Monday, 16 March 2020

Free Press, 16 March 2020: COVID-19


The Situation

Humanity is being ravaged by a virus with (1) high transmissibility and (2) high mortality. Everything is in flux. It is difficult to estimate either (1) or (2) because we don’t know how many people have it. However, some estimates have mortality at 4 per cent and half the population being infected, so 2 per cent or 100,000 deaths in New Zealand.

What Happens Next?

New Zealand can either (1) hope the virus doesn’t get here or doesn’t spread or, conversely, (2) wait until most of the population has had it so the virus can’t find enough carriers to survive in our population (herd immunity), or (3) wait for a vaccine to achieve herd immunity that way. A vaccine is a year away and (1) seems implausible so either way we are stuck with (2).

Flattening The Curve

For context, usually only 30,000 people die in New Zealand each year. If there were to be 100,000 deaths in a few months we would face the kinds of scenes being played out in Italy. Doctors and nurses having to make ethical decisions about who to treat that we usually only read about in stage 1 university ethics classes. Crematoriums working 24 hours a day because there are simply too many bodies.

Can The Election Be Delayed?

The short answer is that the election could easily be delayed as late as December 12 simply by the Prime Minister deciding to do so. Her announcement of September 19 earlier this year is in no way binding. To delay later than that would require a 75 per cent majority in Parliament. At this stage we believe it is unlikely.

Shutting Down Tourism

The Government has effectively shut down tourism by requiring new arrivals to self-isolate for 14 days. It is likely this will decimate flight schedules into New Zealand and goods will become more expensive if the cost of flying here is not offset by carrying passengers on the top deck. The hope is that doing so will help flatten the curve. We are dubious that closing the border now will have much effect. We suspect it is too late for keeping the virus out and has been for two weeks, but the Government has a massive information advantage.

The Role Of Government

People like to say ‘the Prime Minister is running the country.’ She’s not, and no Prime Minister ever has. The Prime Minister is responsible for government. New Zealand is a conglomerate of many institutions. Government has a role to play but so does business and civil society in facing this challenge. A crisis is a reason for government to do its job efficiently, not an excuse for it to expand.

Shock And Orr

As is his wont, Adrian Orr said there would be no monetary policy solution until March 25, then made a surprise announcement of a 75 basis point, and 75 per cent, OCR cut this morning. The big question is where he goes after this. In total, the OCR has now been cut from 1.5 to 0.25 in less than six months. There is no room left except for unconventional monetary policy. Importantly, he also announced the Reserve Bank’s capital requirement increase would be delayed by 12 months. This is a good template for all regulatory initiatives.

Stimulus Is Needed… But

The Government will no doubt announce today that you are getting your future earnings early. It will give cash to workers and businesses that taxpayers will have to pay back later. The Government may well be the right institution to do this. Many households and businesses will have no other facility for maintaining cashflow. Widespread bankruptcy could lead to a widespread breakdown in social order. However, stimulus should be done by reducing taxes and delaying the due date wherever possible, not keeping tax the same and spraying money around. First, do no harm.

Follow Adrian Orr’s Example (Really)

However, it should also announce a one year moratorium on new regulations that are not related to fighting COVID-19. For instance, it should delay the proposed minimum wage increase scheduled for April 1 by a year. Similarly, regulations intended for landlords, employment law, and anything else likely to put costs onto businesses should be canned for the foreseeable future.

What About Testing?

There are widespread reports about the rationing of testing. The Government will not allow testing if a person has symptoms, only if they can show they’ve been in contact with someone who has the virus. We believe the Government needs to be more upfront about why testing is being rationed, and whether it is preparing to increase the capacity for testing more people. As a result of limited testing, we may have a very limited picture of how many New Zealanders really are infected.

Democracy Dies In Darkness

Policy debates of critical importance are being overshadowed by the virus. Only a few weeks ago, one of the most important policy proposals was the Government’s idea of radically paring back the number of subjects and the amount of content taught in the NCEA. Given our falling performance in international comparisons of students already, teaching them even less would be a disaster. The Government must not take this opportunity to quietly progress its non-coronavirus agenda.

We Will Prevail

The situation is going to get a lot worse before it gets better. We are a prosperous and free society. Our community famously looks out for its members in difficult times. We are resourceful and innovative. We have no doubt that New Zealand will emerge from this crisis as a stronger society.