We’re going to have to end this lockdown of the UK economy and sooner rather than later. Yes, this will mean more people will die. Probably. We’re still going to have to do it:
Flash UK Composite Output Index
Apr: 12.9, survey-record low (Mar final: 36.0)
Flash UK Services Business Activity Index
Apr: 12.3, survey-record low (Mar final: 34.5)
Flash UK Manufacturing Output Index
Apr: 16.6, survey-record low (Mar final: 43.9)
Flash UK Manufacturing PMI
Apr: 32.9, survey-record low (Mar final: 47.8)
To explain all of this.
Everything that is made is made of something. Every business, every activity, does need supplies, after all. We’d like to gain an idea of what output – the things made – is going to be next month. Or at least to be able to peer a little into the future. At which point, why not go around and ask all the people who buy things for things to be made from what they’re buying?
The things to be made next month are so out of things bought this month. Thus we survey purchasing managers to see what they’re buying. We set it to an index. If they’re buying more, indicating that output will be up next month, then that’s a number over 50. If they’re buying less then that’s one below 50. Our index now tells us whether output is going to expand or contract in the next economic period.
We do this for services, for manufacturing, add them together to make the composite. Further, when we’ve got about 85% of the responses we do a quick calculation to give us the “Flash” number.
Above 60 is boom time, below 40 is a definite recession a’comin’. 12? That’s “where in buggery has the economy gone?”-time.
This tracks GDP pretty well over time. The advantage of the PMI being that we get the number in advance of it happening, GDP we tot up a month and more after it has happened.
So, what’s this telling us? That the lockdown is killing the economy. OK, perhaps we knew that and perhaps we weren’t thinking very much about it. But it is so. What it’s also telling us is that we’re going to have to end that lockdown sooner rather than later. Yep, more people will die.
Do not, though, think this is about money.
This is not to make the mistake of claiming that money, share prices and asset values outweigh lives. Rather, it’s to point that GDP is the sum of economic activity, production, incomes and consumption. If that falls 15% that means we are are all significantly poorer – and that poverty will kill people as surely as the virus is doing.
Now, the direct and immediate effect of recessions on the death rate is up for debate. Evidence suggests, however, that suicide rates rise, and birth weights drop leading to higher infant mortality. On the flipside, people drive less, leading to fewer accidents overall, (even if rates per mile remain static). The rate of industrial accidents also falls – perhaps because those in the most dangerous jobs are often the first to get laid off. It’s clearly extremely to work out precisely what causes what, and people can disagree about the balance of these effects.
But this isn’t even the important underlying question anyway. To use the language of economics, the task of public policy is to maximise human utility over time. That’s why we bear costs now in order to mitigate or eliminate the effects of future climate change.
Our aim is to maximise aggregate human utility over time. Making us all as poor as church mice in order to extend the lives of a few thousands of nursing home inhabitants by 6 months – or perhaps until the next ‘flu season – does not do this. Therefore we should stop doing it.