swamped by the costs of death, given that in many cases those getting the virus won’t themselves be that sick at all (bad colds seem to be “one of those things” in life).

This is mostly by way of leading up to the question of how large would be discretionary economic costs be.  Note that I emphasise the word discretionary.  What other countries do as a matter of policy, and what other individuals do as a matter of prudence/fear is largely outside our control.  Thus almost all –  the exception perhaps being around university students – the economic effects so far are outside our control, and so is the temporary collapse in the rest of our tourism industry currently getting underway.  We will pay –  in lost output –  those costs whatever New Zealand governments do.  If major cities in other countries shut down for weeks at a time, disrupting travel, supply chains, demand for commodities or whatever, we have no real control over that.   Annual GDP at present is around $300bn.  It isn’t hard to envisage a scenario, quite outside our control, in which GDP for this year as a whole is perhaps $10bn less than otherwise.  That is income/wealth that will never be made up, even if/when after the crisis we get back ont a pre-crisis path.

The big choices are likely to be around how early/aggressively our authorities choose to act in shutting down cities, discouraging (or banning) social gathering, restricting movement etc etc.  We don’t really have hard data for other places yet, but what we know of the Chinese data suggests that these costs too could be very substantial –  not only has much of China been closed for six weeks already, but they are a long way from being back to normal, and with no idea what sort of virus resurgence they would see if they tried.  Shutdown, possibly pre-emptively (if still possible), much of New Zealand at different times for, say, six weeks at time.  In doing so, you could easily cut GDP during those shutdowns by 50 per cent.  Even if things quickly got back to normal after that, you’d still be looking at, say, 5 per cent loss of GDP for the year as a whole.  5 per cent of GDP is $15 billion, lost and never coming back.

I’m not attempting to offer answers here.  There are so many imponderables, most especially about what difference the toughest sustainable measures can eventually make to the death toll.   But it would be good to think that some of those “brightest New Zealanders” Hamish Rutherford told us were beavering away on these issues have at least been trying to think about the options in a systematic cost-benefit sort of way (here I emphasise the past tense, since time would appear to be of the essence, and you would hope officials haven’t shared in their masters’ public-facing sunny optimism about the threats we face). But if they haven’t done it yet, they need to be doing so now, urgently.

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.