Unofficial lockdowns, and Sunak’s deadly incompetence during the pandemic

 

It is now well established that Rishi Sunak as Chancellor played a significant role in increasing the death toll from the pandemic on at least two occasions. The first was to introduce ‘Eat Out to Help Out’ in the summer of 2020, and the second was to advise Prime Minister Johnson to ignore the medical advice from SAGE to impose a lockdown in the early Autumn and subsequently.

In both cases he will argue that, as Chancellor, his role was to protect the economy. Yet he did no such thing. As Chancellor, he failed to understand that to protect the economy you had to control the virus, which means keeping the number of people infected low. I and other economists argued this at the time, but in this post I want to set out the logic in a new way to show why there never was a health/economy trade-off.

A decade before the pandemic a group of us published an article on the economic effects of a pandemic. One of the main findings of the paper was that a severe pandemic can involve serious economic costs because consumers will avoid what we called ‘social consumption’. Social consumption involves anything that brings consumers into contact with others, so includes eating out, going to pubs or the cinema, using public transport etc. Social consumption involves a third of total consumption, so if people significantly reduce their participation in these activities the impact on the economy will be large [1].

We could call this effect an ‘unofficial lockdown’. Individuals stay at home rather than eat out or go to the cinema because they want to avoid catching the virus, not because they have been told to by the government. The key point is that if the government does nothing, individual actions attempting to avoid catching a potentially deadly virus will lead to a substantial economic slowdown. Swedish GDP fell by 7.6% in 2020Q2, even though no official lockdown was imposed.

This is why reducing the number of people infected also helps the economy recover. There is no health/economy trade-off in this kind of pandemic. If economic policy encourages people to put themselves at greater risk of getting infected, as Eat Out to Help Out (EOTHO) did, then any boost to the economy would have been limited to when the scheme operated, and thereafter there would only be economic damage as infections increased. The only situation where this might not happen is if R (the average number of people infected by one person) was sufficiently less than one and it remained below one despite EOTHO, but we know this wasn’t the case and Sunak made a point of not asking SAGE about it.

While EOTHO played some part in the second wave that grew during the Autumn of 2020, just as serious a failure was Sunak arguing against the SAGE proposal for a second lockdown in September. It is the case that an official lockdown has a bigger immediate negative impact on the economy than an unofficial lockdown. This is because, for example, in an unofficial lockdown

1. Many people will not be well informed, and will not reduce their social consumption much if at all

2. Some people will be well informed, but decide the risk to themselves is small so they will not reduce their social consumption, and discount the risk of them infecting the more vulnerable.

3. Employers may force workers to continue to travel work, even though both the work environment and travelling to it may risk infection.

Yet for the same reasons, an unofficial lockdown has less of an effect in reducing R than an official one. [2] This is what the UK experienced in the Autumn of 2020, even with the addition of some regionally based restrictions imposed by the government. With R>1, not only are more people being infected, with some dying or getting Long Covid, but the economic damage persists as individuals try to protect themselves by withdrawing from social consumption.

The UK and other countries experience of full official lockdowns is that they reduce R to less than one, so with a short lag infections start falling. This was the case for the lockdown at the end of March, the one month lockdown in November and the lockdown in January 2021. Because R<1, the number of infections fall and then the economic damage caused by individuals avoiding social consumption dissipates.

My focus on what happens to R is crucial, because there is a world of difference between R<1 and R>1. In the former the pandemic is being controlled, so that when lockdown ends the situation is manageable, and the hit to the economy from reduced social consumption will be relatively small. If R>1 the damage to the economy just keeps getting larger.

So while an official lockdown might do more damage to the economy than an unofficial one while it lasts, the official one deals with the problem, so reduces the time that Covid damages the economy. In contrast doing nothing, or taking measures that fall short of a full lockdown, allows infection numbers to increase and so allows damage to the economy to persist.

This is exactly what we saw in the Autumn of 2020. Thanks in part to pressure from Sunak, the government rejected advice from the experts to impose a full lockdown, and so infection numbers grew and consumption remained over 10% below its end-2019 level. When a sustained lockdown came in 2021Q1 consumption was only a few percentage points lower than 2020Q3 (GDP was actually higher), but that lockdown brought cases right down, and vaccines then removed the need for further lockdowns.

It is really difficult to rationalise what Sunak did during the summer and autumn of 2020. By deliberately not asking SAGE about the impact of EOTHO, he must have known this would increase infection rates. Did he really think the economy would be largely unaffected by a second wave? Unlikely, as in enacting EOTHO he was aware of people reducing social consumption because of the pandemic! Perhaps his actions were guided by perceived political advantage rather than economic or health impacts.

Gross incompetence is a strong term, but I fear it clearly applies to Sunak in these two cases. His thinking appears not to have got beyond the level of a right wing newspaper column, despite having the resources of the Treasury at his disposal. [3] His actions not only led to many people dying, but his actions also damaged the economy when he was the minister in charge of protecting it.

[1] This response modelled in our paper involves individuals trying to avoid catching the virus. It was not coordinated by governments in any way. In the paper we didn’t look at government imposed lockdowns beyond school closures.

[2] Obviously this judgement is country dependent. In countries where people and employers are better informed and more socially minded, unofficial lockdowns may come closer to replicating official lockdowns. This is why comparisons between countries that did lockdown and Sweden are potentially misleading, and why comparisons between Sweden and other Scandinavian countries are much more informative.

[3] Reporting on the Covid inquiry has naturally focused on political culpability rather than the advice politicians were being given. In this particular case it is inconceivable that the Treasury was unaware of the analysis I outline here. What happened to that analysis, and how far up the civil service hierarchy it got, are interesting questions we do not know the answer to. Until we know, we can only wonder whether senior Treasury officials' concern about higher government borrowing in lockdowns mattered more than the health of the economy.