There has been much debate about whether the battle against the Covid-19 crisis or the economy should come first. This debate is misguided and unhelpful. A thread...

Fundamentally, our objectives as a society are to give citizens the best lives possible while treating everyone fairly. That is sorta the ANC’s “better life for all” tag line, and I think most economists and philosophers agree on the objective. “Best”, of course, is loaded, but

we all kinda mean quality and quantity of life. The Covid-19 crisis is a problem because it threatens both quantity and quality of life. There is great uncertainty, but we know it is very serious. One source of knowledge is the experience of other countries, and

it is clear that lockdowns work at least in the short term and doing them sooner is better than later. But we also know that the state of the economy is very important for quality and quantity of life too. While GDP is much derided as a measure of wellbeing,

its correlations with other measures are surprisingly close. Here, for instance, is GDP’s correlation with the Human Development Index https://bit.ly/3fNDuqf 

Income level matters a lot to health outcomes. In SA, your chance of dying pretty much linearly increases with lower your income. The bottom decile has a mortality rate of 13/1,000 and the top, about 6/1,000 (source http://ncbi.nlm.nih.gov/pmc/articles/PMC6077134/). Lots of reasons including

worse access to healthcare, lower childhood nutrition, maternal health, etc. We are facing at least a 10% GDP decline, by far the largest in a generation. This will disproportionately affect the poor:

the more resources you have, the more you can protect yourself from the consequences. More than 1m people will be made jobless (as many as 6m). Average life expectancy will fall as a result

While we can make economic growth inclusive, economic declines exacerbate consumption inequality (you don’t usually see this in overall inequality because the wealthy experience a decline in the value of their savings, so it looks like recessions are good for inequality).

When the lockdown was announced, the economic interventions to manage the fallout were small and difficult to access. It took fully four weeks for government to announce its substantial package of R500bn. That was four weeks in which businesses closed and jobs were lost.

This gap seemed inexplicable: while the health response was rapid, it appeared that government had failed to consider fully the economic damage and act to mitigate it.

Other countries were different. The UK, for e.g., announced a massive economic package 3 days *before* it went into lockdown. I have yet to hear a satisfactory explanation for SA’s four-week gap other than political failure.

But what has been even more frustrating that the slow economic policy response, has been the unnecessary economic damage done during the lockdown. Let me explain, because a lot of people confuse this point…

Economies are complex adaptive systems. They are difficult (but not impossible) to predict but we do know that they adapt. At a time of crisis, your objective should be to increase flexibility and boost adaptiveness.

During a crisis markets and economic systems can collapse. But economic agents continue to act in ways they believe will leave them better off. Also, many people want to help in a crisis. Providing economic infrastructure to allow people to *comply* with health requirements while

also trying to protect their wellbeing and help others would unleash considerable economic activity and innovation. The most obvious way would be to allow e-commerce. Not just allow it, but actively support

Government could have proactively supported logistics to handle greater volume. Logistics is key because it allows people to social distance, but still be productive, receiving inputs and sending outputs. And it allows people to continue consumption

And e-commerce allows adaptation. Businesses can transform themselves. Township economies can embrace e-commerce. When you see the economy as adaptive rather than a static picture with parts you can switch on and off, this becomes obvious. And yet

It was banned until today. Today, at last, government relented and e-commerce has been allowed under level 4 (see http://www.gpwonline.co.za/Gazettes/Gazettes/43321_14-5_TradeIndustryCompetition.pdf). But there was no reason e-commerce should ever have been banned. This was simply unnecessary economic harm.

That is one example. The patchwork economy envisaged by the levels, in which long lists of industry segments are assigned XX% staffing levels, etc, introduces massive costs to the economy because of the additional bureaucracy. But it also displays a failure to understand how

the economy works –complex adaptive systems. Because some businesses can’t function at 50% staffing at all, but present no health risk – think automated open cast mining or robotic warehousing. We should set protocols – social distancing rules, and then allow

activities that can meet those rules. Of course some activities are never going to cut it, like restaurants, entertainment venues, etc. Those should be closed under order. But it is far more effective to maintain a list of what should close, than a list of what should open.

Anything that can meet set down criteria should open, and there is no way government can predict what those will be, especially given the adaptiveness of the economy.

There was also disbelief when trade & industry minister Ebrahim Patel said in an interview that estimates of economic damage were a “thumb suck” and “guesstimates”. What was shocking was not estimates are accurate – of course they won’t be.

What was shocking is it implies he has not been doing any estimates of his own. And that therefore policy has been made in the absence of evidence of its effect. That would be reckless and irresponsible. The best modellers should be at the forefront of policy decisions

All this has been a way of explaining why some economists have been critical of the government’s economic response. It is not a call to go light on the fight against Covid-19. It is a call to go strong on economic policy that will enable more activity. Treating these as

mutually exclusive, that you can’t win the Covid-19 fight without minimising economic damage is obviously wrong. We need to fight on the economic front every bit as aggressively as on the health front.

We need to be guided by the science – we need the best economists, putting together the best models, to help predict policy outcomes and therefore the optimal interventions that achieve the health outcomes we want *including* those that indirectly depend on the economy.

So when critics like me point to failures on the economic response – the delays, the mistakes, the failure to examine evidence – it is not a call to abandon the lockdown. It is a call to think harder about the detail of the policy, give people the best lives possible.

The end!