MOAR on Kissinger & Pinochet—Noted

Simon Wren-Lewis: "Social Consumption" & COVID-19—Noted

The bottom line appears to be that ending “lockdowns” will not produce rapid economic recovery. People have increased their savings substantially—are planning to do next year, after the plague has passed, things that they can reasonably postpone to next year. Such an increase in savings requires an increase in planned investment spending (or in government public consumption spending) to maintain macroeconomic balance. But that maintenance of macroeconomic balance is not being greased by government action to make sure that that investment spending appears. And government consumption spending is not growing but shrinking as a new wave of austerity kicks in. But what about ending the lockdowns? Doesn’t that help? Probably not. Ending the lockdowns gets more people sick—which further raises savings. And the lockdowns themselves did not so much decrease spending as shift spending from nonessential (restaurants) to essential (grocery stores and take-out) spending categories:

Simon Wren-Lewis: Locking Down Too Late but Ending Lockdown Too Early https://mainlymacro.blogspot.com/2020/06/locking-down-too-late-but-ending.html: ‘All this is important... because it means that the number of new infections is declining very slowly, which in turn means that most people will not return to previous patterns of ‘social consumption’. That in turn means that there cannot be a complete recovery. We do not know at what level of daily infections people will be happy to resume social consumption, but it is bound to be well below 17,000. The difference between R=0.8 and R=0.9 in getting to that much lower number of infections is measured in months, as is the difference between R=0.9 and R=0.95. We are relaxing lockdown at much higher levels for daily new infections compared to Italy, France and Germany. Relaxing the lockdown might (I stress might) be justified if there was a tried and tested alternative mechanism to suppress R. That mechanism does exist: a well functioning and comprehensive track, trace and isolate (TTI) infrastructure.... It seems clear that many/most of the scientists advising the government also think lockdown is ending too quickly. The alert level remains at 4, despite Johnson/Cummings’ wishes. As Rafael Behr put it, “Johnson's relationship with science has gone the way of most of his relationships.” Yet this divergence does not seem to worry him and those around him at all, which is a bit odd for a government that kept claiming they were following the science. I should resist the temptation to suggest that all this is obvious. When I modeled the economic impact of a pandemic I was surprised at how much of aggregate consumption was social. It isn’t just pubs, restaurants and tourism, but large parts of recreation, culture and transport. These sectors make up over a third of consumption. Even the demand for clothing may decline if there are no parties to go to. The pandemic creates a huge demand shock even without any lockdown measures like school closures. That is why many better-off households have been saving much more during the pandemic.... There is no trade-off between public health and the economy: better public health (less COVID-19 infections) is the sure way to a substantial recovery. The idea that we have to lift the lockdown for the sake of the economy is the new austerity.... Could we get a similar recovery by some other means, such as a large fiscal stimulus? The short answer is no. Because social consumption is such a large proportion of the total, you would need a ridiculously large increase in spending in other sectors even to come close to substituting for that loss. The only reason why you would contemplate not doing the first best option, getting infections down, is because your ideology is screwing your common sense. Which is a pretty good description of how this government has dealt with this pandemic so far… .#noted #2020-06-25

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