Beyond COvid: The Digest

The economics of a second wave response

October 26, 2020
SUMMARY
  • Our In Focus section this week gives an overview of the economic debates around how to respond to the second wave of coronavirus.
  • Read our In Brief and Reflections sections for the latest research and analysis around economic recovery and reform Beyond Covid.
  • To get in touch with feedback or suggestions for next week's Digest, email Michael on michael@beyond-covid.org.

In Focus: The economics of a second wave response

  • Health versus the economy? Much of the political and media debate over how to respond to the increasing rates of coronavirus infection has centred on the idea of a tradeoff between the economy and public health.
  • ~~Today’s article in the Times from a former Department of Health Chief Economist provides a particularly explicit example of this narrative, ultimately arguing against a ‘circuit breaker’ lockdown on economic grounds.
  • ~~Some economists (e.g. Oxford's Professor Simon Wren-Lewis) have characterised this approach as “short-sighted”, arguing that over the long-term, evidence for such a trade-off falls down.
  • ~~In a speech last week, a member of the Bank of England’s Monetary Policy Committee similarly argued that “the trade-off is much less severe that you think… and that measures to contain the virus can help both the economy and public health”, drawing on cross-country data on pandemic responses thus far and historical evidence from the 1918 flu.
  • Circuit breakers? In an open letter to the Times last week, a number of leading economists argued that the Government’s present approach “risks becoming the worst of both worlds” - endangering public health while dampening economic activity.
  • ~~Citing SAGE and the Lancet, they argue that “short but deep ‘circuit-breaker’ lockdowns are the only way to rapidly reduce the R rate” to a level to allow the economy to open.
  • ~~Experts from the Covid-19 Statistics, Policy Modelling and Epidemiology Collective (C-Spec) have outlined how a ‘circuit-breaker’ followed by planned, intermittent lockdowns could “help break the Covid doom loop” - both by restricting the spread of the virus and improving compliance with restrictions.
  • ~~Regional or national lockdown? The New Statesman’s Stephen Bush has argued that the “tiered” approach to lockdown fails to take into account that the repercussions of regional lockdowns extend to other areas of the UK (through supply chains, etc.).
  • Test-and-trace. Ultimately, successful future management of the virus depends on the UK’s ability to develop a functioning Test and Trace system.
  • ~~Is public spending bad? The FT’s Chris Giles has highlighted the Government’s mismanagement of Test and Trace as an example of wasteful public spending, calling into question the “increasingly fashionable view is that governments should use fiscal policy and heavy borrowing to run the economy hot”.
  • ~~Outsourcing is the problem. By contrast, the UCL Institute for Innovation and Public Prosperity’s (IIPP) Rosie Collington has argued that the problem with the Government’s response lies in its reliance on outsourcing, and that governments that have managed their tracing systems ‘in house’ have performed better.
  • ~~IIPP Director Mariana Mazzucato and David Cameron's former speechwriter Clare Foges (and Times columnist) have both written on the need to increase public sector capacity to this end.
  • Furlough U-turn? Rishi Sunak revised the Job Support Scheme - e.g. cutting employer contributions for hours not worked from 33% to 5% - amid “intensifying concern about the second wave of coronavirus and rising unemployment”.
  • ~~Chris Giles of the FT noted that Treasury officials “had read a carefully researched report by the New Economics Foundation” which warned that the original Job Support Scheme was likely to protect only 17% of jobs at risk from redundancy.
  • ~~450,000 workers are still at risk of having to rely on Universal Credit, which NEF suggests should be reformed “to both address immediate crisis and bring about long-term change”.
  • ~~IPPR welcomed the Chancellor’s reforms but argue they still leave a significant number of people vulnerable to economic hardship.
  • Covid-19 and inequality. Marcus Rashford’s campaign against the Government’s refusal to extend free school meals to eligible children during half-term has drawn attention to a key issue - that the second wave of Covid-19 threatens to exacerbate inequality, hitting the already vulnerable the hardest.
  • ~~Ethnic inequalities. New research from IPPR and Runnymede Trust last week has highlighted that “despite the inequalities exposed earlier this year, there has been little effort to stop Covid-19 hitting minority ethnic communities hardest as we enter the second wave”, and makes recommendations on how to redress these inequalities.
  • ~~Structural racism. The researchers note that this health inequality cannot be explained by genetics or comorbidities, suggesting that it results from “structural and institutional racism”.
  • ~~Financial consequences. Ethnic minority residents of the UK are also more likely to suffer financial hardship as a result of Covid-19 (e.g. through increased exposure to unemployment or problem debt), which builds on long-standing economic and social inequalities between white and BME residents of the UK.
  • Can we afford it? Noting the recent uptick in ‘public finance’ arguments against greater public spending on, for example, free school meals, Professor Simon Wren-Lewis argues that “no one should worry about rising debt in a pandemic” - while highlighting that such fiscally conservative arguments are not being applied to spending on outsourcing companies.

