Lockdowns and UK Economic Performance

Question 1: How much of the decline in GDP experienced to date would have been avoided in the absence of any lockdown measures or other policy interventions (such as fiscal support)?

Question 2: How much will the new lockdown measures introduced on Thursday November 5 hurt UK economic activity this year relative to a counterfactual with the milder measures adopted over the summer?

Question 3: Using not only the policy tools that have been part of the UK policy mix thus far but also policy tools implemented in other countries, to what extent does the government face a tradeoff between saving lives and preserving livelihoods? 

Summary

A majority of the CfM panel of UK macroeconomic experts on the UK economy assesses that lockdowns have caused limited economic damage beyond what the pandemic itself would have caused unabated. Similarly, most panel members view the economic costs of the current national lockdown to be limited relative to the milder measures employed this summer. Nearly a fifth of the panel believes that the UK economy is in fact better off due to lockdowns, beyond the public health benefits of these measures. Asked about the extent of a tradeoff between lives and livelihoods, about one third of respondents believes that no tradeoff exists and health and economic outcomes in fact go hand in hand especially when better policies are taken into account, one third believes there is a small tradeoff, and the remaining one third that the tradeoff is larger.

Background

The November 2020 CfM-CEPR survey asked members of its UK panel to evaluate the costs of lockdowns on UK economic performance. They were also asked to assess the magnitude of the trade-off between saving lives and preserving livelihoods.  

Lockdowns and the UK Economy                                       

In response to the Covid-19 public health crisis, the UK government has resorted to relatively broad-based lockdown measures to slow the spread of the SARS-CoV-2 virus. The UK entered its first lockdown on 23 March 2020 and lifted some restrictions through October 2020. As of 5 November, the UK entered its second lockdown, currently scheduled to end on 2 December 2020. During both lockdowns, businesses including ‘non-essential’ retail outlets, hospitality venues (food and beverage establishments), accommodation, and entertainment venues were mandated to close (or restrict how goods and services are provided). The main difference between the two lockdowns is in education services, where schools, colleges and universities remain open in the second lockdown. Additional mitigation measures came via the NHS Test and Trace scheme, comprising testing, contact tracing, voluntary location reporting and non-enforced self-isolation. The government is currently piloting a mass-testing programme using new rapid (one-hour) lateral flow Covid-19 tests.

UK economic activity has dropped substantially since the start of the Covid-19 pandemic. For example, relative to its February 2020 level, UK monthly GDP was 25.3% lower in April 2020 and 9.1% lower in August 2020. Unemployment stood at only 4.8% in the months of July to September 2020, but this figure may understate the actual unemployment rate due to government-supported furloughs. The Royal Society’s DELVE report, Tenreyro (2020), and Vlieghe (2020) provide primers on the economic implications of Covid-19 in the UK. Chapter 2 of the International Monetary Fund’s Fall World Economic Outlook gives an international view and discusses the relative role of official measures and voluntary social distancing.

Like most other advanced economies, the UK implemented several fiscal programs in attempt to mitigate the economic fallout of the pandemic and the resultant lockdowns. Most prominently, the coronavirus Job Retention Scheme (CJRS), announced on 20 March 2020 and originally expected to expire on 31 October 2020, paid furloughed employees 80% of their wages, up to a maximum of £2,500. As of 5 Nov 2020, Chancellor Rishi Sunak announced that the CJRS would be extended till 31 March 2021.

Other countries have relied on different policy mixes in response to Covid-19 and have experienced different health and economic outcomes. Sweden imposed considerably more lenient restrictions than most other countries. Sweden fared comparably badly to the UK in terms of health outcomes, but better in terms of economic outcomes, as documented by Fernandez-Villaverde and Jones (2020) At the same time, Sweden had higher mortality rates when compared to Nordic countries such as Norway, Finland and Denmark, but similar declines in GDP.

Countries in East Asia, including China, Taiwan, and South Korea focused early on measures such as widespread use of masks, protection of the elderly, better indoor ventilation, limited indoor contact, contact tracing, widespread testing and quarantines. This was also aided by using IT and big data (Fernandez-Villaverde and Jones, 2020).

