COVID-19 vs the economy

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Eddy Edson

Eddy Edson

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A chart of COVID-19 fatality rates vs Sep quarter GDP change:

1603754639714.png

I cribbed this from an Oz think-tank piece basically patting Victoria on the back for squelching widescale community spread down to nothing: https://theconversation.com/finally...ld-after-unprecedented-lockdown-effort-148808

The intent is clear - good health outcomes = good economic outcomes. Which IMO is fine but as with everything the details are at least as important as the headline.

Eg: In terms of this chart, you obviously don't want to be the UK but is it realistic to want to be South Korea, and if not, even being Sweden or the US would be better. How did they manage to get better economic outcomes with similar fatality rates, versus the UK?

And obvious questions about what things look like going forward. Eg: Does Oz now have a stronger base for getting the economy back on track or has closing the borders caused long-term disadvantages versus other places?

And so on ...
 
Amity Island said:
Is this chart claiming that all those dead people have caused the bars and restaurants to shut and go out of business? have put millions on furlough, have caused thousands of missed appointments, thousands of excess deaths, isloated people from their family, have forced people to wear masks and socially distance?
Click to expand...

It's showing a correlation between good health outcomes (fewer deaths from COVID-19) and better economic outcomes. (With some outliers.)

It's hard to avoid making a causative link: really controlling the infection gives you a better economic outcome. If we could invent a country I'd really love to see an alternative Sweden which did a much better job at protecting care homes. I wonder how close to Denmark they could have got.

And (in our own world) a graph showing that but with the US states separately. (Since there's not been a very coherent federal response and the states were hit markedly differently I'm not that sure that treating it as one country is informative.)

I'm not sure how much it all depends on luck, though. When each country got infected people and where they arrived, how old they were, etc. And obviously local conditions: some countries had recent experience of SARS and/or MERS. And Sweden apparently has an unusually low number of people per residence.
 
Amity Island said:
How does someone dying or having an infection have a detrimental effect on the economy? or as the graph suggests, how does countries with the worst death tolls have the worst economic outcomes?
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The graph doesn't show that. What it does show is an unexpectedly (to me) good correlation, with a few outliers. I assumed quite a bit of the differences between countries would be more to do with chance, but the quality of the correlation suggests there's some quite strong underlying effects. Though it's also possible the correlation is partly created by choosing what to put on the graph (they have Italy, France, Spain, Germany, but also the EU).
 
Amity Island said:
Hi Bruce,

The question I was trying to put across was,

How does someone dying or having an infection have a detrimental effect on the economy? or as the graph suggests, how does countries with the worst death tolls have the worst economic outcomes?
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It could be the other way round.
A poor economy usually means cuts are being made to essential services like the NHS.
We deliberately run our NHS at about 85% capacity if I remember correctly.
The problem then is that when a pandemic hits like covid, we don't have spare capacity in the system, we have shortages of ventilators, PPE, staff amd a host of other things which then leads to more deaths than other countries with better run economies suffer.
 
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pm133 said:
A poor economy usually means cuts are being made to essential services like the NHS.
We deliberately run our NHS at about 85% capacity if I remember correctly.
Click to expand...

80-85% is the pretend target, but actually (especially during winter) it's regularly well over that. So yes, we were poorly set up to begin with, with (relative to many of the others) fewer doctors, nurses, ventilators, ICU beds, hospital beds, etc., per unit of population.

I'm not sure your hypothesis matches the graph. The x axis is percentage growth of the economy over some period (probably January-September or something) not the absolute size (or size per unit of population).

So it's looking at how many COVID-19 deaths there have been (per million population) against change in economy size.
(For some perhaps specially selected group of countries and groups of countries.)
 
The Japanese situation is interesting. I read that they are naturally more reserved and talk less in public places- ( forbidden I believe on some modes of public transport) . Plus ultra hygeinic I belive

I would not trust any statistics from China
 
Amity Island said:
I still don't get the correlation shown between a virus and the effect it has had on the economy, as the original post suggests.
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The correlation's clear enough, surely? Those countries (the ones at the top, also mostly to the right) which managed to control the virus really effectively (and so had few deaths) also have the better economic growth. (On the whole, though the US and Sweden also don't look that bad in economic terms. Still only about as good as Denmark, which had many fewer deaths.)

So if we brought February's Boris Johnson in a time machine to spend a day now and showed him all the data he'd surely see that there's decent reason to think that acting quickly and decisively is best both for limiting health impacts and not harming the economy. The idea (at least in this case) of a conflict, a need for "balance", is an illusion.

That doesn't say what we ought to do now, necessarily. Though now honestly reminds me quite a lot of March so I strongly suspect not doing something really significant and sharply is a mistake both for deaths and for the economy. As hospital admissions and deaths increase (not so far off Vallance's alarmist graph) the pressure's going to grow, and the more we delay the worse things will get (and so the more expensive it'll be).

Why do some find the economics/health trade-off so hard to get? Because it’s like the Phillips curve.

The distinction between the short run and long run traditional Phillips curve (not the New Keynesian variety) is so ingrained in economists...
mainlymacro.blogspot.com mainlymacro.blogspot.com
 
Bruce Stephens said:

Why do some find the economics/health trade-off so hard to get? Because it’s like the Phillips curve.

The distinction between the short run and long run traditional Phillips curve (not the New Keynesian variety) is so ingrained in economists...
mainlymacro.blogspot.com mainlymacro.blogspot.com
Click to expand...

From that blog post:


The irony is that taking firm action to suppress the virus to very low levels is popular, and as we have seen very recently will reward any politician with the foresight to think about health rather than the economy.

I think this has been one of the really interesting things, politically.
 
