Economy tests positive for recovery
Alan Jones had the outrage dialled to the max for his editorial on Sky News on August 13, as he fulminated against the imposition of coronavirus lockdowns. They only made things worse, he said. Look at Sweden, with 10 million people, no lockdown and 5600 deaths, and compare that with New York City, with eight million people, massive lockdown, 32,000 deaths. And Victoria was another example.
“If lockdowns worked, why is there a problem in Victoria?” demanded the shock jock.
The real problem was not Covid-19 but “dictatorial politicians promoting a climate of fear and alarmism”, according to Jones.
“We’ve smashed the economy … and what have we got to show for it. Nothing…”
Fast forward to Wednesday this week, when Reserve Bank Governor Philip Lowe appeared before a parliamentary committee to point out that Australia did, in fact, have quite a lot to show for it: a population almost free of Covid-19 that was now enjoying one of the strongest economic recoveries in the world.
Lowe did not pretend there were not still big problems: unemployment was now at 7 per cent – “and underemployment higher still” – and it would likely still be above 6 per cent in two years’ time. Interest rates would be almost nothing for at least three years, which would cause hardship for those dependent on savings. It would be the end of next year before Australia’s GDP got back to where it was at the start of 2020.
Nonetheless, Lowe said, the economy, which contracted by an unprecedented 7 per cent in the three months to June, was growing again. Growth would likely be 5 per cent next year, and 4 per cent in 2022.
Part way through Lowe’s appearance, the Australian Bureau of Statistics released the national accounts figures for the three months to September. They showed the economy was growing faster than many expected, at 3.3 per cent for the quarter. And this was achieved while our second-largest state was still in lockdown.
Lowe is temperamentally the opposite of Jones – restrained, considered, not prone to public displays of emotion – but he expressed mild pleasure as the figures were communicated to him. He suggested the economy might come back even more quickly.
The ABS numbers certainly supported his assertion to members of the house of representatives economics committee: “We have now turned the corner and a recovery is under way.”
As “uneven, bumpy and drawn out” as that recovery will be, Lowe said, we actually are doing comparatively well. Just a few other nations – China, Vietnam and Taiwan – had done better. Almost everyone else in the world is doing it tougher.
“When you look at the size of the fall in [Australia’s economic] output, it’s large, but it’s smaller than certainly every European country [or] North America and South America. So we’ve done remarkably well as a country…” the RBA chief said.
Lowe recalled that three months ago it looked as though Australia would be lucky to have any growth in the September quarter. He was saying then that unemployment could be as high as 10 per cent.
Things have changed dramatically since that forecast, which was made about the same time Jones went on his rant. In the following months, Australia has all but eliminated Covid-19, while almost all other advanced economies are either experiencing subsequent waves of the virus or locking themselves down again, or both.
In the United States, the highest case and death rates now are being recorded in those parts of the country – most of them governed by Republicans – that opposed lockdowns and even the wearing of masks. As a result, the US is now each day recording about three times as many deaths as Australia has had in nine months.
Sweden, which opted for minimal restrictions on people and businesses and embarked on a bold experiment in herd immunity – becoming the poster child for Jones and other ideologues – has been shown up in its folly.
Indeed, all of Europe, as Lowe said, serves as a “salutary reminder” of how quickly things can go pear-shaped. And, for that matter, a reminder of the perils of premature, ignorant prognosticating.
On August 25, on Jones’s Sky News program, Adam Creighton, The Australian’s economics editor, boldly asserted: “In Europe and the US, the pandemic is almost over.”
Creighton, a former economic adviser to Tony Abbott, was a choir leader in the chorus, heavily peopled by Murdoch media commentators, who carped that the response to coronavirus was worse than the disease.
In comment pieces, Creighton sniped at the epidemiologists and policy advisers who argued that defeating the virus was a prerequisite for economic recovery. One such article, on July 21, opened with a quote from the ancient Roman historian Tacitus: the “pursuit of safety stands against every great and noble enterprise”. Creighton went on to endorse the view of the contemporary British historian and media commentator David Starkey, that the health response to Covid-19 amounted to “economic suicide”.
One of the health experts who argued against Creighton, Jones and the “let it rip” brigade was Stephen Duckett, health program director at the Grattan Institute and a former secretary of what is now the Commonwealth Department of Health. Duckett was an advocate of the elimination strategy from the beginning, no matter the short-term economic cost.
By August enough empirical evidence was in for Duckett to write a piece debunking those who’d endorsed the Swedish approach.
“By the end of July,” he wrote, “Sweden had the seventh highest per capita death rate in the world, and about 10 times larger than its Nordic neighbours. Outbreaks spread to aged care facilities and the vulnerable.”
In this time, the country had seen about 80,000 confirmed cases and some 5700 people had died.
