The economics of COVID in real time - pre-lockdowns
Blog memories of COVID-19 in NZ prior to 13 March 2020
At work I was reminded that we are coming up to the five year anniversary of COVID. At this time five years ago my then boss asked for our projections for what was going to happen.
My guess: governments would generally be too paralysed to do much and there would be a messy slowdown, combined with around 10,000 excess deaths in New Zealand (about 0.2% of the population). But within a few years there would be no broad impact.
Within a month it was quite clear that I was wrong - and seeing the choices, arguments, rumors, and brave choices in real time was amazing.
I was thinking I might post about this pre-COVID period, and keen for your own thoughts and experience in the comments.
The blog time capsule
I was working in government and lecturing as we came into COVID - which made it difficult for me to write much about what was happening, but also made it necessary for me to give some examples to students.
To make this work Gulnara and I were able to work together on some posts, but due to sensitivity at the time she put them out as solo authored - since her research unit was more comfortable with educational material going out than the administrative policy units would have been (where I was).
This is also why the posts were never about the introduction of policies and even avoided specific policy suggestions (as a result nothing on wage subsides given members of both of our teams were heavily involved in the policy).
We first posted about COVID on the 5th of February (with a broken Substack link here). I think our conclusion was pretty good:
There are broader policy questions from such a shock. What is the role of government in terms of insuring New Zealand individuals, and industries, against such shocks? How are our responses with regards to public health associated with the social and economic risks to individuals from the virus? What is the New Zealand public willing to sacrifice in order to mitigate/limit harm from the virus – and what is the government have a role in coordinating this?
The above framework helps to guide our initial thinking on this – but judgement calls need to be made based on ideas of insurance and coordination, the spread of a disease is not an issue an individual can internalise alone.
Given my projection above I did not believe that people would be as comfortable shutting down as they were. I did not expect government and public servants to take such a leading role to coordinate these shutdowns. And I did not expect the low level of excess deaths that New Zealand experienced - likely largely as a result of these actions (as well as the fortune of the virus showing up late on New Zealand shores).
These posts were followed by one on Febuary 10th and then by my old private sector colleagues on February 11th. I can remember that this is when it started feeling like a real and clear shock - and a lot of economists were trying to work out frameworks and data that could be useful in the information void.
On February 21st we then decided to put Gulnara’s health economics PhD to work to understand transmission rates.
Realisations on March 12th
By mid-March it was clearer that the virus was not just in China - having torn across Europe. And it was only a matter of time before it properly broke out in New Zealand. Although there were only 5, ad-hoc, cases at this point things were about to take off - with full crisis management operationalised from March 10.
As a result, in March 12th we updated our thinking on the economic effects of the virus when discussing interest rate cuts (Substack version).
So why do I still think a cut is appropriate? Let’s go back to the Canterbury earthquakes. There was no drop in external demand, no financial constraints, but there was a panic which lowered consumer and business confidence and negatively affected “animal spirits”. The Bank responded to this then by cutting interest rates – that was the right call then, and the right call now.
We don’t need fancy arguments to justify a cut, when a sharp drop in domestic demand due to fear of a pandemic already indicates that a cut is appropriate.
What was unique here was the change in framing to the “Christchurch earthquake”. By this stage the view within government and across society in New Zealand was that this was a natural disaster. As a result, the playbook for such disasters was being combed over in order to think about interventions.
We only touched on interest rates here but discussions had already started about:
Mobility restrictions (i.e. lockdowns) and the potential for tracking and enforcement
Wage subsides
Payments to individuals - as support, incentivising behaviour, and for macro-stabilisation.
In New Zealand we probably didn’t realise how well the lessons from the 2012 earthquakes would serve us through the early stages of COVID - especially given the speed that things would turn.
Time for toilet paper
On March 12th NZ time COVID was announced as a pandemic - in the coming days Europe would become the epicentre, and then everywhere around the world would discover cases.
Time to panic.
However, New Zealand itself was a bit different. The toilet paper crisis was not quite as bad - in fact there was significant overstocking of toilet paper (Substack version).
Ok, this ChatGPT image might be exaggerating - but if you click on the old post, those big stacks of toilet paper at the end of every aisle stayed in place for months, at least in Wellington.
What I didn’t realise at the time is that this was an early litmus test about how much New Zealand society was willing to coordinate their actions, and trust each other, during this crisis. While most countries had massive runs on toilet paper, and some people are still probably using their COVID paper, that just did not occur.
The instruction to limit purchases, to trust that there would be toilet paper in the future, was taken on board. A level of trust in authorities that appears to be missing globally five years later.
Going back to 2020, within a week this would all be put to the test. But that’s a discussion for another time if you’re interested.