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Insights 33: 4 September 2020
NZ Herald: The Covid-19 crisis can be summed up in one word: uncertainty, says Oliver Hartwich
Podcast: Joel Hernandez asks what’s really going on in Sweden?
Report: Extra quarantine capacity for 'critical workers' is critical

Shovel-ready or not
Dr Oliver Hartwich | Executive Director |
Politicians like shovelling out money for shovel-ready projects.

But let’s call a spade a spade: When push comes to shovel, it does not matter if projects are ready. They should ideally make sense, too.

Green Party co-leader James Shaw dug himself a hole with his support of a “green” school in Taranaki. After the public outcry over giving $11.7 million of taxpayers’ money to a private school lacking school registration, Shaw backed down and showed remorse.

Even then, Shaw staked his good intentions. It was all about a “shovel-ready” project creating “shovel-ready” jobs for Taranaki, he said.

Fair enough. His Green Party had doomed thousands of jobs in Taranaki with its ban on oil and gas exploration. In criminal law, the school funding would be called active repentance.

Still, “shovel-ready” is not a useful criterion for success.

Having some projects ready so the Government could quickly spend money and create jobs is intuitive. It is also at the heart of a school of economic thinking: Keynesianism.

Named after British economist John Maynard Keynes, Keynesian economists believe Government should act whenever there is deficient market demand. When workers and machinery are idle, Government should step in and utilise them.

In his General Theory (1936), Keynes presented examples of projects the Government might do. How about Treasury fill old bottles with banknotes and bury them at suitable depths in disused coalmines?

The mines could then be filled up to the surface with town rubbish so private companies could dig the notes up again. And voilà! Unemployment will be gone, while income and wealth increase.

In the same way, Keynes speculated that “pyramid-building, earthquakes, even wars may serve to increase wealth.”

To be fair to Keynes, he did not seriously mean this nonsense. It was an intellectual provocation to make his point about deploying underutilised resources.

As Keynes wrote: “It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

Keynes’ followers, however, were more literal-minded – and reached for the shovels.

Since this Government has proved to be useless at building “houses and the like” (think KiwiBuild and light rail), it has moved to building an esoteric private school hosting a DNA activation seminar, holy ceremonies and crystal plantings. Ohmmm.

Though shovel-ready, this exercise is just as useful as building pyramids, burying banknotes and creating earthquakes.

It is not what Keynes had in mind, but it is the best his disciples can come up with these days.

If only they realised that when you are in a hole, you should stop digging.

Sweden, mortality postponed
Joel Hernandez | Policy Analyst |
Some countries have clear advantages during a pandemic. For instance, New Zealand is surrounded by a thousand-kilometre moat.

On the other hand, Sweden’s obvious disadvantage was its proximity to Northern Italy, one of the first Covid-19 hotspots outside of China and a common destination for Swedes on ski holidays.

However, research from Washington DC-based George Mason University show it can be the less obvious shortcomings that can hurt the most during a pandemic.

In their recent working paper, 16 Possible factors for Sweden’s high Covid death rate among the Nordics, the data reveals over the last several years Sweden experienced low mortality influenza seasons and hundreds of elderly and vulnerable Swedes did not die of the flu.

As a result, Sweden’s annual mortality rate fell from 9.3 to 8.7 deaths per 1000 between the years 2016/7 to 2018/19 – a drop of 0.6 deaths/1000.

Authors Klein, Book and Bjørnskov suggest Sweden had nearly 4000 “additional” vulnerable people (or 0.4 deaths/1000) among their population of 10 million heading into 2020. They apprehensively refer to this as Sweden’s “dry tinder” situation.

Unfortunately, when countries avoid the devastation of annual forest fires for several years it can lead to one devastating year years later, or in Sweden’s case one devastating pandemic year.

Combined with a poor policy response to protect its older population, Covid-19 quickly swept through the country’s elderly citizens claiming nearly 6000 deaths, 96% of which were aged 60 or above.

The authors say it seems reasonable to us that “the dry-tinder factor could account for 1500 to 3000 of Sweden’s ‘Covid deaths’ during the whole of 2020, or between 25-50% of Sweden’s Covid death toll as of mid-August.

Undoubtedly, other countries such as the US, Spain and Italy have also experienced similar high mortality rates among their elderly and vulnerable populations too. For what reasons, maybe less obvious that summary statistics reveal.

Of course, mortality is only one aspect of the Covid-19 pandemic.

Emerging research suggests that in addition to both acute and severe respiratory symptoms, Covid-19 may also cause extrapulmonary symptoms like myocardial dysfunction and arrhythmia, acute coronary syndromes, acute kidney injury and other neurological illness.

With nearly 85,000 confirmed cases in Sweden, it may be more than just the elderly who have paid the price for a chance of herd immunity.

Principles are dangerous things
Dr Eric Crampton | Chief Economist |
If we take one overarching political lesson from the Government’s “shovel-ready” spending fiasco and the school of environmental voodoo, it’s this: Principles are dangerous things. It’s best not to have them.

Principles are constraining. A person with principles can be criticised for failing to live up to them. You can follow your principles in ninety-nine cases out of a hundred, but if you make a bad call on that hundredth case, you’re a hypocrite.

On the other hand, if no one can figure out your political principles, things are much easier. Any project belonging to an industry which supports you can be considered shovel-ready – even if it’s an absolutely absurd way of spending taxpayer funds. Workers hired for those projects will get priority over, say, health-care workers for scarce spaces in managed isolation, and only a few purists will complain. There is no hypocrisy, since nobody ever expected otherwise.

In the old story where the scorpion stings and kills the frog on whose back it is riding, mid-river, dooming them both, it’s hard to blame the scorpion. The frog should have known what it was getting into. The scorpion was, after all, only a retail politician. Doom arriving instead from a catastrophic mishap by an earnest mouse who’d travelled that path safely a hundred times before, well, that would have been worse.

It’s especially important not to have principles when dealing with programmes that are fundamentally unprincipled.

The shovel-ready initiative never made much sense, on principle. Construction employment is higher today than it was at the same time last year. Online job advertisements, a leading indicator of future employment, suggests things are rather worse in sectors like retail, education and training, and hospitality and tourism.

Unemployed workers in these sectors may not be shovel-ready for construction work. Running a principled approach is tough when the overarching imperative is a shovel-ready pile of cash, hot off the printing press, burning holes in the Government’s pockets and balance-sheets.

In such an environment, the least principled are at a distinct advantage. Imagine the frustration of trying to uphold one’s principles while watching how this hot money otherwise is spent.

Perhaps, after the election, the Government can return to a more principled approach to spending. Interest on the principal racked up by the unprincipled will eventually come due.
On The Record
All Things Considered
  • Graph of the week: Decline in GDP and Covid-19 death figures by country.
  • The impact of economic regulation on growth: Survey and synthesis.
  • Tony Burton: How government departments really work
  • 'I am stuck until that border opens': Marooned in paradise.
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