When Everything Is Flattened

When Everything Is Flattened

This article from the Autumn 2020 edition of the IPA Review is written by Research Fellow at the IPA,  Andrew Bushnell. 

Awareness is growing that the coronavirus disease might cause two catastrophes. Speaking on the night of 24 March 2020, Prime Minister Scott Morrison put it this way:  

We’re dealing with two crises. We’re dealing with a health crisis that has caused an economic crisis. And I am very concerned about the economic crisis that could also take a great toll on people’s lives; not just their livelihoods, the stresses that that will put on families. The things that can happen when families are under stress. I’m as concerned about those outcomes as I am about the health outcomes of managing the outbreak of the coronavirus. And it is a delicate task for the National Cabinet to balance those two. Lives are at risk in both cases.  

On one hand, we face a public health crisis unlike any we have seen in recent years: a disease that can be deadly for the elderly and the vulnerable (and in rare cases, for others), that seems to spread rapidly, and that can be carried innocently by asymptomatic people. As the philosopher and risk expert Nassim Nicholas Taleb points out, where a risk is unquantifiable but known to be potentially catastrophic, precaution dictates you act as strongly as possible. This is because, by definition, you cannot tailor your response to something you do not understand.  

On the other hand, the most effective action we can take in response to that potential catastrophe is, assessed in the same terms, itself potentially catastrophic. The costs of the current ‘flattening the curve’ policy are also unquantifiable: we do not know how many people will lose their jobs or their businesses or their homes or their investments, and—most importantly—we do not know how an economic collapse will affect people’s lives. Economic collapse will create people who cannot afford a home or sound nutrition, whose living standards are much lower perhaps for most of their lives, and who are placed under extraordinary psychological pressure. They will be killed by our overreaction just as surely as the victims of coronavirus will be killed by our inaction.  

As a matter of logic, it seems obvious the starting point for discussion is intervening to prevent the spread of coronavirus. The only reason not to start with coronavirus mitigation is if we doubt whether the experts understand the situation—and absent some new evidence akin to a Black Swan, making this allegation would be imprudent. Yet we must note, given our commitment to prudence, the logic also runs the other way. Flattening the curve means ensuring coronavirus cases do not exceed the capacity of the healthcare system. 

If the economy collapses from the measures taken to flatten the curve, flattening the curve becomes futile. Why? Because healthcare system capacity will collapse, too. No money means fewer healthcare staff and less equipment and medicine. As social consequences of economic collapse mount, increasingly scarce resources will have to be dedicated to addressing them, further reducing what is available for the fight against the disease.  

The economic problem, then, is not about GDP or other abstractions—it is about lives, just as much as the public health problem.  

Confronted with a situation like this, it is tempting to dismiss both scenarios of catastrophe as marginal cases and to believe that we are more likely to muddle through. This is a kind of moderation fallacy that is inappropriate in normal times, and decidedly the wrong idea when extreme outcomes are live possibilities. The stakes are too high to make this assumption reasonable. It is equally tempting to try to rank the probability or severity of the twin catastrophes. This would also be a mistake in reasoning. You cannot rank the catastrophes; there is no way to know which will, at its fullest extent, kill the most people. And, given the likelihood that if one happens, both happen, you cannot even keep them separate.  

So we must flatten the curve, but not at the cost of economic collapse; and we must avoid economic collapse but not at the cost of deadly pandemic. I want to argue here that these duelling needs for precaution suggest a policy that may itself seem an appeal to moderation but, I hope will be clear, is the most prudent. We should do everything we can to flatten the curve up to the point of economic collapse, but no more than that.  

FLATTENING THE CURVE  

Flattening the curve has been represented by a simple chart: on the chart (opposite page) are two curves: one tall and narrow, representing a large number of infected people over a short period of time; the other shorter but longer, representing the alternative scenario of fewer people being infected at the same time but with infections persisting over a lengthier period of time. Finally, across the chart is a dotted horizontal line, representing the capacity of the healthcare system (in terms of number of people who can be treated). It can be seen the first curve rises well above this dotted horizontal line, whereas the second curve stays below it. The latter result is achieved by limiting people’s interactions with one another so we are instructed to stay at home, our non-essential activities have been suspended, and international, and even interstate, travel has also been cut off.

