Apologies to regular
readers who expect this site to provide analysis or comment on the subject of
climate change or the low carbon economy. My excuse for writing about the pandemic
here is that the parallels and connections with climate questions will become
ever more apparent, and will be with us for the foreseeable future.
Cost benefit struggles with
the big issues, but it does help to expose the questions. The economy versus
public health poses a false dichotomy. The real debates should be about
inequality. And in terms of inter-generational divides, climate change is a
much more relevant matter.
As many people[1] are starting to observe,
the debate over how to balance protection from the virus against maintaining economic
activity is already playing into the culture wars that have developed over the
last few years. Very loosely, Trump, vocal
Brexit supporters (but not necessarily a majority of those who voted for it),
opposition to climate action and denial of climate science, market
fundamentalism, Tory donors, and much of the political Right are to be found on one side, arguing
for the primacy of “the economy” and that “the cure [lockdown] is now worse
than the disease”. Internationally one might add, at different times, populist authoritarians
such as Bolsonaro, Erdogan and Duterte. Those
favouring the “cure” include the WHO, internationalists[2], most medical
professionals, many Left-leaning liberals, (typically) climate activists sometimes
citing environmental factors as a likely cause of the pandemic, and currently the greater part of public opinion. If one had to
sum up in a phrase the collective position of many in this group, then “… no
return to business as usual” might be an approximation.
These loose coalitions are of
course both stereotypes. Both sides will in future be forced to recognise the
difficulties inherent in maintaining consistent positions that assign absolute priority
to either health or national income. Both will also have to reconcile inevitable
pressure for less future reliance on global supply chains (less of China) with an
equally powerful case for more, or at least better, international cooperation
both in health and wider economy issues. Most governments are caught in the
middle, enforcing restrictions while hoping for “business as usual”.
With hindsight of course it
seems likely that early and effective action, as in Germany, would have avoided
some of the stark choices now confronting us. But we (in the UK) are where we
are, and for a variety of economic, health and social reasons, long term total
lockdown is also proving untenable. The direction of travel is towards a
compromise – the search for gradual relaxations that keep infections within some
degree of control.
However, the cost benefit arguments
remain important, not least because they reflect so much on our implicit values
and choices, and represent dilemmas that will continue to haunt us for some time.
It is worth evaluating the arguments, in
the first instance on the wisdom of imposing strict lockdowns rather than just advisory
and fairly minimal social distancing. And
in order to concentrate on the essential choice, rather than unhelpfully
suggesting that the answers lie, as they often do, “somewhere in the middle”,
we should contrast the first extreme, the primacy of the economy and the need
to avoid negative impact on GDP, with the range of policies that are effective
in reducing infection but result in major economic shutdown. The
purist cost benefit argument is that an enormous economic cost has been
incurred in order to protect the lives of predominantly elderly and infirm
people, and that that cost will in turn bring its own health costs through
increased poverty, unemployment and inequality. The cost is typically
quantified either in terms of likely lost GDP or of the cost to the Treasury
(c. £350 bn) and the public purse, which can be set against an estimated number
(perhaps 250,000) of (disproportionately elderly) lives saved. The implied
valuation of human life comfortably exceeds the values normally implicit in
government policies, in health and elsewhere.
Attaching a value to human
life in this way is not a heartless obsession with financial indicators or
economics. It is simply a recognition of reality, especially in almost anything
involving health or safety. In health policies the concept is explicitly
recognised and refined as “quality of life adjusted life-years” (QALYs). In a
resource constrained world most people would accept that, forced to choose
between life-saving treatment for children and young adults, on the one hand,
and short life extensions for the elderly on the other, the former would
usually win. QALYs form a realistic basis for assessing the relative value of
different medical interventions, and are widely accepted as a starting point
for an informed discussion of what should be prioritised in a health system.
Calculations appear to show an
“excessive” expenditure from current policies to save a relatively small number
of QALYs. It is additionally argued that the economic impact of lockdowns will
itself lead to large amounts of not necessarily well-recorded ill health and
death, including treatments postponed or not sought, and increases in domestic
violence and mental illness.
Finally, this can be seen as
yet another example of inter-generational inequity in which the young are made
to suffer for the benefit of the old.
At first sight these look like
powerful arguments, founded on both explicit cost benefit analysis, in this
case loss of output (GDP) or public spending versus value of life, and an
implicit cost benefit comparison in terms of different health outcomes. But, as
often happens with really big issues, simple arguments can collapse under
closer examination. There are several counter arguments:
·
the assumed counterfactual is incorrect; the
implicit assumption that, had there not been lockdown, personal behaviour and
the economy would have carried on more or less as normal, can now be seen to be
demonstrably wrong. One reason is that individuals are risk averse and do not
take the actuarial approach to personal risk implied in cost benefit analysis. A
corollary is that, in the immediate context, the notion of a collective choice between
public health and the national economy is, to a large extent, a false
dichotomy.
·
poor health outcomes associated with
macro-economic problems do not generally stem from lower GDP per se. They stem
from inequality not from overall lower incomes. Promised government spend goes
part of the way to redressing the uneven short-term effects of the crisis, and
protecting the most severely affected. But the longer-term impacts,
particularly if there are significant structural changes in the economy, will
be much more important. Prevention or remedial action on any increasing
inequality stemming from that will be essential. But that action is necessary
anyway.
·
inter-generational injustice is an overstated
issue; mortality means there are a limited number of ways in
which one generation can steal from the future, and it is not obvious that this
is one of them.
