THE “hammer and the dance” strategy was mentioned by DILG Secretary Eduardo Año in one interview last week. It made me curious. I did my research right on!
“The hammer and the dance: Health and economic objectives are not mutually exclusive after all!” by Tiziana Assenza et al. presented itself through the Toulouse School of Economics website (https://www.tse-fr.eu/).
The paper explains, “Most governments follow a two-phase strategy to deal with the pandemic. They respond initially with a strong confinement stage – we call it Enhanced Community Quarantine (ECQ) in PHL – temporarily limiting economic activity thereby controlling the spread of the pandemic – the hammer”.
Simultaneous with the lockdown, government “implemented economic rescue packages to shield firms and households from negative economic spillovers” – Social Amelioration Program; relief goods; among others. Lockdown intensities and durations were varied following the initial ECQ. Public enforcement was pushed thereafter.
Similar with the writers’ observations, the national government has started to gradually lift quarantine measures and subsequently restart economic activity. “During this phase, the pandemic must be kept under control while it is still not completely suppressed – the dance”.
This strategy, if we revisit what happened since March up to present, is adopted by national government, and even by the local government units.
The Toulouse paper posits, “Two attributes make COVID-19 challenging to control: its fast propagation and the asymptomatic nature of many infections. Optimal economic policy during a global health crisis are analyzed vis-à-vis these attributes.
They argue that “epidemiological strategies to control the health crisis are also sound from an economic perspective: controlling the pandemic has economic benefits that go beyond the medical benefits of reducing congestion in hospitals or gaining time to develop a cure or a vaccine”.
Personally, I am always in favor of maintaining both perspectives: keep the health and push the economy. I believe it can be done.
In the country, “optimal sectoral policies targeted relative rather than absolute magnitudes of infection risk spillovers from face-to-face interactions and economic exposures from sudden changes in spending patterns, demand shortfalls, or supply chain disruptions”.
The article illustrated this principle by classifying economic activities versus infection risk and economic spillovers: a) Restricting activities that generate strong infection risk externalities but weak economic externalities (e.g. restaurants, cinemas); b) Protect or subsidize essential economic activities that have strong positive economic spillovers, especially if they exert weak infection risk externalities (e.g. banking, pharmaceuticals); c) Carefully manage activities that are both economically essential and have high infection risk spillovers (e.g. healthcare, education); and d) Managing static externalities is key to minimizing economic costs: don’t make the pandemic more costly than necessary!
The writers further argue that the social benefits of early lockdowns depend on long-term perspectives: How will we exit the pandemic? When will a vaccine be available? How well is our healthcare system equipped to deal with the peak of infections? These are the hard questions facing our government.
The article stressed that the best long-term strategy is to build herd immunity so that the optimal policy is more permissive. This again, is the subject of a previous column (The race for herd immunity doesn’t have to be a marathon, 08/07/2020).
Question: Is this where the country is going? “With medical congestion, the mortality costs of the initial infection peak are much higher, but not fully internalized by individuals”, the article further said.
As seen, the stakes for deconfinement – easing of lockdowns – are high: this phase determines whether the initial lockdown truly saved lives, or merely postponed deaths to a later phase of the pandemic.
Article’s Conclusion: Dynamic policy priorities
a) Policy must be able to control new infections at all times.
The hammer: early, decisive action is warranted if it helps to save lives in the long run. If it merely delays infections in the short run, it just lengthens the recovery and inflicts higher economic costs.
The dance: optimal deconfinement eases economic restrictions as much as possible while keeping the pandemic’s transmission rate lower. Policy must control the epidemic, not the other way around.
b) Beware of dynamic infection spillovers: be patient during deconfinement and do not pay for faster recovery with higher mortality. Do not count on private agents to fully understand the risks they pose to others.
c) The value of herd immunity really depends on whether there exist better long-term alternatives (a cure or a vaccine), and at what horizon.
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For comments, you may reach the writer at belca.87@gmail.com. Author is on Twitter @ShilohRuthie./PN