For more on the processes of outsourcing, privatisation and marketisation within the NHS, watch our panel discussion with Professors David McCoy, Allyson Pollock and Sir Chris Ham.

In brief

  • Fiscal rules: Economic historian Adam Tooze has suggested that the EU’s fiscal rules may have to be reformed to avoid a return to austerity and a “disastrous double dip shock”.
  • ~~Olivier Blanchard (former IMF Chief Economist) argued in a recent paper for the “abandonment of fiscal rules in favor of fiscal standards, i.e. qualitative prescriptions that leaves room for judgement together with a process to decide whether the standards are met”.
  • ~~Alfie Stirling, David Powell and Frank Van Lerven wrote for NEF on how fiscal rules could be changed to unlock public investment for a Green New Deal.
  • Green Recovery: A new report from the We Mean Business Coalition found that global annual emissions would be 7% lower in 2030 than in 2019 and millions of new jobs could be created if all major nations developed strong plans for a green recovery, while another study found that current stimulus funds won’t be enough to achieve Net Zero by 2050.
  • ~~The UK Government announced plans to publish a ‘comprehensive’ Net Zero Strategy before COP26, outlining plans for decarbonisation and growth and employment opportunities from 2021-2050.
  • ~~Andrew Houser, one of the Executive Directors of the Bank of England, gave a speech signalling the Bank’s willingness to incorporate climate risk into its corporate bond purchase programs, subject to the Government updating the Bank’s remit.
  • ~~An influential group of investors told UK ministers and regulators that climate risk reporting should be made mandatory for all FTSE-listed businesses.
  • ~~NEF published a report arguing that the ECB needs to lead by example and decarbonise its corporate quantitative easing programme and abandon “market neutrality”.
  • ~~France’s Central Bank considered how central banks can promote coordination on addressing climate change.
  • Fair tax: Last week, the Good Law Project forced HMRC to collect £1.5bn in VAT from Uber.
  • ~~Local action: A growing number of local councils are making commitments to improve their tax conduct and to factor suppliers’ tax conduct into their procurement decisions - see Fair Tax Mark’s campaign.

Reflections

  • Balancing the books? Chair of the Environmental Audit Committee, Phillip Dunne, wrote for the Times arguing that the Government’s green goals must not be lost to spending pressures.
  • Green geopolitics: Adam Tooze wrote for Foreign Policy on the geopolitics of climate transition - a must-read!
  • WEF calls for reform: The World Economic Forum’s Jobs Reset Summit brought together leaders from business, government, civil society and media to discuss a wide ranging economic reform agenda, including a “dashboard for the new economy”, “new targets beyond growth” and a “minimum social protection floor”.
  • Precarity: Sarah O’Connor wrote for the FT arguing the case for a broader conception of economic inequality that involves insecurity.
  • Devolution: As part of a larger series, a group of journalists for the FT explained how “the virus has driven a greater wedge between the four nations of the UK, testing the boundaries of power”.
  • ~~Paul Mason commented on the row between regional and local government figures and the central government for the New Statesman, suggesting that ‘this is not just a crisis of regional representation but of class and cultural representation”.
  • Democracy for sale: Josh Gabert-Doyon interviewed Peter Geoghegan for Common Wealth, on dark money and political influence in electoral campaigning.

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