Coronavirus: How much of our village do we burn to contain this?

Scott Morrison and Josh Frydenberg during Question Time on Monday. Picture: Getty Images

Australia is trapped in the ultimate vicious circle of the COVID-19 threat — governments are impos­ing a massive recession on the economy and liquidating jobs on a huge scale, with inevitable conflicts among political leaders about the depth of the pain they impose.

The core calculation is that the community is better off with mass job losses than seeing the hospital system in intolerable crisis. Put brutally, the calculation is that people are better off unemployed than sick or dead.

The reality, however, is these are different groups: it is the young and middle-aged who are losing their jobs, while those most likely to get sick are the retired elderly, often with existing health issues. The Morrison government’s fiscal measures so far are geared to small-business jobs and equity, with many vulnerable people getting­ job and income assistance.

That is essential. Australia is a far richer nation than in the 1930s, with the better-off able to cope for a long time by accessing their saving­s and wealth, a reality highlighting the need for the financially powerful — banks, landlords, cashed-up big companies — to meet their wider social responsib­ilities. The debate over equity and “who carries the burden” will be critical and dangerous.

Yet the events of the past several­ days expose the dilemma: this is not a crisis where the un­precedented action from the government and the Reserve Bank can restore confidence, as occurs in a purely economic or financial crisis. The total fiscal and monetary response from the authorities is greater than 10 per cent of GDP and will continue to grow. We have seen nothing like this intervention in our lifetimes. In an ortho­dox downturn it would have a dramatically beneficial impact.

Yet it is not enough. It cannot suffice. Nor will a third fiscal package suffice, despite its necessity. The packages are definitely worthwhile but economic instruments cannot beat a pandemic.

This is not to belittle the impressive bipartisan parliamentary session­ on Monday that passed an expanded $84bn stimulus support package — a tribute to both the Coalition and Labor — while the US congress was still squabbling over the scope of its package. Here is genuine good news: our parliament stood up. It offered an ­example to the nation, rare given its dismal efforts in recent years.

The agonising contradiction in our public policy can hardly be comprehended: the government is pumping money to sustain jobs and activity while its health measures throw demand off the cliff and keep consumers in home detention. The economic arm fights the health arm, a contradiction unavoidable yet deeply destructive.

The Morrison government and RBA interventions are essential yet markets will not stabilise, rising unemployment cannot be checked and falling demand cannot be reversed until progress is seen on the health front. This is the roadblock to the future. As Scott Morrison told parliament, the nation faces its gravest test since World War II.

Yet evidence of progress against the virus is limited. Infections nationwide exceed 2000, doubling every three or four days. There is growing evidence the health response — on which everything depends — has been inadequate. The next three weeks should offer a clearer judgment.

Defending the progress, Health Minister Greg Hunt said the nation­ has prevented “the onset of the spread”. The delay has bought time for the hospital and medical system to better prepare. The seven deaths in the first 1000 cases are fewer than in most other countries (the toll is now eight). Hunt said that with 147,000 tests our testing levels were high, and positive results, at only 1.2 per cent, compared with 13 per cent for the US and 5 per cent for Britain.

The fear, however, is that Australia’s response has been too late, too geared to mitigation not suppression, too focused on a strategy for the hospital system rather than a strategy to shock the public and force behavioural change. The government plan has been to slow the virus but keep the economy running. This policy spans a six-month timeline, yet it is fraying. What happened last Sunday was an outbreak of panic and urgency from Victoria and NSW with premiers Dan Andrews and Gladys Berejiklian lurching towards more radical economic shutdowns, despera­te to check the spiral of infections in their states. Morrison wound back some of their push that evening.

Two events symbolise the failure — the Bondi Beach fiasco and the Ruby Princess blunder when passengers, some sick, were allowe­d to disembark in Sydney, the upshot on Tuesday being 133 cases from the boat. The conclusion is that governments have not been sufficiently ruthless because the health advice was not suffic­iently forward leaning.

The national cabinet agreed on Sunday night on a stage-one nation­wide shutdown from Monda­y covering a range of non-essential services — clubs, pubs, restaur­ants, cafes, gyms. Non-essential­ travel should not occur. The AFL and NRL seasons are suspended. These collective decis­ions threw thousands out of work. This is not just a job crisis, it is a life crisis. Many people are losing the social reference points that sustained them. How much of our village­ do we burn to escape the virus?

The speed of the virus exceeds the speed of human decision-­making. Governments are like a retreating army, surrendering one fallback position after another. With each fallback, the economy shrinks further. The final retreat is social and economic lockdown. Talking with ministers on Monday they agreed the core economy — factories, construction, manufacturing, mining — must stay operational, there must be limits on how much of the economy is closed. Tougher action seemed certain to emerge from the national cabinet on Tuesday night. Stage two of the shutdown might be rolled out. Does it make sense to lock down the entire Australian economy? No, not yet. Morrison warns that decisions will have long-run consequences. One thing is obvious: the economy cannot be locked down for six months. The real issue the national cabinet should address is where to draw the line as measures are tightened.

Having blundered in his early response, British Prime Minister Boris Johnson has gone towards lockdown: Britons will only be allowe­d to leave their home for essential­ shopping, daily exercise, medical needs and limited work travel. This is an admission of earlier containment failure.

One task Australia needs to improve is dramatising the message. Forget the nonsense about putting a non-politician in charge to speak the truth. There is no such person and no such truth. Opposition health spokesman Chris Bowen said: “It is impossible to overreact to this crisis.” A better line, perhaps, is that “it is impossible to exaggerate the warnings”. And the warnings have not been strong enough.

On the economic side, the government knows another package is necessary, and probably soon. It needs to address larger business, that is, businesses with a turnover above $50m. These companies carry individual clout. If some fell over, the consequences would be dire. The government needs to think of measures that offer permanent tax relief and investment incentives for the companies that make a difference, and extend its concept of the bridge to a corporate tax policy that endures.

The final aspect of the vicious circle is that the longer the economy is put in the freezer, the more permanent damage will be done. There will be a recovery but it will take years. The US didn’t properly recover from the Great Depression until World War II. US Treasury Secretary Steven Mnuchin warns unemployment there could hit 20 per cent. Josh Frydenberg said our Treasury has costed about a million Australians getting the new coronavirus supplement payment. Australia faces the grim prospect of a peak in unemployment over the past half century.

Don’t think politics has been suspended. On Monday Labor did two things — voted for the package but outlined a critique of the government, saying its measures were too slow, with too many gaps and needed to be implemented faster with guarantees for workers. This policy split will be pivotal at the next election.