The Sunday News
Michael Mhlanga
Many countries around the world are implementing lockdowns to contain the spread of the Covid-19 epidemic.
The debate is now turning to when and how to get out of the lockdown, so the economy can restart as recently argued by Professor Emanuel Ornelius, a scholar in the field of Economics at Sao Paulo school of Economics.
On the one hand, a lockdown brings health benefits for the society as it contains the spread of the virus, reducing the number of infections and allowing the health system to treat those infected as well as those that require health services unrelated to the epidemic better. On the other hand, a lockdown hurts the economy, because it prevents mutually beneficial economic activities that would otherwise take place.
In one of his prominent analysis on 28 March 2020, he posited that if the question were simply whether a government should implement a lockdown or not, we would need to compare the benefits and costs. Importantly, these change over time. Prof Ornelius is convinced that at the peak of an epidemic, stopping human interaction has a very large health benefit, as it halts contagion, perhaps completely, in the case of a perfect enforcement and prevents additional pressure on an overloaded heath system.
Using basic principles of economics of Marginal Health Benefits (MHB) and Marginal Economic Costs (MEC) that formulate a curve that explains the political economy of lockdowns, Prof Ornelius’ argument finds itself more essential in circumstances that will question the aftermath of the lockdown to counter Covid-19. He argues that after the lockdown is in place for a while, the health situation becomes more manageable.
As Prof Ornelius puts it, we are used to having partial lockdowns during weekends and national holidays, but those have little cost because we know they last just a few days. However, maintaining a lockdown for a longer period imposes increasing costs on society, as some firms may go bankrupt, individuals are laid off and, ultimately, consumption levels and welfare drop sharply and continuously which he explains as, the marginal economic cost (MEC) of a lockdown which increases with its duration.
Rightly so, much of the debate is about the best health policies to contain the spread of the epidemic and prevent collapses in health systems.
These include keeping vulnerable people isolated, widespread testing and subsequent monitoring, with isolation also of those who test positive and of their contacts and of the contacts of their contacts, building of hospital beds, production of medical equipment to treat the ill, and so on.
In Zimbabwe, health measures to contain the spread of the virus and better prepare the health system to cope with the ill can be interpreted as policies that push the marginal health benefit (MHB) curve down. Clearly, if the MHB curve shifts down, it will, at any point in time, reduce the severity of the optimal lockdown. Thus, not only will the measures bring about a direct health benefit, they also allow for an indirect economic benefit by permitting a more lenient lockdown policy, and yes, they also require a direct economic cost to be put in place as rightfully fronted by Prof Ornelius. Thus his other conclusion is that better health measures to fight the epidemic allow for a more lenient lockdown policy, therefore curbing their economic costs.
The part of the current debate that is not on health policies is on the best economic policies during the crisis. Most go in the direction of, in the words of contemporary thinkers like Baldwin and Weder di Mauro who recently prompt the philosophy of “keeping the lights on” until the epidemic is controlled. This includes policies to preserve employment, to avoid bankruptcies, to expand credit to firms and consumers, and so on. Typically, they aim to prevent current disruptions in the economic system from becoming permanent, and to mitigate the welfare cost to the most vulnerable ones.
In a country like Zimbabwe those policies can be interpreted as measures that push down the marginal economic cost curve, as they make a lockdown less painful in the short run and lower its long-run deleterious effects. Clearly, if the marginal economic cost curve shifts down, it will, at any point in time, increase the severity of the optimal lockdown. Thus, by easing their costs, those policies allow for stricter lockdowns, which will help contain the epidemic more quickly and effectively and yes, they also require a direct economic cost to be put in place.
Prof Ornelius further concludes that measures that ease the economic pain during the fight against the pandemic pave the way for stricter lockdown policies, thus bringing larger health benefits.
The main takeaways of his analysis can be understood summarily as that at the peak of a serious pandemic like Covid-19, a near-full lockdown is better than nothing in unprepared countries. However, the lockdown should not be long-lasting, with its duration being determined by its marginal (health) benefits and (economic) costs, as what has been happening in the country, with the lockdown being downgraded to Level Two to allow for more economic activities.
Nonetheless, importantly, the level of the lockdown, its duration, and the underlying economic and health costs depend critically on the measures that improve the capacity of the health system to cope with the pandemic.