Many countries have enforced border closures. Some countries, particularly those pursuing a strategy aimed at eliminating COVID-19 within their borders, have gone further by mandating quarantines in government-run accommodation upon arrival (e.g. Australia, New Zealand, Singapore).

A notable case on widespread testing, Slovakia launched a nationwide coronavirus testing scheme in the last week of October 2020, comprising mandatory antigen swab tests for all Slovaks aged 10-65. Citizens were paid if they tested positive and needed to quarantine and received a certificate that allowed them to avoid some restrictions if they tested negative, providing an incentive to participate.

There is a fast-growing academic literature that attempts to evaluate these tradeoffs. For overviews see e.g. Giannitsarou, Kissler, and Toxvaerd (2020) and Kaplan, Moll and Violante (2020), this video explainer and the Royal Society’s DELVE report. Importantly, this literature takes into account behavioral responses to the pandemic, e.g. that households may cut certain types of expenditures even in the absence of lockdown measures (“voluntary social distancing”) and other important factors such as distributional effects. In a Guardian article, Tony Yates criticizes policy research for its failure to integrate epidemiological and economic analysis in policy decisions.

In this month’s CfM survey, members were asked to evaluate how the pandemic and the variety of mitigation measures affect economic activity and the extent to which they pose a tradeoff between lives and livelihoods.

In the first question the panel was asked how much of the economic damage this year would have been avoided absent lockdown measures relative to an (admittedly extreme) counterfactual of no government intervention whatsoever. The second question then asked the panel to compare lockdown measures to milder measures. The responses reflect the panelists assessment of the economic cost of lockdowns rather than their evaluation of whether the cost was worth the public health benefit.

Question 1: How much of the decline in GDP experienced to date would have been avoided in the absence of any lockdown measures or other policy interventions (such as fiscal support)?

Twenty-seven panelists responded to this question. Well over half of the panel (63%) thought that the UK suffered little or not at all due to lockdowns and other interventions relative to a laissez faire policy. In other words: a majority of the panel believes that it is the pandemic itself, rather than the resultant lockdowns that have caused the economic damage. In fact, nearly 20% of the panel believes that the UK economy would have suffered greater damage had there been no interventions. An additional 20% believes that the economic damage due to lockdowns has been moderate and only a small minority (15%) estimated large damages due to the lockdowns.   

Costas Milas (University of Liverpool) expresses the majority view: “In the very short run, GDP would have dropped by less. In the medium run, however, an ‘unchecked’ virus would have triggered a much larger number of infections and a huge loss in terms of lives, in which case, the economy would have suffered on an unprecedented scale”. Benjamin Moll (London School of Economics) writes that his “rough best guess” is that “without lockdown measures and fiscal support the recession would have been around 50-75% as deep as the one we actually experienced.” He arrives at this estimate based on Kaplan, Moll, and Violante (2020), the Delve report, and Tenreyro (2020). Several respondents pointed out that voluntary social distancing—dramatically increased with an uncontrolled spread of the virus—will have caused substantial economic harm even absent lockdowns. Chryssi Giannitsarou (University of Cambridge) points to the comparison of Sweden and Denmark in Sheridan, Andersen, Hansen, and Johannesen (2020), who note that “social distancing laws cause only small losses of economic activity during the COVID-19 pandemic in Scandinavia.” She further added that “the indirect impact due to potentially overwhelming the health sector is … potentially substantial.” Similarly, Ricardo Reis (London School of Economics) writes that “by the time the UK government imposed a lockdown, people had already been voluntarily withdrawing from contact with each other. The people led, the government followed. There would have been a large tumble in GDP even without the lockdown, as the experience in Sweden suggests.”

Regardless of the lockdowns, additional economic damage would have resulted because of the slowdown in the global economy. Dawn Holland (National Institute of Economic and Social Research) estimates that “close to half of the decline in output can be attributed to spillovers from the rest of the world.” Several respondents pointed to the harm brought by the government’s lagged response to the pandemic and poor communication of the lockdown, rather than the lockdowns themselves. Abi Adams-Prassl (University of Oxford) argues that “the poor functioning of the UK contact tracing infrastructure and bad health outcomes continue to restrain spending.” Morten Ravn (University College London) believes the economy would have performed worse absent lockdowns and states that “the policy communication at the start of the pandemic was terrible … a faster, better communicated, and more decisive lockdown could have meant significantly smaller costs to health and the economy both in the short run and in the longer run.”   