Amity Island said:
The latest business outlook (from same company that produced the graph) consultancy Deloitte Access Economics tips Victoria to suffer the biggest fall in gross state product in the 2020-21 financial year, which just began.

www.abc.net.au

Victorian economy hardest hit by coronavirus fallout as immigration dries up

Victoria was poised to take the biggest economic hit from the COVID-19 pandemic, even before a spike in cases forced renewed shutdowns in large parts of Melbourne and the state's isolation from the rest of Australia, according to the latest Deloitte forecasts.
www.abc.net.au www.abc.net.au
Click to expand...

Which is absolutely consistent with the more virus spread = worse economy message, given that Vic has had far & away the most infections and most deaths of any state in Oz.
 
https://ourworldindata.org/covid-health-economy lets you play around with basically the same data sets, allowing you to select different countries.

With the familiar message:


Have the countries experiencing the largest economic decline performed better in protecting the nation’s health, as we would expect if there was a trade-off?

The chart here shows the same GDP data along the horizontal axis. Along the vertical axis is the cumulative number of confirmed COVID-19 deaths per million people.

Contrary to the idea of a trade-off, we see that countries which suffered the most severe economic downturns – like Peru, Spain and the UK – are generally among the countries with the highest COVID-19 death rate.

And the reverse is also true: countries where the economic impact has been modest – like Taiwan, South Korea, and Lithuania – have also managed to keep the death rate low.

Notice too that countries with similar falls in GDP have witnessed very different death rates. For instance, compare the US and Sweden with Denmark and Poland. All four countries saw economic contractions of around 8 to 9 percent, but the death rates are markedly different: the US and Sweden have recorded 5 to 10 times more deaths per million.

Clearly, many factors have affected the COVID-19 death rate and the shock to the economy beyond the policy decisions made by each government about how to control the spread of the virus. And the full impacts of the pandemic are yet to be seen.


But among countries with available GDP data, we do not see any evidence of a trade-off between protecting people’s health and protecting the economy. Rather the relationship we see between the health and economic impacts of the pandemic goes in the opposite direction. As well as saving lives, countries controlling the outbreak effectively may have adopted the best economic strategy too.

It's obviously way too early to be very confident of long term impacts and there will obviously be a different mix of factors in different places.

In Oz, the Reserve Bank is now forecasting positive growth for this quarter and next, so no longer in recession, with the impact from Victoria in particular being less than previously feared, and picking up now that the Vic lockdown has been very successful & the state is opening up again. But there will be fallout from a tail of bankruptcies and people exhausting their savings, exacerbated as govt support measures come to an end.

So who knows? But you can bet that the outcomes here and in Vic in particular are going to be *way* better than in places which didn't take tough measures early enough at times when the virus was increasing. The trailing pain of border closings and periods of early tough lockdowns in some regions will be small by comparison.

From an Oz perspective, not moving quickly to close borders looks more & more like the single biggest mistake most countries have made.
 
Amity Island said:
HI Eddy,

Keeping this as laconic as possible.

Are you saying long drawn out lockdowns/restrictions used around the world help?
In what way have they helped? Here in the UK they've killed more than saved.
Click to expand...
How do you know that? We will never have the graph that shows deaths plotted against a healthy, unlocked economy, because most countries did lock down. It's my personal opinion that they locked down because of the backlash of public opinion every time anyone mooted letting the virus run its course. But nobody protesting back in March that the vulnerable should not be sacrificed to Covid, ever thought at that time that the vulnerable would be sacrificed to cancer or heart attacks instead. Hindsight is a wonderful thing.
 
Amity Island said:
Are you saying long drawn out lockdowns/restrictions used around the world help?
Click to expand...

Some do, some don't. They help when they're sufficient to help control the virus, that is, to get you to a place where more sustainable restrictions together with testing, contact tracing, and isolation can keep levels low. They're harmful when they're not sufficient, both to health and to the economy. (It's also possible that a sufficient lockdown isn't practical for the UK because our numbers are so high, and our government seem to be set on keeping our test, trace, isolate system so ineffective.)
 
Amity Island said:
All the graph confirms is that all the countries are in negative economic growth, caused not by a virus (as the media likes to show as the cause for all the problems) but by lockdowns and restrictions.
Click to expand...

Not just by lockdowns and restrictions. Also by people's reactions to the prevalence of a new infectious disease that (we now know) isn't too dangerous to younger healthy people but becomes increasingly dangerous as age increases. With that kind of virus out there theatres (for example) can't open for long, because their target audience is significantly at risk and will tend to avoid going. Similarly, Pret A Manger will be in trouble since lots of people who can work from home will do so. And so on. A government can certainly try to pretend the virus doesn't exist, but people are going to react to it even so.

(As some have commented, the virus on its own may have some positive economic effect in the medium term by predominantly killing older people. Much as other illnesses tend to, but this one seems particularly skewed by age.)
 
The unemployment figures show it’s mainly younger people who have been worst affected. It’s the gig economy that has much reduced. There are companies such as Serco who have benefited greatly from government contracts, on yet another Serco failure, our test and trace. It’s boom time for management consultants.
 
Amity Island said:
A virus is invisible, how can people have reactions to something they can't see? I think what you are referring to is the result on people's behaviour to a 24hr, 7day a week, relentless media led fear campaign.
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Partly, yes. Maybe mainly. But even without the media (and without any testing) we'd know of people becoming ill, sometimes seriously so. I guess we'd see it as an unusual influenza. People would still react, though I'm sure not as much as with the deliberate efforts from the government. It would be hard to hide the overwhelming of some hospitals in the harder hit parts of the country and the fatigue of those working at them.

https://twitter.com/x/status/1321348653966086144
 
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