When the pandemic started to seriously intrude into our daily lives, in March, my view was the it might accelerate some changes, but it was being overplayed by some commentators as a society-changing event. My view is changing. And it is changing because the virus is proving so hard either to beat or to live with. It just won’t go away. In this week’s statement the Chancellor, Rishi Sunak, made some steps towards acknowledging this. But many people are still in denial.
It is too early to develop a clear view of how this pandemic is evolving. But I can see at least three phases. The first phase is over. This saw the initial emergence of the disease, and immediate hard lockdowns to try and contain its spread, alongside the mobilisation of the health systems. In East Asia and Europe, and in some parts of America (such as New York) this strategy has succeeded in preventing or stemming a rapid advance. Elsewhere weak health systems or perverse political leadership means that the disease is still spreading rapidly. But that aside we are now in an awkward second phase. The lockdowns are being eased, but alongside this the disease is making local breakouts. It is becoming clearer that restrictions on our daily lives cannot be relaxed fully. Even if the disease can be stamped out in some areas, it remains prevalent in neighbouring ones, and the threat of it returning ever-present.
We still don’t know enough about the virus that is causing all the trouble, how it spreads, and its effects on the human body. But some aspects are becoming clearer. The first is that it is deadly. It does not seem to affect many of the people it infects, and some people seem to think that it merely hastens the demise of people already at death’s door. And yet 20-30% of the population appears to be vulnerable in most places, and it has the capacity to double the death-rate, or more. Hospitals become overwhelmed and unable to deal with other health conditions. The second aspect is that it is highly contagious, much more so than other viruses that are deadlier to the infected (such as ebola). Just how contagious is unknown, but we do know that super spreading events occur, where dozens of people are infected by a single individual at once. Being indoors seems dangerous, as does being in proximity to people who are exhaling heavily, such as people singing, shouting or exercising. Wearing masks seems to be a significant help in reducing infection risk. What makes the virus so much of a problem is this combination of lethality and contagiousness. We are conditioned to deal with diseases that are highly contagious but not so deadly (like most flu) or deadlier but much less contagious. To these two known aspects there is an important unknown. Does catching the disease confer immunity to it? There is a widespread assumption that it does, meaning that we can expect herd immunity to arise at some point, when most people can’t catch or spread the virus. But the emerging evidence is troubling. Antibody tests show low rates of prevalence even in places where the disease has been widespread. And there are reports of people being infected multiple times. A second unknown is how quickly we can get an effective vaccine. There has been impressive progress, but plenty of reason to be cautious.
So where does that leave us? Developed societies have no choice but to try and contain the disease. This means changing behaviours to reduce the risk of catching it. This arises partly through public policy and partly through private choice. As I said in my previous post this means that many people are going to avoid social gatherings indoors, including going out to pubs and restaurants. The more prevalent the disease at any time and place, the more such measures have to be taken. The best we can hope for is containing the disease to low prevalence, allowing quite high levels if freedom, but stamping on local outbreaks as they occur. This is being done most successfully in East Asia; in Europe Germany is the main large exemplar. But even this is far from normal. The big problem is that we are going to have to live with this disease for a year at least and probably a lot longer. This has profound consequences.
The main consequence is in the world of work, and in the economy generally. There are two main aspects to this. First is that sectors that rely on close social contact and free movement are going to shrink, perhaps drastically. This includes hospitality and travel. The second is that productivity in most sectors is going to be dented as health precautions take effect. This will inevitably reduce the standard of living. Prices will rise faster than pay; taxes will probably have to rise to curb excess demand and inflation. All this is too much for most people to take on all at once. Many are still trying to negotiate with the virus. I hear owners of indoor gyms complaining about not being allowed to open, like other businesses are. And yet an indoor gym must be one of the best spreading environments conceivable, after a mass indoor choir.
So how did Mr Sunak face up to this huge challenge in his budget statement this week? Pretty well in the circumstances. The most important thing is that he is pivoting from trying to keep old jobs alive (e.g. through the furlough scheme) to creating new ones, in particular focusing efforts on younger people, whose livelihoods are most at risk. His generosity towards the hospitality sector with his VAT scheme and meal discounts may look hopeless against the tide of events – but it does demonstrate some empathy towards one of the sectors most under pressure, which could reduce the short-term trauma somewhat. His £1,000 bonus for firms that retain furloughed staff until January looks harder to justify. It is hard to believe that it will make much difference to job retention, and yet it is estimated to cost huge sums. Surely it would have been better to top up benefits for the out-of-work. His reduction of stamp duty on property purchases looks like an expensive sop to party donors – though I personally stand to benefit.
But, as most people see, this is only a start. In the pipeline are more job losses and business failures, which will bring more problems in their wake. There is also an upcoming crisis in local government finance, as central government support to meet the extra costs of the crisis is woefully inadequate, and the role local government needs to play in combatting the virus is becoming ever larger. This will be the third phase of the pandemic, as the economic crisis deepens, while the struggle to contain the virus continues. Conventional economic management tools are not going to help as much as they should be. A lot of the problem is restriction to the supply side of the economy, while demand is suppressed by fear as much as lack of funds – so boosting demand simply risks creating inflation or a currency crisis. However job creation in public services: health care, social care and education, looks like a sensible way forward. Lower productivity means more people will be needed in these sectors. A rebalancing of the economy from private to public sector will surely mean tax rises in due course, but with no shortage of liquidity in financial markets the government can probably defer some of the hard decisions.
And meanwhile the public will have to confront some hard truths. The virus shows that the free-wheeling individualism at the core of western societies has its limits. It is not sustainable to suggest that individuals can judge the health risks for themselves, since by spreading a lethal disease the consequences of their actions will mainly be felt by others. The failure of so many people in Britain and parts of America to wear masks in public shows how far we have to go. We have something to learn form the East Asians. But not China. That is another story.