So to be clear, at this stage not much is clear. But it’s surely possible to draw out a few facts and try to isolate what might emerge as significant.
Point one: We can be reasonably sure that there will be a large fall in measured economic output.
This will capture the changes in our collective economic behaviour, both voluntary changes in response to events, and those mandated by governments. Think restaurant meals uneaten, movies not watched, flights not taken, bungees not jumped, houses not painted, and so forth. Some things postponed, some gone for ever.
It’s much harder to guess at the experienced impact on quality of life – refracted as it will be through collective experience. If governments provide effective relief to those who lose their jobs, then basic needs are likely to be met, but loss of control and uncertainty about the future will be much more prevalent.
The greatest impacts may not be the most easily discerned at this point. If there is the need for significant economic adaptation (which is plausible) and progress is slow (ditto), we may come to particularly regret the disrupted education, dead time and delayed opportunities for young people tentatively emerging into the economy and impatient to build their lives.
Point two: A quick recovery – who knows?
If one chooses to extrapolate from data suggesting relatively low fatality rates, particularly for working age people, or draws comfort from the apparent containment successes of Hong Kong, Singapore and Taiwan, one might hope for the evolution of simple and effective public health measures, followed by a quick economic bounce back.
Alternatively, if the outcome is one of extended lockdowns, costly long-term public health burdens, and profound structural economic changes, one might fear that consumption expectations are reset at a materially lower level, as happened during the great depression.
As the epidemiological impact of the disease unfolds, governments will learn, often through painful trial and error, just what public health impositions are justifiable and stable. Economic activity ought then to recover around that stability – if governments let it do so. And it may need rule changes to facilitate it.
Point three: Economies which adjust fastest will likely do best. Regulatory change could play an important role.
Let’s assume profound economic adjustments are going to be needed, for example, in the structure of the global tourism market. Economic signals from market transactions are needed to tell us how to react to these. Policy makers can easily get this stuff wrong or elevate political interests over an effective response.
At the same time, rising incomes in past years have obscured the growth in collective regulation, which specifies what we spend our money and resources on: whether it’s the time and effort required to open a bank account, the price of less harmful paints, or the costs of infrastructure or house building.
If coronavirus makes us all poorer, we’ll end up spending more of our income on the things regulation dictates and less on other things we think we need. It may seem academic but the trade-off becomes more concrete when the local council concedes that it needs an extra $1000 each year in rates because it can’t meet today’s water and sewage standards at yesterday’s prices.
Which would make a stronger case for reconsidering the rules, or some of them at any rate.
For example, a poorer country, with large numbers of people seeking new livelihoods, might conclude that it’s worth taking a few more environmental, safety and social risks by permitting the rapid building and connection of new suburbs south of Auckland, north of Wellington and anywhere in Christchurch, at lower building code, roading, water and sewage quality standards. It’s even possible that the under-30s might find this a more honest and appealing proposition than the notion that everyone can aspire to a $600,000 house.
Or if you really want to go beyond current orthodoxies, how about reworking the business and regulatory case for the Upper Clutha hydro schemes at Luggate and Queensberry. They might look attractive in a zero carbon world.
Point four: Are binary political positions emerging, on the progressive left and the liberal/conservative right?
There is a perception that left of centre governments are making the running on coronavirus lockdown policies. Curious? Well, not if you see them as more prone to state or ‘elite’ direction.
But given the extent to which their support comes from interest groups with a developed sense of entitlement, they will be under pressure to promise that they can make good their constituencies’ losses (difficult) or even see everyone right (mathematically impossible).
Moreover, if left of centre types commit to spending large, they will be tempted to include long-cherished pet projects to remake society on finer lines, particularly when experts affirm that it’s a scientific or medical necessity. This is how you get subsidies for solar power creeping into a coronavirus stimulus package.
Centre right governments face slightly different political pressures. Sure, they can run easily with the consensus that those who lose their livelihoods must be succored, that a measure of stimulus is required, and that financial sector liquidity must be maintained.
But they will need to think carefully how they respond to corporate pleading to make good capital losses, from airlines for example. There are some salutary case studies from the global financial crisis: in the US, for example, the banks paid back most of their capital injections but somehow the auto makers were able to pocket theirs, to the benefit of shareholders, bondholders and well-paid unionised workers.
These expenditure trade-offs loom larger for right of centre administrations because they intuit that more of their support comes from the voters who will ultimately pay the bill. This inclines them to scrutinise the quality of the expenditure more carefully.
They may also have a stronger focus than the left on getting the private sector economy up and running faster. This could show itself in a greater willingness to streamline lockdown rules or – and one can really only hope here – to challenge special interests obstructing adjustment and recovery.
With elections due in the US and NZ by the end of the year, we may see much starker political and economic choices than we could have expected a few months ago. A pitch from the left for more state control to navigate the changes, versus a warning from the right that after cushioning the blow, you encourage a fast recovery by helping people to get on with it and make their own decisions. Which is likely to play best with the median voter?