This intervention requires, in effect, something negative. Individuals are being told what not to do. It therefore scales easily, at least up to the point where workers who simply cannot perform their work at home are impacted. This intervention is the most effective tool governments have at their disposal. But the chart does not capture the relationship between its two elements, meaning the curve and the dotted line. In the real world, these interact in important ways. Similarly, the chart is conceptual and makes no use of units. This is important for clearly communicating its main point, but the policy response itself cannot be agnostic about the number of cases, the time involved, and the cost of action. Unless we think flattening the curve is a trump that defeats all other values, we owe it to ourselves to consider how much weight it should be given. No one disputes our aim is to avert catastrophe, but, as we have seen, catastrophes come in many guises. 

The chart shows the capacity of the healthcare system as static, but governments and entrepreneurial businesses are working hard to increase capacity. They are increasing the purchase and production of key medical equipment such as ventilators and face masks, increasing staffing levels (including by deploying medical students to hospitals), and studying the disease so resources are used more efficiently. Therefore, it is to be hoped that in reality the dotted line will have some sort of positive gradient.  

However, governments must plan as though this line will not rise. This kind of intervention is beset by uncertainty. We do not know how much capacity we will need, and we do not know how much we can produce. In a material sense, the depletion of our onshore manufacturing capability combined with competition in the global market for key goods means our ability to expand capacity is compromised. Unlike flattening the curve, raising the dotted line does not lead to easily scalable actions. Treatments do not materialise out of thin air. In a policy sense, how moveable is this line is a huge determinant of how much curve-flattening we need—and thus, how stringent should be our shutdown.  

How far should the second curve be stretched to the right in order to stay under the dotted line: how long must our curve-flattening stay-at-home policies remain in place? The ideal scenario here is we stretch the curve until we find a vaccine and/or an effective treatment, which we can rapidly deploy, leading to a drop-off in new cases.  

Stay-at-home can be thought of as buying time—a point I will return to later. For now, note we do not know how much time we need to buy; we do not even know if that time will produce the relevant discovery. Again, this uncertainty suggests aggressive action to flatten the curve. 

ECONOMIC COLLAPSE  

The case for doing all we can to flatten the curve seems clear:  

  • Social distancing scales in a way that capacity-building does not and cannot.  
  • If the curve does breach the dotted line, the risk of catastrophe increases.  
  • We do not know how much of a breach will precipitate this catastrophe, and we do not know if people can get sick more than once.  

We do not know how much time we need to buy. Given all of this, I do not demur from the official position that governments must do all they can to flatten the curve, while simultaneously raising, as best they can, the capacity of their healthcare systems.  

Yet because we do not know how much time we need, we cannot know what it will cost us. And this creates the other potential catastrophe: economic collapse, which is potentially catastrophic in the same way as the coronavirus crisis. That is, let us agree economic collapse can be ‘denominated’ in terms of lives lost, just as the coronavirus crisis can be. At least one economist has attracted opprobrium for suggesting if the restrictions cause GDP to fall by more than 6.4 per cent then the costs will have outweighed the benefits. This is not the place to examine particular models or conclusions, but rather to establish the general logic.  

Whatever the precise calculations, we have good reasons for believing loss of life is at stake in both cases and for believing we cannot rank the two with any precision. If this is accepted, nonetheless it remains to be argued how flattening the curve might lead to economic collapse and whether that scenario is also beset by uncertainty such that we ought also to take the full measure of precaution against it, as opposed to, say, assuming we can patch up the economy at some later date, after defeating the disease. 