Other respondents who viewed the lockdowns as having a positive impact on the UK’s economic performance point to the massive economic damage of an unchecked spread of the virus. Thorsten Beck (Cass Business School) presented the view that “an unlimited spread in the pandemic would have led to serious disruption in basic economic services (e.g. transportation) due to labour shortages, with wider negative repercussions for the economy. Not having any lockdowns and—additionally—not any economic policy measures would have exacerbated the economic outlook further.” Francesca Monti (Kings College London) points to the evidence of Correia, Luck and Verner (2020), who “[used] regional data from the 1918 Flu Pandemic, [and found] that social distancing measures did not seem to worsen the downturn: to the contrary, evidence on manufacturing activity and bank assets suggests that the economy performed better after the pandemic in areas with more aggressive public health policies. The reason is that, even if the restrictions depress economic activity when they are in place, such measures can mitigate the most severe and persistent economic disruptions, by reducing the severity of the pandemic.” She also points to theoretical models supporting this evidence, such as Bodenstein, Corsetti and Guerrieri (2020). Finally, several respondents believe that the fiscal support measures had a strong positive effect on the UK’s economic performance.

Angus Armstrong (National Institute of Economic and Social Research) opined that “without policy interventions (especially the CJRS), unemployment would have been much higher judging by the 9.6 million furloughed jobs since the crisis, meaning much weaker income and spending possibly leading to a secondary financial problem. The Treasury deserve real credit for acting fast and on scale once the emergency was recognized.” Dawn Holland concurs, estimating that “fiscal support measures have offset at least 2 percentage points of the potential decline in economic activity.”

Benjamin Moll summarizes that it is the “cardinal sin of pandemic economics” to hold the mistaken view that “absence of lockdown measures, the economy would have experienced only a very mild recession or no recession at all.”

Several panel members took the opposing view that far less economic damage would have been sustained absent lockdown measures. As Michael Wickens (Cardiff Business School & University of York) puts it: “The deserted high streets speak for themselves.” Patrick Minford (Cardiff Business School) points to the case of Sweden to support this view: “Had the government followed Swedish-style policies of social advice, there would have been a fall as people took social distancing measures. But it would have been much reduced, as indeed was the Swedish fall.” However, a number of respondents pointed to Sweden as a case that supports the notion that that the pandemic, rather than lockdowns, was the main cause of the recession. Finally, Roger Farmer (University of Warwick) notes that the pandemic mainly affected the elderly and that “at the risk of being misinterpreted, the elderly do not contribute substantially to GDP”.  

Question 2: How much will the new lockdown measures introduced on Thursday November 5 hurt UK economic activity this year relative to a counterfactual with the milder measures adopted over the summer?

Twenty-six members of the panel responded to this question. Consistent with the response to the first question, a majority of the panel viewed the economic damage due to a lockdown to be small (compared with the previous milder social distancing measures). Regarding the current lockdown, a larger majority (74%) expressed this opinion and once again 20% assess the current lockdown as benefiting the UK economy. These “lockdown optimists” were the group that expressed the greatest confidence in their answer. Slightly more than 20% of the panel expressed the minority view that the lockdown is causing large damage to the economy. Not a single panel member assessed the damages as being “very large”.

Panelists’ views on the second question were very much correlated with their responses to the first. However, several respondents drew a distinction between the first and second lockdown. Panel members outlined reasons why the current lockdown would be less damaging than the first. Natalie Chen (University of Warwick) points out that “the lockdown is less restrictive than in March and is limited in time, so the economy should slow down but not too much”. In addition, households and businesses have now adapted to consumption under the pandemic. Patrick Minford views the current lockdown as less damaging because “it seems that most of the economy has now found ways of working around lockdown. There will be disruption of hospitality and travel which were beginning to recover; the extent is hard to gauge but given that the lockdown ends by December, it should be limited.” Thorsten Beck adds that “the negative impact of this lockdown … will be less than the impact from the first lockdown, as people have adjusted consumption habits and there will most likely be less precautionary savings”.

