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Insights 13: 17 April 2020
Oliver Hartwich asks in the NZ Herald what happens when the Covid-19 war turns into peace.
Eric Crampton's Newsroom column warns against bad government ideas putting more pressure on NZ's trade.
Research Note: Lessons from abroad: Singapore’s Covid-19 Containment Model.

Be careful what you wish for
Dr Oliver Hartwich | Executive Director |
The longer the acute Covid-19 crisis lasts, the more we hear that our economic world will not be the same after the crisis.

Some things will of course change. Companies lost to the crisis will no longer be here. Supply chains will have to be redesigned. And we will be paying for the costs of our response to the crisis for a long time to come.

But what many commentators mean by their references to a whole new world is quite different. In their view, we can expect – and may even look forward to – a different world for business and the whole economy. They should be careful what they wish for.

On the more harmless side of the changes, for example, it is assumed that we will have fewer personal working contacts. Business trips, meetings and conferences will be permanently switched to digital, they say.

This may be so, although I believe that most of us today long more than ever for direct human contact.

But the suggested changes in the economic order are more dramatic. We hear the state should play a greater role in managing the economy. It should control international trade, prop up the tumbling media industry and start a big house-building scheme. The government should pursue a targeted industrial policy, introduce employment schemes and devise economic stimulus programmes.

All this could come true – at least if there are enough political sympathisers for these interventions.

The problem is not so much that these changes are unimaginable. Because they certainly are. The problem is rather that such shifts would be fatal for the job prospects and prosperity of ordinary New Zealanders.

Even this crisis cannot override the fundamental laws of human economic activity.

After more than two centuries of modern economics going back to Adam Smith’s Wealth of Nations, there is no doubt about some unalterable principles.

These economic principles include the importance of the division of labour, thinking in terms of opportunity costs, and the function of comparative advantage. We know about the crucial role of stable institutions, the rule of law and the need for monetary stability. We understand the advantages of spontaneous innovation over state planning, the need for prices as signals for economic activity and the importance of competition for human progress.

All these basic principles have been empirically confirmed a thousand times over. No previous crisis, war or pandemic has ever been able to suspend them. Just as you cannot make water flow up hill.

The Covid-19 crisis does not and will not change the principles of economics – but that will not stop politicians from trying. We should not let them.

Read Oliver Hartwich’s Herald column ‘A question of war and peace’ for historical lessons from previous crisis recovery times.

Is the Government’s Covid-19 strategy any more coherent?
Roger Partridge | Chairman |
A fortnight is an eternity in the bewildering Covid-19 world. Two weeks ago, this column argued for a more coherent coronavirus strategy. It pointed out that the Government’s eradicate-at-all-costs approach to the crisis focussed on only half of the wellbeing equation.

At the time, Director General of Health Ashley Bloomfield had suggested the Alert Level 4 lockdown might continue indefinitely. There was, he said, no Plan B. The Initiative argued this view was untenable.

Along with taming the exponentially rising epidemiological curve, the Government must also consider the exponentially expanding economic fallout from the lockdown in the form of lost jobs and business failures.

At some point, the harm to wellbeing of Kiwis from continuing the lockdown becomes greater than the wellbeing benefit of continuing it. Indeed, that time may have already passed.

Since that column, a chorus of voices expressed alarm about the extent of the destruction wreaked upon the economy by the lockdown. It is now clear the Government shares this concern. There are now long odds to bet on the Level 4 lockdown continuing beyond next week.

But is Government’s approach to restricting business activity as the country moves out of Alert Level 4 any more coherent? Since the middle of last week, the Initiative has argued for a risk-based approach to deciding which businesses are able to operate at Alert Level 3.

The Initiative submitted to both officials and the Minister of Finance that the Health and Safety at Work Act has the necessary framework to evaluate how work of all types can be carried out safely. Relying on this principles-based approach would avoid the blunt, unprincipled and hard-to-understand limitations of the “essential/non-essential” labelling applied by the Government during Alert Level 4.

Yesterday the Prime Minister claimed that the ‘essential services’ approach was being abandoned for Alert Level 3 in favour of a "safety-based" approach. Yet by prohibiting shops other than supermarkets, dairies and garages to open, the new approach continues a significant dose of the former blunt approach. Why is the local butcher, baker or clothes shop less safe than the local dairy?

It was also disappointing that the Prime Minister did not reveal the criteria for the Government’s decisions to move away from Alert Level 4, and then from Alert Level 3 to Alert Level 2. Uncertainty is a curse for businesses and workers alike.

New Zealanders deserve better than this. Workers, firms and consumers should not be at the mercy of such disjointed decision-making. Nor should it take another two weeks to get the required transparency to make sense of the Government’s strategy.

Better living through plastics
Dr Eric Crampton | Chief Economist |
Time flies. Was it only a year ago that New Zealand’s ban on disposable plastic bags at the supermarket came in? It’s hard to tell anymore. January seemed to last about a week, February was about two months long and April… well, April’s been longer than usual and is far from over.

In any case, last July was well over a year ago, no matter what your lying calendar might claim.

Despite this now being ancient history, I do remember folks saying I was overreacting to the plastic bag ban and assuring me that it wouldn’t be any hassle at all.

The ban seemed pointless. Supermarket bags from places like New Zealand were unlikely to wind up in the oceans unless they were sent off to South Asia for a form of recycling that seemed to involve tipping containerloads of plastics into the nearest river.

Kept here, after their use in shopping, they could be reused as bin liners, or for cleaning the cat box (the chore my boy won in the most recent iteration of our job-tendering scheme), or for myriad other domestic purposes from emptying vacuum cleaner canisters to trash bags in the car.

None of that seemed to count for much. Neither did the experienced inconvenience of those who, like me, found themselves bagless on unexpected grocery errands while out for an evening stroll.

Because the ban irritated me, I ordered several hundred disposable plastic bags on Ali Express for use on shopping runs: the ban only prevents supermarkets from handing them out. And there are minor joys to be had in the looks of scorn – or of envy – a handful of verboten plastic bags can draw at the checkout.

But now they have become even more convenient.

I can easily store many inside my jacket pocket, along with rubber gloves, while on that evening stroll. If the queue at the local New World looks short, I can do my weekly shopping; otherwise, I can wait.

And while other people have to figure out which washing machine cycle is appropriate for a jute-fibre reusable bag and whether a thick plastic reusable bag would melt in the dryer, my bags can safely and simply be thrown away after use.

Wax nostalgic for the happier days of 2018 and enjoy better living through plastics. It’s just a click away at Ali Express.
On The Record
All Things Considered
  • Graph of the week: Ongoing chart of Covid-19 deaths in Sweden.
  • The fight against the coronavirus won’t be over when the U.S. reopens.
  • Alex Tabarrok on COVID-19 response efforts, proposals for continued Recovery, and lessons for the future.
  • Invite a llama or goat to your next corporate Zoom meeting or video call for under $US100.
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