I believe that our political leaders are still underestimating the challenge posed by coronavirus. Radical action is needed to mitigate potential catastrophe. We must accept that the costs of coronavirus will be massive – a chunk of the economy will shut down. And that’s ok – we want high risk economic activities to shut down. All of us must make sacrifices to protect each other from grave danger.
When confronted with a pandemic that may grow exponentially, infect up to 70% of the population and kill up to 5%-6% of recorded cases where health systems are overwhelmed – as we saw in Wuhan and are seeing in Italy – extreme risk mitigation is appropriate. While that death rate is likely to be substantially lower once all cases are counted (edited – see comments), in a worst case scenario it could nonetheless kill tens of millions worldwide, and over 200,000 in Australia. For comparison, Australia’s War War II combat deaths totalled 27,000.
We are in a world war against coronavirus and we need a war economy. Large sacrifices are appropriate to avoid catastrophe. Significant restrictions on the private sector are required, along with an expansion of government planning to coordinate the economy to promote pro-social outcomes. Private markets are unable to satisfactorily deal with the extreme externalities associated with pandemics. In such crises, they can fail to allocate resources where they are most urgently needed.
In a context of catastrophic risk, we must suspend regular bean counter thinking. One does not pick up pennies in front of a steam roller.
Australia’s governments must act assertively and quickly. I recommend the following.
1. Urgent investment in intensive care
Deliver urgent and massive investment in intensive care beds and ventilators. These are the key variables in determining the death rate. Up to 6% of recorded cases are classified as “critical”, with patients requiring intubation to avoid death. Hospitals do not have nearly enough facilities to handle the sort of spike in cases that can come from a coronavirus outbreak. In Italy – where the recorded death rate is around 5% – doctors at the epicentre of the outbreak have to leave patients to die due to insufficient resources.
These recorded rates overstate the true rates and would fall if all infections were included (edited – see comments). The Imperial College corona response team estimates a hospitalisation rate of 4.4%, a critical rate of around 1.32% and a death rate of 0.9%. Assuming 65% of Australians become infected, based on a midrange estimate of herd immunity requirements, that would equate to 700,000 hospitalisations, 210,000 critical cases and 140,000 deaths. To the extent the hospital system is overrun, deaths could climb towards the first two numbers. Australia only has 2,023 intensive care unit beds. If the 210,000 critical care cases tend to be too closely concentrated in time and space (as they would in an uncontrolled outbreak), it’s catastrophe. (It should be noted that some hospitalisations not recorded as critical can and do end in death.)
Australian Medical Association head Tony Bartone has said intensive care ventilator numbers “is going to be a significant issue.”
“We’ll never have enough to cope with a health emergency, a national health emergency, of the scale that potentially this could evolve to,” he said.
In addition to hospital upgrades, Government should consider repurposing existing factories to support the effort against coronavirus.
2. Leave for casuals funded by government
Provide government-funded leave for any casual, self-employed or “gig economy” worker who is advised by a doctor to self-quarantine or enter isolation. The leave should also be available to workers particularly vulnerable to coronavirus who are not able to work from home. Payment rate to be an average of recent earnings or Newstart rate, whichever is higher. In addition, the payment should be available to permanent employees who exhaust their sick leave. A society that forces people to come into work and spread coronavirus in order to pay the rent is very confused.
3. Introduce rationing and grocery deliveries to the vulnerable
Ration essential groceries and fund deliveries to elderly, other at-risk groups and those in self-quarantine. Everyone needs staples. It is no surprise that people want to stockpile them. It reduces trips to the shopping centre, which is a coronavirus risk, and helps people prepare for a potential snap lockdown. As real interest rates approach zero, the cost of stockpiling becomes minuscule providing people have the storage space.
So the behaviour is not generally irrational (at the individual level) contrary to frequent claims by pundits. It does, however, create coordination problems for society.
Governments can solve this – and the solution does not involve asking nicely. Have we been so socialised into neo-liberalism we’ve forgotten the old fashioned power of government command?
4. Increase jobseeker payments, reduce waiting times, cut mutual obligation
People who lose their jobs will need urgent funds to help them meet financial obligations. We want to help them meet these obligations, and we do not want them so desperate that they engage in work or aggressive job search behaviours that are inappropriate due to coronavirus risk.
