I wrote this note to sort out my ideas on the significance of a covid-19 vaccine for the return to economic ‘normalcy’. I am sharing it but expect readers to recognise there are judgements in areas for which I have no expertise.
I once assumed the conventional assumption that there would be a Covid-19 vaccine in about 12 to 18 months and so by 2022 the world would move into a kind of ‘post-pandemic normalcy’, which would still leave some great difficulties for economic policy. Recent reading challenges this optimism, while this morning’s announcement that there may be mutations which affect the ‘corona spike’ adds to the gloom..
Some of the economic implications of a post-pandemic situation will become clearer as this note progresses (there is nothing here on the public debt/fiscal implications).
The New York Times Article
I had seen cautions about whether a vaccine would be so easy to produce. (There was even mention that it was possible there would be no vaccine – there is none for HIV-Aids but Covid-19 was thought to mutate more slowly.) But the complacency was greatly challenged by an article in the New York Times by Stuart A. Thompson entitled, ‘If There Is No Vaccine?’ It opens
“A vaccine would be the ultimate weapon against the coronavirus and the best route back to normal life. Officials like Dr. Anthony S. Fauci, the top infectious disease expert on the Trump administration’s coronavirus task force, estimates a vaccine could arrive in at least 12 to 18 months. The grim truth behind this rosy forecast is that a vaccine probably won’t arrive any time soon. Clinical trials almost never succeed. We’ve never released a coronavirus vaccine for humans before. Our record for developing an entirely new vaccine is at least four years ....”
Of course, there are pressures on the Trump administration to be optimistic (the president is markedly more optimistic about the arrival of a vaccine than his chief pandemic adviser). Moreover, the medical research industry has a record of excessive optimism (recall the institute which promised to have a ‘cure for cancer’ by the end of the year – I think that was in 2017).
The NYT article makes a case for the early arrival of the Covid vaccine. It cites 11 research institutes which appear to have promising candidates. But it also sets out the times required for testing and production. While it considers measures which may shorten these times, one is left with the overall impression – excessive optimism aside – that four years is a minimum realistic time horizon and that the likelihood is that it may well be longer.
The Implications of a Later Vaccine Roll-out
I realised that one of the attractions of the 12 to 18 month promise was that the world economy would go into the post-pandemic phase after about the same time as the Great Depression began its recovery. However, now we seem to be talking about an additional two and more years.
In order to think about the issue, I split the post-pandemic world into three schematic categories: countries which have successfully ‘eliminated’ Covid-19, those which have successfully ‘suppressed’ it, and the residual which have to accommodate to an ongoing reservoir of Covid-19 in their populations.
As will become apparent when I describe them, when there is a vaccine the difference between the categories is unimportant for international mobility. Individuals who are vaccinated can safely visit any regime and the regime can welcome them. But without being vaccinated a person from a elimination regime would be cautious visiting a suppression regime because they might catch the virus, while those from a suppression regime would be similarly reluctant to visit an accommodation regime.
The Elimination Regime
New Zealand illustrates the elimination regime. It does not necessarily mean that there is no Covid-19 in its population and that the virus has been completely eradicated. Rather, the prevalence of the virus is very low. There will be constant monitoring of the population (including testing asymptomatic but potentially vulnerable groups) with very rapid reaction if a case should appear.
An elimination regime requires rigorous border controls on the inward flow of people. Except those from other elimination regimes, the new arrivals (including returning New Zealanders) may have to have a fortnight’s quarantine which discourages both inbound but also outbound tourism as well as other people flow activities. .
Only one in about 3200 New Zealanders have been identified as Covid-19 cases; more important, only about 7 percent of these cases are still active as New Zealand unwinds to Alert level 2.
New Zealand was able to pursue an elimination regime because the population tolerated a vigorous lockdown and the country was able to maintain rigorous border controls (coupled with excellent political management). We will not know for some time about the permanent damage, if any, to the economy from the management regime (as distinct from the damage that Covid-19 has, or could have, done).
Note that Australia is also judged an elimination regime, which is why the proposed trans-Tasman joint bubble is considered practical.
The Suppression Regime
Germany is widely toted as a successful suppression regime (although as I write there are worries about a ‘second wave’ of cases). About one in 500 of its citizens are recorded as having had the corona virus (the death rate is more than twenty times New Zealand’s although all international statistical comparisons in the area are difficult). Germany is coming out of its strong lockdown with almost 12 percent of its cases still active. (This difference from New Zealand may not seem so stark but on May 7 Germany has about one active case in 4200 people, New Zealand has one in 47,000.)
How Germany will deal with its inevitable outbreaks is yet to be seen; outbreaks seem much more likely than in New Zealand.
Germany has faced three difficulties, common in suppression regimes, compared to New Zealand. First, while Angela Merkel’s management is widely admired, she presides over a federal government system and it has been difficult to keep the various states in line. Second, there seems to have been less tolerance of a (milder) lockdown in Germany, and even more pressure from business to unlock. Third, Germany’s long land borders are harder to isolate, especially as it part of the European Union, which promotes ‘freedom of movement’ between its members.
It is impractical to look at every country, especially as most are in earlier phases of their lockdowns. The United States – the comparison with Germany is perhaps inevitable (and more realistic than comparisons with New Zealand). It reports that one in 240 citizens have had a case of Covid-19, and it is loosening its lockdown when one in 320 are Covid active. The British do not record their active cases (neither does the Netherlands) but the identified cases amount to one in 310 citizens. (Australia, with its elimination strategy has one case in 3700 people, slightly more than New Zealand, with one active case in 39,000 at lockdown which is smaller.)
The Accommodation Regime
There is no exemplar of an accommodation regime, because the candidates are in an early phase of dealing with the virus. The likely regimes will probably be poor, have low quality public health systems and unreliable statistics, have porous borders, and their governments will lack effective power or the trust of the populace.
The policies toward Covid-19 that accommodation regimes can pursue are likely to be relatively ineffective until there is a vaccine, so there will be a substantial reservoir of active Covid-19 in the population and community transmission (and mortality) will be high.
Conclusion
Until there is an effective (and cheap) vaccine for Covid-19, countries will have quite different trajectories over how to deal with the virus. That will impact on their domestic economies, but there will also be a considerable impact on inter-country people movements. For in the Covid-19 pandemic no man or country is an island.