If Australia was to experience similar carnage, Duckett wrote, “This would equate to about 15,000 lives lost…”
This vast human cost had not saved the Swedish economy, he noted. The country’s central bank was then forecasting GDP to fall by 4 to 6 per cent, assuming there was no second wave, which Duckett thought was on the cards.
In fairness, it should be noted that by the start of August, Sweden’s first wave of infections had passed and it was seeing case rates only a little higher than Australia, where Victoria’s second wave had taken off.
It was about this time when Australia’s lockdown opponents declared victory in Scandinavia. Creighton wrote that Sweden, “a nation castigated mercilessly for taking sensible precautions rather than enforcing a China-style police state”, had experienced “no ‘second wave’, unlike other lockdown-prone European nations, lending support to the idea Swedes have developed some herd immunity, and are getting on with their lives”.
But when the official Swedish GDP numbers for the September quarter came out, they were much worse than forecast – its economy shrank 8.6 per cent from April to June – and much worse than Australia’s. And then the virus came roaring back, more acutely than before.
On November 18, Sweden recorded 7622 new Covid-19 cases in a single day. Last week, the country’s top epidemiologist, Anders Tegnell, was quoted by Bloomberg: “We see no signs of immunity in the population that are slowing down the infection right now.”
By late this week, according to Johns Hopkins, Sweden had recorded more than 266,000 cases and nearly 7000 deaths.
Meanwhile, Victoria appears to have beaten Covid-19, by maintaining a very long, very tough lockdown. Despite calls from Prime Minister Scott Morrison and Treasurer Josh Frydenberg to open up earlier.
“We got to a situation where we had 700 new cases a day. And then we got to zero,” says Duckett. “No one else has done that.”
The evidence clearly shows the governments that focused on the economic cost of the pandemic got it utterly wrong and those that plumped for a health-first approach were right.
“Those countries that manage the pandemic better actually perform better economically,” Duckett says.
In Australia, Duckett says, we are now very close to what he advocated from the start: elimination. Despite the fact that the federal government pushed in national cabinet for the lesser goal of “aggressive suppression”, consensus broke down as the states went harder, particularly in response to the Victorian second wave.
“Western Australia, South Australia, Northern Territory, ACT, Queensland and Tasmania not only pursued an elimination strategy, but actually achieved an elimination strategy,” says Duckett.
As life returns to some semblance of normal the benefits are now being borne out in the national accounts, which show economic performance far better than almost any other nation.
Of course, Jones and Creighton were not the only ones who got it wrong. Others in media, particularly the Murdoch media, plus many others in business and political circles held similar opinions. Fortunately, they were for the most part ignored.
But things could have been different. Back on March 17, a meeting took place in the private dining room at Parliament House, involving Morrison’s chief of staff, John Kunkel, senior bureaucrats and a couple of well-credentialled economists. It was meant to be secret, but word leaked to Michelle Grattan, who wrote about it for The Conversation.
While she had no direct quotes, Grattan reported that Henry Ergas, who formerly worked at the Organisation for Economic Co-operation and Development, expressed the same opinions at that meeting as he was espousing in print in The Australian.
Which is to say, he was strongly opposed to “unnecessary, heavy-handed measures [that] may erode community support for the restrictions, undermining our high levels of voluntary compliance”, wanted to limit the debt “loaded on to companies and individuals” and was prepared to sacrifice some lives.
If avoiding a lockdown meant Australia “could achieve two-thirds of the health objectives at one-third the costs, it would be reckless not to choose it”, Ergas wrote in the Murdoch broadsheet.
The other economist at the meeting was Warwick McKibbin, a professor of public policy at the Australian National University and a former RBA board member, who has a long history of modelling the costs of pandemics, including previous coronaviruses, MERS and SARS.
He argued the spread of Covid-19 had to be stopped, fast, regardless of short-term economic damage.
In the end, McKibbin’s argument, based on his calculations and the precautionary principle, prevailed.
He responds cautiously when I ask him what his modelling shows the economic cost would’ve been had Australia not locked down.
Estimates, he says, are inevitably “crude, even using sophisticated models, [depending on] the assumptions you have to feed in”.
But, by his calculation, had Australia not responded as it did, and instead emulated other developed nations that did not lock down, the country would’ve taken a hit equal to about 12.6 per cent of GDP.
So, the actual performance – down 7 per cent, then up 3.3 – looks pretty good.
And on Wednesday, when those new GDP figures came out, Creighton reported them dead straight in The Australian. “The economy is bouncing back strongly from recession, posting the fastest growth since the late 1970s,” he began.
It was no mea culpa but the numbers spoke for themselves.
This article was first published in the print edition of The Saturday Paper on Dec 5, 2020 as "A healthy outlook".
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