Other panel members held the opposite view, that the current lockdown would be more damaging that the first. Ricardo Reis writes that “previous stocks of savings have been depleted. Uncertainty is high because the government's credibility is low so, according to the media, many do not believe the lockdown will only last until early December. And, again from media reports, it seems harder to get people to comply, as they have adjusted their risk tolerance, in which case the government restrictions will bind behavior, unlike back in March.” Federica Romei (University of Oxford) suggests that adaptation to the pandemic implies that the second lockdown will sustain larger costs: “There is much less uncertainty: we know that the Covid-19 virus hits disproportionally more the older adults than the young. For this reason, I would think that a considerable chunk of the population would keep consuming non-tradable goods in the absence of a lockdown.” Roger Farmer alludes to the distributional consequences of the lockdown: “What is clear is that economic activity will be lower as a consequence and the incidence will fall disproportionately on the poor.”

The third question asked panelists to assess the tradeoff between lives and livelihoods over a longer (2-year) horizon and to also take into account a broader set of policy tools than those implemented in the UK. In this regard, the panel was asked:

Question 3: Using not only the policy tools that have been part of the UK policy mix thus far but also policy tools implemented in other countries, to what extent does the government face a tradeoff between saving lives and preserving livelihoods?

Thirty-four panel members responded to this question. The panel was equally split between the three options with a third assessing no tradeoff between the economic and public health policy objectives, a third evaluating the tradeoff as small, and a third viewing the tradeoff as large. On this question, the latter was the group most confident in its response.

Panelists arguing that there is a large tradeoff remind readers that economic slowdowns could also lead to loss of life. Roger Farmer opined that: “For better or worse, there is a difficult tradeoff here. The lives saved are predominantly the elderly and the sick. The livelihoods preserved are predominantly the poor and the young. I would add that lockdowns do not just affect livelihoods, they contribute to deaths through despair, suicide, and failure to access medical care for otherwise treatable conditions.” In a similar vein, David Miles (Imperial College London) expressed that “it may well be a tradeoff between lives lost to COVID now and lives lost (and others blighted) for many years to come. To go for total suppression now until a vaccine is widely available so as to minimise lives lost now due to COVID would plausibly wreak widespread costs to health, life expectancy and livelihoods for years to come.”

At the opposite extreme, more than one third panel members suggest there is no tradeoff at all. Interestingly, this number was larger than the around 20% of respondents who answered that lockdown measures benefit the UK economy in questions 1 and 2. Angus Armstrong writes that “citizens have to feel safe to interact for the economy to recover. This means keeping R at or below 1 on an ongoing basis. Lockdowns are necessary because other measures to limit interaction have failed (like test track and isolate).”  Chryssi Giannitsarou adds: “Well designed policies can both preserve livelihoods and save lives. Suppression measures not only save lives, but also ensure that the rest of the population has better health and therefore is more productive and eventually economically active.”

A few panel members note that better public policies could have made the tradeoff less acute or could have even meant that health and economic outcomes go hand in hand. Patrick Minford asserted: “Had the government focused on preventing infection among vulnerable groups, including in care homes and hospitals, it could have saved many lives while causing less disruption to the economy.” Supporting this is Costas Milas’s recent research, which “[showed] that the greater the strength of government interventions at an early stage, the more effective these are in slowing down or reversing the growth rate of COVID-19 deaths.” Michael Wickens added that “many of the current lockdown measures - especially those involved in outdoors activities - make little sense even in terms of lives saved.”

Also calling for better public policies, Benjamin Moll opines that “(a) there likely is a tradeoff between ‘saving lives’ and ‘preserving livelihoods’ if the primary policy tool being used are blunt lockdown measures … without an ‘endgame plan’; but (b) that, at the same time, there isn’t necessarily a tradeoff once other policy tools are included in the policy mix and, in fact, lives and livelihoods can go hand in hand.” He quotes a recent paper by Berger et al (2020) that highlighted the sub-optimality of “blunt” lockdowns directly: “Theories of economic-activity vs. mortality trade-offs with only a lock-down policy available to the policy-maker are … necessarily discussions of second-best policies.” Moll points to the cross-country evidence as supporting the view “that, with a broader policy mix, lives and livelihoods can go hand in hand” and points to a “New-Zealand-style disease elimination strategy” as an example because it could allow a country to discontinue lockdown measures “before reaching population immunity.”