Flattening the curve requires people to stay at home. This typically means they cannot go to work. Much of the economy is shut down. At least three related economic effects of this policy are:  

  • Unemployment: The most immediate effect of shutting down the economy is that businesses will have to release staff. Many casual workers are looking at a prolonged period without shifts. As I write, Australia’s largest businesses have collectively laid off hundreds of thousands of workers, and many more such layoffs will have occurred in small and medium businesses.  
  • Business closures: Many businesses will not survive long without revenue, so the risk is that businesses cannot reopen once the shutdown ends. Also lost will be the value contained in the knowledge encoded in existing businesses—efficiencies in process and procedure that have developed over time, reputation and customer loyalty, and client relationships, among other things. Even if new businesses form after the crisis ends, this value will not be replaced immediately.  
  • Housing: Mortgage payments and rents are fixed expenses. People facing reduced incomes may not be able to afford these payments. Landlords have been encouraged to forgive late payment of rent and prohibited temporarily from evicting tenants, but they cannot sustain this forever. Thanks to negative gearing, many landlords have mortgages so unpaid rent becomes unpaid mortgages.  

Along with the economy, something else is at stake in both catastrophes: society itself. Social collapse, by which I mean the loss of institutions, habits, and beliefs that constitute our social order, is also made possible by the disease and our response to it. We agreed earlier to denominate the twin catastrophes in loss of life, and one of the ways in which they might bring this about is by destroying our way of life. In a sense, death begets death: if people die of one catastrophe or the other, or one then the other, in the worst case—which, recall, is what we are planning for—more people will die in whatever disorder follows.  

Here I want to introduce the idea that along with loss of life, what is at stake with these twin catastrophes is a value necessarily ancillary to life: the framework within which we comprehend that loss. We fear for real people, not abstractions—for our parents, children and friends. By extension, we empathise with people who have the same fear for people we ourselves do not know.  

We understand this fear in ourselves and others because we all share similar concepts about what is good in life—at root, we agree everyone wants to live, recognise that same desire in the other, and this recognition is stirred in us by the institutions that bind us together.  

Put another way, one of the differences between the economy and society is the former can realistically be reduced to the individuals who participate in the economy. It has no inherent worth; whatever value it has resides in the value it delivers to people. Society, however, is not reducible in this way. Our country has a life of its own, and this life is also put at risk by the measures needed to flatten the curve, and, equally, by economic collapse. 

AVOIDING THE TWIN CATASTROPHES  

 The key question is how we can take precautions against both impending catastrophes. Or: what should we do? The answer has two parts:  

  • First, we must accept the need to flatten the curve.  
  • Second, we should also accept flattening the curve must be done with a shutdown that lasts no longer than society can sustain.  

We should think of the shutdown period as buying time to develop better treatments for the disease, to grow our understanding of how it spreads, to identify and isolate the most vulnerable, to build hospital capacity, to distribute vital tools such as masks and gloves to as much of the population as possible, and to prepare for everyone else to return to work. The price we will pay for this time should be the maximum we can afford—but no more than that. How much time can we buy? It is impossible to say this with any precision. A starting point for answering the question is perhaps found in the fact that key payments—such as salaries, mortgages, and rent—are paid on fortnightly and monthly bases. As these cycles turn over in the period without revenue, businesses will have to close, let go of staff, vacate properties and so on. Businesses are on different cycles but within a month of the shutdown all will have confronted at least one cycle without revenue—and likely two wage cycles. This might be enough to send many over the edge. It seems likely an extended shutdown will be precarious for almost all small and medium enterprises. 

What should we do with the time we buy? The two main public health interventions need to be scaled up as far as practicable. Social distancing must be extended as far as practicable and necessary (we may already have reached that point), but it is not sufficient for defeating coronavirus disease—we need active measures to stop its spread and develop treatment as well. The highest priority should be ramping up testing for the disease and the purchase and distribution of equipment known to be important for preventing transmission and for treatment. 

Sending money to individuals is simple and gives people options for how best to weather the current storm. It is the best way to reach the unemployed, the self-employed and sole traders whose projects will dry up in the economic downturn. But while it succeeds as a welfare measure, its supposed ‘stimulus’ effect is uncertain, given people need every dollar right now. By contrast, supporting employers during the shutdown keeps businesses open—or at least keeps them as a going concern, even if not operating at any great capacity. This secures people’s jobs, and also secures the value contained in businesses practices, relationships, reputations and so on, all of which would need to be built up again if they collapse. 

