Covid news not bad; political and economic news not good

This far into the epidemic it’s interesting what we know and extraordinary what we don’t. Which is more significant: the knowledge or the ignorance?

So what is happening:

  • Daily cases in many European countries are rising sharply but recorded death and excess mortality rates are not – so far.
  • In the US, the daily case and death rates have been falling for two months, from a late summer bump.
  • And in Australia and New Zealand, we are seeing just how hard it is to eliminate the disease.

The data has lots of possible interpretations, which certainly helps if you’ve got a particular case to support.  But one piece of good news is that the fear factor is coming in at the lower end of expectations.

So far the disease looks much less virulent than the worst case predictions (8 – 10 times less than the much-touted Imperial College model suggested).  Its disproportionate impact on the elderly and unwell is much clearer; it can be treated better; and there is evidence that the vulnerable can be protected.  

It also seems pretty clear that Covid is not going away.  And while early elimination seems implausible, suppression at low levels has – so far – been possible in some cases, with a range of social costs (eg, Taiwan – lower; New Zealand – higher).

On the other hand, much is still unclear.  It’s unclear to what extent Europe’s current case spike is influenced by improvements in testing policy and, crucially, whether it will be followed by an increase in the death rate.  It’s unclear what levels of infection would constitute useful herd immunity; how close some of the first-wave countries are to that; and what might be the – potentially very significant – role of T-cell immunity.  And new explanatory factors keep coming into play (for example, the possibility that countries with recent low flu death rates were disproportionately vulnerable).

So perhaps it makes sense to go back to reliable-policy Sweden as a benchmark.  

The number of new cases has been running at around 200 – 300 per day for the last couple of months, and the death rate during that time has been negligible. If these trends improve or even just continue, it will support the proposition that the spread of the disease is being checked by growing levels of immunity.  It might also suggest that the consistency of Swedish Covid policy supported a smoother progression of infection – and earlier development of immunity – than in some other countries.

But the economic implications of Sweden’s policy response – and in particular its avoidance of stop-go measures – may prove to be just as important.

Because, first of all, the response to uncertainty is often to do nothing.  While one can quickly adapt to stable restrictions, shifting measures can induce paralysis, as in the UK, where changing travel restrictions seem to have led many to abandon the idea of holidays altogether.  Secondly, a steady policy seems more likely to secure social cohesion.  A consistent approach is likely to have a less severe economic impact, to encourage early adaptation, to generate a stronger recovery and make it easier to allocate the costs.

And ignorance about the costs and their allocation ought to be a big worry everywhere.  Many voters would prefer not to think about them just now and few politicians are yet willing to risk changing their message or rejigging their coalition.

Perhaps it will take events to force their hand.  

The beauty of the market economy is that the process of free exchange allocates the costs and tells workers and businesses what to do next.  When the government stops this adjustment, there is a two-fold cost: the subsidy to make good the injured parties, and the loss of the contribution from the redeployed resources.

Politicians know how tricky distribution questions are in normal times.  And Covid is not normal.  Public services have dropped in quality but public sector unions are arguing for wage increases.  Private sector businesses have suffered grievous losses and in some cases had their business models destroyed; many are looking for government to restore the status quo ante.

You can almost forgive politicians for suggesting and voters for believing that with a bit of debt and kindness for ‘our people’ we can get through this without much harm.  

However, it’s more likely that austerity will bite.  Historically, this has tended to favour parties of the centre-right, whose aversion to tax increases is shared by the median voter, while the centre-left finds it harder to sustain an entitlement-based coalition. 

But – as marxists have found to their cost – historical trends are not laws. So you might want to keep an eye on arguments over Covid policy to check if they are a dress-rehearsal for the forthcoming post-Covid economic debate.  And keep watching what happens in benchmark Sweden.

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