For the same reason, we should suspend various “mutual obligation” requirements. Job seekers should not, for example, be required to regularly visit their job search provider under pandemic risk. Currently these requirements apply even to those who are immunesuppressed – such as one woman who has undergone extensive chemotherapy. The obligations are mostly pointless anyway. Get rid of them.
5. Tell public servants to work from home
Direct agencies to ask all non-essential public servants to work from home. Australia has more than two million government workers. Even if only 15% of them could work from home, that’s over 300,000 people. This is significant in its own right, but more importantly it sends a signal to the private sector. Governments should lead by example.
Governments could also provide generous leave arrangements for staff who commit to staying home. For example, it could provide three weeks stay-home leave for each week deducted from a worker’s annual leave balance.
6. Direct universities to implement intensive social distancing
Direct universities to move classes online and to require academics work from home. Those who need special technology available only at the university may be exempted. Tell the universities their compliance will influence future financial assistance.
7. Ask business to implement intensive social distancing
Make sure major businesses understand they are expected to carry their weight in promoting social distancing, including through work from home arrangements. If they display good behaviour voluntarily they may avoid a heavy-handed regulatory alternative.
8. Expand public employment to fight coronavirus
Fighting coronavirus is a national effort and there will be plenty of work to go around. Additional workers will be required for many tasks, from supporting health care to delivering groceries. High value medical and research staff in the coronavirus effort should have teams of assistants to maximise their productivity. Not a moment of their time should be wasted on tasks other people can do. We need to be prepared to cut corners in emergencies – China reportedly trained receptionists to do CT scans in Wuhan. A reserve army of workers needs to be trained and ready for an outbreak.
Workers who are in quarantine or isolated can be paid to promote coronavirus awareness online, including through their social networks. Workers can be hired as conventional public servants and through some variant of a job guarantee.
9. Consider incentive payments and wage subsidies to businesses that do the right thing
Consider wage subsidies for businesses that agree to meet certain social distancing standards. Violations of these standards would be investigated upon a complain from any party.
Incentives can be provided to businesses for every worker who works from home. When workers are not able to collaborate in person or utilise workplace capital, there will be a fall in productivity. The government should aim to remove or reduce this disincentive to employers. Subsidising employer sick leave expenses, particularly for businesses that experience a sick leave spike, may also be sensible.
10. Consider income contingent loans
Consider an income contingent loan program to help tie people over on their financial obligations. In this downturn – unlike the global financial crisis – household “stimulus” should be about helping people pay their existing bills, rather than encouraging a spending spree. The downturn is driven by supply rather than demand, so Keynesian pump priming is therefore inappropriate or even counterproductive. The health policy goal is for people to engage in fewer economic activities.
My hunch is that income contingent loans are less likely to be splurged than cash payments, so they may be more fit for purpose in dealing with coronavirus. People are debt averse, so they will be reluctant to take out a new loan unless they really need one. This instinct will assist in allocating cash to where it is most urgently needed. Income contingent loans may also be preferable to transfer payments for political economic reasons. Government debt is contentious. Compared to transfer payments, loans allow a much larger injection of cash for a given constraint on government net debt.
Concessional loans or, ideally, equity purchase could be considered as a way to help keep cash strapped businesses afloat.
11. Consider a small, emergency universal income
A universal income may seem to conflict with the targeting rationale of the income contingent loans, but the policy objectives are somewhat different. The loans are aimed at those who need urgent assistance with large financial obligations. But the downturn will be a slow burn strain on a much wider segment of the population. Many of us will find our casual, freelance or small business opportunities shrink; many will have their hours reduced. The fortnightly bills will become harder to pay. The emergency universal income would be designed to address this financial hardship which will be experienced by a large number of Australians.
Rather than trying to finely target assistance to such a large and disparate share of the population through clunky and gappy eligibility arrangements, it may be worth simply providing small fortnightly payments to all Australians. A small regular payment may be preferable to a single large cash payment given the objective is to help people pay their routine bills rather than to encourage a spending spree. Of course I’m making a psychological assumption here – about how people spend lump sums versus an income stream – and this is subject to empirical investigation.
The scheme would be universal income, but not universal basic income. The payment would be a supplement, not be enough to cover living costs on its own. Those who need a living allowance would register for a jobseeker payment or other conventional welfare program.
A time for the heavy hand of government
Competitive markets and individualism can deliver prosperity in normal times, but during major societal crisis the government needs to step in and take command of the economy to ensure resources are appropriately allocated to the collective effort.
It’s been so long since we’ve faced such as crisis everyone’s forgotten what to do.