Realistically, it is not a choice between one or the other, but a question of priority. Clearly, the economy will emerge from its hibernation stronger if employers are supported. This is true so long as we assume the remaining risk from coronavirus after the shutdown ends is low enough for the economy to return to something like its prior form, if not scale or intensity. But if the effects of the disease linger, many of the businesses we support now will still not be viable and the more efficient outcome might have been to let businesses fail early and bail out all individuals, whether they are employers or employees, landlords or tenants. Conversely, assume the coronavirus is comprehensively defeated by, say, the development of a vaccine. In that circumstance, business might rapidly return to normal, and our efforts to save existing businesses will pay off handsomely. Whereas support for individuals in such a scenario will not mean they have work to go back to and they will have an economy that has further to rebuild and so a longer timeline for recovery. Given the need to maintain society’s institutions, there is a case to put additional weight on solutions that preserve businesses and the relationships embedded within them. 

An objection is possible at this point: if our society has been, or may be, so badly affected by the coronavirus crisis, then this might indicate our society was and is disordered in some important way. A natural temptation is to see the genesis of revolution in the crisis. However, if you have a flat tyre you don’t replace the engine, much less junk the whole car. In a system that is organic, not mechanical, and vastly more complex, an equivalently misplaced action will be extraordinarily costly. In fact, the problem we face likely emerges from earlier decisions to ignore the need for careful and incremental change, and so repeating that mistake would be extremely foolish. 

Let me make this less abstract: we have in recent decades embarked upon a massive ideological project that has weakened our bedrock social institutions, from the family to religion to civic associations, and that has weakened our national sovereignty—both by integrating our economy and politics with the rest of the world, and by undermining the shared sense of identity which underpins our democracy. We should not lurch from one revolution to another. 

Instead we should turn to the wisdom encoded in our traditional institutions.. Yet as we have seen in this crisis, the confusion about how government should respond (think about the UK switching rapidly between response plans) and how individuals can contribute to the fight against the disease (think of the moral panic surrounding the appearance of people at Bondi Beach) is a product of, at least in part, the lack of a shared moral language. Our duties to one another are not clear to us anymore, and our leaders’ actions are apt to seem arbitrary to us. This shared moral language is one manifestation of tradition and institutionalised practical knowledge. We should have known what to do—indeed, we should have done it instinctively. But we did not. If we are to emerge from this crisis stronger than before—and less vulnerable to such shocks— then not only do we need to keep whatever practical knowledge we still have, we need to aim towards a society that generates, uses and respects practical knowledge of the sort encoded in our institutions. 

We have, then, a good—if broad—idea of what we need to do: prevent the transmission of coronavirus by staying at home as much as possible and restricting the economy to the minimum extent necessary; use the shutdown period to develop positive measures that work to treat victims and eliminate the disease; insulate businesses and organisations from the costs of the shutdown to preserve as much institutionalised practical knowledge as we can, which will shorten the economic effects we must endure; insure vulnerable individuals who will not be protected by institutional subsidies; and try to rebuild our trust in one another and the system we share. 

How can we know whether our interventions are working in the intended ways? What we will be looking for are signs of a ‘return to normalcy’—for mortality rates to return to normal, for employment and job creation start to increase again, and for people to go back to socialising, playing sport, and so on. What comes next should be thought of as a resumption of normal service. This reflects the widespread intuition that what we had before the crisis was valuable and is therefore worth getting back. 

 CONCLUSION 

We face the prospect of twin catastrophes. The only thing we know for sure is the probability of each is non-zero, and the actions we take to mitigate one might cause the other. We have to apply the precautionary principle twice. If we do so rigorously, we find an argument for flattening the curve by restricting the economy—but only for a time. We buy that time with a view to saving our society. This means saving the institutions of which it is comprised, and which contain the knowledge that enables individuals and society to flourish together. 

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