Meinung

How Long Should Lockdown Measures to Fight Covid-19 Continue?

While it is important to flatten the curve of new infections, the economic costs of lockdown measures should not be underestimated, as they fall disproportionately on the poor.

William White
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Having failed to «test and track» the spread of the Sars-CoV-2 virus in a timely way, most governments are now left with some hard choices. Social distancing in the form of lockdowns, in response to the pandemic, has been imposed by government policy on the valid assumption that it will save lives.

However, this same policy has economic costs which mount over time. Moreover, given the social hardships and political issues raised by lockdowns, there are significant doubts that the policy could be maintained over the lengthy period likely required to develop either a cure for Covid-19 or a vaccine against the virus.

A serious debate is underway about how long the lockdown measures should continue, and whether other policies might be suggested that could save lives at a lower economic cost. Unfortunately, this debate lacks clarity when it comes to specifying the fundamental criteria for relaxing the lockdowns. Perhaps this explains why different governments seem to be arriving at different conclusions.

Flattening the curve

It is important to be clear about the health benefits arising from social distancing. Absent a vaccine, epidemiological models indicate that already widespread viruses stop spreading only when «herd immunity» is reached.

This is not a policy target, as some commentators seem to imply, but something that is inevitable. Put otherwise, we must expect that any relaxation of lockdown measures will be followed by an increase in infections. However, this is not to say that social distancing is ultimately useless. The important benefit it provides is that it temporarily slows the spread of the virus; it «flattens the infection curve».

This is highly consequential since it helps reduce the flow of the seriously ill to levels that hospitals can cope with. There will be less human suffering and fewer deaths as a result. While this logic is morally sound, it also implies that lockdown measures will provide fewer benefits as hospitals and care givers become better equipped.

Costs fall disproportionately on the poor

As for the economic costs of lockdowns, it is all too easy to underestimate them and to ignore the fact that they fall disproportionately on the poor. The supply of goods and services is reduced when employees cannot or choose not to work; even food supplies could be threatened. Demand falls when wages are not paid.

Moreover, there is legitimate concern that the output potential of the economy might be permanently reduced. Recessions always cause some permanent damage, and this one seems particularly likely to do so. Business concentration could rise, with unwelcome economic and political implications.

Finally, and crucially, the global economy had significant vulnerabilities prior to the downturn, arising in large part from the excessive reliance on monetary stimulus since the last recession in 2008 and 2009. Debt ratios and leverage have moved relentlessly upwards while credit quality has plummeted. The search for yield, particularly by non-regulated financial entities, has fostered financial instability and encouraged resource misallocation.

Given all these exposures, a serious recession could easily tip into outright depression.

Stimulus of unprecedented size

Such worries have led the public sector to respond with unprecedented monetary and fiscal stimulus. It was right to do this. However, these measures also have costs that must be recognized. The «more of the same» policies of central banks threaten still more of the unintended consequences that have accrued after the global financial crisis.

Government debts will also rise to levels that might threaten the capacity to service debts should interest rates rise. Moreover, contingent liabilities and the need for government financial support to meet long term challenges, like climate change, have not gone away. Of course, holding interest rates near zero mitigates debt servicing problems, but also augments the eventual risk of much higher inflation. These costs too are indirectly the results of current lockdown measures.

The economic costs increase with the severity and the duration of the lockdown. So too do the social costs and the risk of non-compliance and social unrest. Little can be done about these realities.

Raising the bar

In contrast, the health benefits of social distancing can be achieved in a much less costly way than through lockdowns. Instead of just «flattening the curve», it is possible to «raise the bar» as well. The demand for hospital care can be reduced by efforts to identify and isolate the vulnerable, those likely to need serious medical attention. But at the same time, the capacity to provide such care can also be increased, and the funding of such care should be government’s first fiscal priority.

Moreover, governments should not hesitate to mobilize private sector resources for hospitals, using legislation similar to that used in wartime. Possible private sector production facilities should be identified and then adapted. Medical personnel should be quickly retrained for relevant tasks. Logistics specialists from the private sector and the military should be enlisted to improve the allocation of new resources.

As the capacity of hospitals to cope rises, the flow of those infected can be allowed to increase and social distancing and its costs can be reduced. This means that herd immunity will arrive more quickly, even if the number of people likely to be infected eventually would remain unchanged.

One advantage of achieving herd immunity more quickly is that it will allow the vulnerable to emerge from isolation sooner. Evidently, given how little we know about the effects of relaxing social distancing on infection rates, this process will have to be done carefully to ensure hospitals are not once again overwhelmed. Once herd immunity is achieved, and new infections cease, hospitals will have «excess capacity» that should be carefully maintained in anticipation of the next pandemic.

Rigorous testing

The simultaneous introduction of massive testing to establish who is still infectious (an antigen test) and who has had the disease (an antibody test) would also provide big benefits. If the infected can be identified and their recent contacts tracked and isolated, this would slow the infection rate and reduce the need for social distancing. If those who have had the disease could be identified, and could be presumed immune, they would be allowed to return to the workforce. This would cut economic losses directly, and also naturally reduce the reproduction rate of the virus. Again, this would reduce the reliance needed on social distancing through lockdown measures to achieve the same objective.

By adopting these measures, governments would have a strategy for easing social distancing, and a set of criteria for easing, which they could then communicate to an anxious and confused public. For populations much in need of reassurance, this would provide some light at the end of a very dark tunnel.

William R. White

William R. White was chief economist of the Bank for International Settlements (BIS) in Basel from 1995 until his retirement in 2008. He was one of the few who had warned of the dangers of a global financial crisis before 2008. From 2009 to 2018 he was Chairman of the Economic and Development Review Committee of the OECD in Paris. He is currently a Senior Fellow at C.D. Howe Institute in Toronto. White began his career in 1969 as an economist in the service of the Bank of England and has fifty years of experience in monetary policy. He has published widely on topics related to monetary and financial stability. He lives in Toronto, Canada.
William R. White was chief economist of the Bank for International Settlements (BIS) in Basel from 1995 until his retirement in 2008. He was one of the few who had warned of the dangers of a global financial crisis before 2008. From 2009 to 2018 he was Chairman of the Economic and Development Review Committee of the OECD in Paris. He is currently a Senior Fellow at C.D. Howe Institute in Toronto. White began his career in 1969 as an economist in the service of the Bank of England and has fifty years of experience in monetary policy. He has published widely on topics related to monetary and financial stability. He lives in Toronto, Canada.