Coronavirus: how do we strike a balance between disruption and public health?

The economic warning lights are flashing. The spread of the coronavirus means the reference by Taoiseach Leo Varadkar earlier this week to an “economic blip” already sounds outdated. Something more disruptive is in prospect, even if we can still hope that the worst of it might be over in a few months. Some really difficult decisions lie ahead for the government – not made any easier by the fact that it is operating in a kind of political limbo, albeit with full powers. These decisions will be made on the basis of medical and scientific advice – but they are political decisions.

As we know from what is happening here and in other European countries which are ahead of where we are, the virus is spreading rapidly. The chief concern is, of course, public health. But there are wider costs to the economy and society too – and in some cases a really tricky balance to try to strike between disrupting people’s lives and the economy versus controlling the spread of the virus and dealing with its consequences.

Significant parts of the domestic economy are already being hit. The travel and tourism sectors are the most obvious, but this is also spilling over into restaurants – other places where people gather, like cinemas, bars and so on, are also likely to see a fall-off in trade. The virus is spread by contact – so people will avoid that, to some extent anyway. Consumer spending will take a hit.

Disease management

Forecasting the extent and duration of this requires expertise in disease management rather than economics. All we can say is the disruption looks set to be significant, though its duration is very hard to call. The same applies to the disruption of supply chains affecting those trading with China, and quite likely many other markets, depending on how this spreads.

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The other route through which this will affect the economy is a slowdown in world demand, which now looks inevitable. Market analysts are dug into the debate about how big the economic hit will be and what the recovery might look like. It’s all about letters. Optimists look for a V-shaped pattern, with a sharp downturn and then a quick rebound. More cautious forecasters talk of a U shape with a slower pick-up and some ongoing economic costs. Some pessimists talk about an L shape.

The swings you are seeing on the markets reflect this divergence of views. Perhaps most notable is the fall in long-term interest rates – an indication that a significant global slowdown or maybe recession is imminent. US long-term interest rates are at historic lows. The interest rate on Irish government debt is now in negative territory out beyond 10 years .

The Irish economy has entered 2020 with good momentum. Growth figures on Friday showed that gross domestic product expanded by 5.5 per cent and, while the data here is famously messed up by multinationals, underlying growth was solid. Job numbers remain strong. A budget in surplus and some money in the rainy day fund leaves a bit of room for manoeuvre. But there is a lot to be done and the threat to a small open economy is significant.

The Cabinet subcommittee on the coronavirus will meet for the first time on Monday. It is not clear to me how the government-formation talks and the efforts to control the virus can continue simultaneously. I don’t know what the answer to this is. One way or another we need a group of senior politicians, led by the Taoiseach, engaged in this on pretty much a full-time basis. And as we are in an interregnum, the other main parties need to at least be included in consultation here.

There are important decisions to be taken on the public health response and on efforts to mitigate the economic damage and support affected companies and their employees. There are significant implications for the public finances not only from direct health spending but on measures that will be needed to support the sectors that are hit, possibly via routes such as special loan schemes or grants.

Healthcare vs politics

The public communication on this issue has been left largely, if not exclusively, to the medical experts – and in general that is appropriate. But some of the decisions we face now can only be taken politically, albeit with a strong input from the medical experts. They will be difficult calls, requiring a balance to be struck between controlling the spread of the virus and allowing people to get on with their lives. All our impulses would say we should do what we can to control the virus. It is not always straightforward; closing schools, for example, would take many parents out of the workforce, including healthcare staff.

So these are political decisions. Only the Government – advised by the experts – can decide whether to go ahead with St Patrick’s Day events (still going ahead as of now). Only the Government can decide whether travel advice in relation to northern Italy should be strengthened further or other travel restrictions imposed. Or whether we might need, at some stage, to close some more schools. It is only the Government that can make a call on what level of disruption we should take because these are political decisions and restrictions will be opposed by those affected – the travel trade, hoteliers, the airlines and so on – who will all be in the government’s ear arguing for a “proportionate” response.

They are within their rights to do so. But it is the job of government to decide. In many cases there will be no “right” decision and difficult calls. A number of independent experts have argued for the St Patrick’s Day events to be called off because the the risks it brings are not worth it. From a layperson’s viewpoint, this seems to make sense to me, despite the financial costs of cancelling. Why take the risk?

This all falls to the outgoing government, which needs to send Ministers out to lead on this more actively. The public health experts can advise us on the spread of the infection and the strategies being used, but the Taoiseach and his Ministers will have to take a key role as this gets more serious, at least until a new government is formed. In the midst of a political vacuum, there are some pretty big political calls to be made.