23/04/2020 Coronavirus: Return to sender — economists’ letter is gibberish

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HENRY ERGAS and JONATHAN PINCUS

By HENRY ERGAS and JONATHAN PINCUS

1:00AM APRIL 23, 2020 • H 243 COMMENTS

Like some books, there are petitions that deserve to be forgotten, not for the sake of their
potential readers but to protect the reputation of their authors. The open letter by a bevy of
economists urging Scott Morrison to keep the COVID-19 restrictions in place is a case in point.

In the great class of sequiturs, its opening salvo is a non. It begins by denying that there is any
trade-off between the “public health and economic aspects” of the crisis, calling attempts to
separate them “a false distinction”. However, it then recognises that “the measures taken to date
have come at a cost to economic activity and jobs”, before asserting these are “far outweighed” by
the benefits those restrictions have brought.

Plainly, the letter takes a position on the very trade-off between costs and benefits whose
existence its previous sentence had definitively denied.

That muddle may be the excusable result of sloppy drafting; what is inexcusable is the letter’s
utter confusion on what the debate is about.

Contrary to its claim, no one seriously expects governments to simply allow “unmitigated
contagion”. Rather, given the steep fall in cases and fatalities, the suggestion is that Australian
governments ought to systematically reassess the restrictions, carefully considering their costs
and benefits going forward.

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23/04/2020 Coronavirus: Return to sender — economists’ letter is gibberish

Inevitably, that reassessment involves trade-offs; indeed, those trade-offs have figured in the
decisions taken from the moment the crisis began.

There were, for example, health risks involved in allowing construction sites to operate and in
ensuring mining exports could continue. But even then it was clear that the risks were far smaller
than the costs that would be caused by shutting those activities down.

In exactly the same way, now that both the risks from COVID-19 and the effectiveness of the
measures are much better understood and the health system’s capacity to manage outbreaks has
been greatly increased, it would make sense to identify and relax restrictions whose benefits no
longer exceed their costs.

But far from accepting the need for that reassessment, the letter states that nothing should be
done “until the number of infections is very low, our testing capacity is expanded well beyond its
already comparatively high level, and widespread contact tracing is available”.

Does that mean the signatories believe schools should not be reopened, elective surgery should
continue to be postponed and all cafes should remain closed, despite the decline in cases and
fatalities? Presumably so. But it is a mystery how the signatories can confidently hold those views
without having examined the trade-off between costs and consequences whose existence they
vehemently dispute.

It is true that the signatories propose a remedy for the hardship of those who have lost their jobs
and for the small businesses that face ruin: “strong fiscal measures”, which, translated into plain -
English, means greater public spending. Yet the burden being imposed on future generations is
already enormous. And since it cannot be wished away, isn’t it incumbent on governments to test
whether it might be better to start easing restrictions instead?

None of these questions is simple. On the contrary, they are heart-wrenchingly difficult. But to
decide is to choose, and to choose rationally is to compare the costs and the benefits,
reconsidering one’s decision as new information arrives.

That is what we teach economics students from the outset, and the tools economists have
developed for analysing trade-offs are among the discipline’s finest achievements. In Europe,
where the process of removing restrictions is getting under way, those tools are playing a vital
role. Here too, rather than being ignored, it is time they were put to good use.

HENRY ERGAS, COLUMNIST

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23/04/2020 Coronavirus: Return to sender — economists’ letter is gibberish

Henry Ergas AO is an economist who spent many years at the OECD in Paris before returning
to Australia. He has taught at a number of universities, including Harvard's Kennedy School of
Government, the Universit... Read more

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