The counterfactual – not imposing
lockdown and “letting the pandemic take its course”.
Countries have taken approaches
that differ in detail, but most have been essentially similar in their approach.
Even where fewer formal restrictions are imposed, as in Sweden, actual
behaviours and outcomes are not so very different. Tellingly, many in the UK
were already modifying their behaviour, and creating their own forms of social distancing
before formal lockdown was imposed. With a full-blown explosion of cases and deaths,
and hospitals collapsing under the weight of new cases, it is inconceivable
that we would not have seen massive changes in personal behaviour, seeking the
same outcomes, albeit in uncoordinated and less effective ways, and very likely
a degree of panic, with broadly similar damage
to economic activity. The difference is that the damage would have been the
result of individual consumer choice, not of government imposed restriction. Most
of the economic damage therefore became inevitable as soon as the virus spread
into much wider national populations. In reality there never was any way of
avoiding the shock and its economic consequences, although there were and remain
ways of handling the crisis well, badly or very badly.
There is a reason for this. In
matters of life and death, people do not adopt the actuarial approach to
personal risk that the cost benefit approach implicitly assumes. Actuarial-style weighting of probabilities and
multiplication by an assumed “cost of damage” makes sense in a policy context
of comparing different health interventions. But it does not apply to personal
choices. A simple well-known test demonstrates this – the Russian roulette question.
“How much of your personal wealth would you sacrifice to avoid participation in
the game?” The probabilities can be varied, and the actuarial assumption would
be a linear progression from zero (infinitesimal risk) to 100% (when faced with
certain death). Students and others faced with this (fortunately hypothetical) question
invariably volunteer significantly more than the “expected value” of their
survival.
This is not irrationality. It
is simply personal preference. Faced with threats to life most people are substantially
risk averse, and will make significant sacrifices for the safer option. We can
argue that wide public support for lockdowns reflects rationality and risk
aversion, rather than mass hysteria.
It's about inequality, stupid!
There is no doubt that the stress
on health services is, unless treatment of Covid-19 patients were refused, inevitably
bringing some unavoidable collateral damage through diversion of resources from
other health problems. But the policy argument is usually much more focused on
the potential mid and longer-term health effects of lower incomes and higher
unemployment. The economic impact is already and will continue to be very
unequal, with some untouched while others are devastated. Sensibly most current
remedial measures are about protecting the worst affected individuals, in respect
of mortgages and rents, and a degree of protection that will allow businesses,
and future jobs, to continue to pay wages and survive the crisis.
In other words, the policies that
enjoy almost universal support are about remedies for an immediate and
horrendous inequality. It’s ironic that they should be implemented (in the UK) under
a governing party not known for its commitment to equality objectives or public
spending. But the same considerations should apply to medium term health impacts.
It is the extent of inequality that matters, much more than the overall level
of GDP. The point is well summarised in a recent Canadian Medical
Association Journal article.[3]
“It
should not be surprising that economic growth does not lead to improved health.
A wide range of research studies of rich countries have revealed that greater
national wealth, by nearly any measure, does not lead to better human welfare. The
United States, with the highest GNP per capita in the world, has a lower life
expectancy than nearly all the other rich countries and a few poor ones,
despite spending half of the world’s health care bill. The United States also
has the greatest levels of poverty of any rich country, with correspondingly
poor health outcomes and huge health disparities. Its population’s health is on
a par with that of Cuba, a poor nation that has faced economic embargoes for
the past 50 years. The population of the United States is also less healthy
than the population of Greece, whose economic status lies in between.
What
leads to health in the industrialized countries is not absolute wealth or
growth but how the nation’s resources are shared across the population. Above a certain threshold of inequality, a more egalitarian
income distribution within a rich country is associated with better health.”
It will be
interesting to see how far the lessons of the current crisis are carried through
into future tax, expenditure and social policies. It is again ironic that politicians and commentators,
mainly on the Right, who give overwhelming primacy to the economy, and are now anxious
to play up the social and health impacts of lockdown, have usually been those
least concerned with the phenomenon of inequality.
Inter-Generational
Justice
It has always been the case
that you are more fortunate to be born, or to reach the employment or housing market,
in good times rather than bad. But the idea that one generation can
collectively, and to its own advantage, permanently deprive its successors is more
difficult. Mortality ensures that this is possible, essentially, in only two
ways.
The first is through running
up external debt. This is impossible in global terms. It is possible nationally,
although since most countries will face similar challenges, there is no automatic
reason to assume that it will happen. Measures to protect employment and businesses,
will lead to an expansion of national and personal debt, but this consists of
debts that we owe to each other. Since the holders of that debt tend to be
excessively concentrated in higher income groups, or among older generations,
there will be an enhanced case for redistributive taxation, and we have already
identified the necessity for reducing inequality as a necessary condition for a
healthy society.
The second is through running
down the capital stock, of plant, buildings etc and also human capital. This is
a more challenging question. There is no particular reason to expect physical destruction
of capital stock, though there is likely to be significant re-assignment if consumer preferences and public choices change after the crisis.
But this takes us to an even
more important subject. The only way in which we are obviously and dramatically
running down our capital stock is through continued destruction of the natural environment.
That really is the impossible and undeserved legacy that we are bequeathing future
generations.
[1] Culture
wars are infecting the UK’s pandemic strategy. Robert Shrimsley. Financial
Times, 20 April 2020.
[2]A
general term to include supporters of international institutions and
cooperation as a general principle. I would have added the “Remain” camp, but a
quick survey of FT online comments suggests this group may be quite divided on
the issue.