Finally, Charles Bean (London School of Economics) argues that the tradeoff depends on how close we are to a vaccine and how effective the vaccine and its delivery are. He explained that if an effective vaccine is found, “the nature of the trade-off is clear, … [though] considerable”. If the search is unsuccessful, however, “the trade-offs are more subtle”, and requires one to “[set] the economic costs from periodic health restrictions against the benefits from preventing hospitals being overwhelmed.” After highlighting how “effective test, track and isolate [systems]” served as the key to alleviating the tradeoff in Asia, he cited the clear positive correlation between Covid-19 deaths/million and GDP loss during the first wave as evidence that “data [is] not strongly suggestive of a trade-off between lives and livelihoods”.    

References

Andersen, Asger Lau, Emil Toft Hansen, Niels Johannesen and Adam Sheridan, “Consumer Responses to the COVID-19 Crisis: Evidence from Bank Account Transaction Data”, 2020

Berger, David, Kyle Herkenhoff, Chengdai Huang and Simon Mongey, “Reopening in an SEIR model with Testing and Targeted Quarantine”, 2020

Bodenstein, Martin, Giancarlo Corsetti and Luca Guerrieri, “Social Distancing and Supply Disruptions in a Pandemic”, 2020

Bounds, Andy, “Liverpool to be first UK city to hold trial of mass testing for Covid-19”, Financial Times, 2020

Correia, Sergio, Stephan Luck, and Emil Verner, “Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu”, 2020

Dergiades, Theologos, Costas Milas, Elias Mossialos and Elias Mossialos, “Effectiveness of Government Policies in Response to the COVID-19 Outbreak”, 2020

Economics Observatory, “Covid-19: Economics meets epidemiology”, 2020

Fernandez-Villaverde, Jesus and Charles I. Jones, “Macroeconomic Outcomes and COVID-19: A Progress Report”, 2020

Giannitsarou, Chryssi, Stephen Kissler and Flavio Toxvaerd, “Waning Immuity and the Second Wage: Some Projections for Sars-CoV-2,” forthcoming in the American Economic Journal, Insights, 2020

Gov.uk, “New National Restrictions from 5 November”, 2020

International Monetary Fund, “A Long and Difficult Ascent, Chapter 2: Dissecting the Economic Effects”, World Economic Outlook, 2020

Kaplan, Greg, Benjamin Moll and Giovanni L. Violante, “The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the US”, Working Paper, 2020

Royal Society Data Evaluation and Learning for Viral Epidemics (DELVE) Initiative, “Economic Aspects of the COVID-19 Crisis in the UK”, DELVE Report, 2020

Tenreyro, Silvana, “Covid-19 and the economy: what are the lessons so far?”, Bank of England Speech, 2020

Vlieghe, Gertjan, “Assessing the Health of the Economy”, Bank of England Speech, 2020

Yates, Tony, “Without joined-up thinking about Covid and the economy, Britain is just guessing”, The Guardian, 2020

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How the experts responded

Question 1

Participant Answer Confidence level Comment
Abi Adams-Prassl University of Oxford A small portion of the decline Very confident
UK consumer spending declined before the start of the first national lockdown. The poor functioning of the UK contact tracing infrastructure and bad health outcomes continue to restrain spending. International experience points to the fact that it is not simply lockdowns that are responsible for falls in economic growth.
David Cobham's picture David Cobham Heriot Watt University GDP would have been lower absent lockdowns Confident
The incidence of the disease would have risen much further, so people themselves would have adopted significant mitigating behaviour, and the combination of these two developments would have led to a deeper fall in GDP. It is essential to distinguish between the short run and longer run trade-offs - see Simon Wren-Lewis's blog for 19 October at https://mainlymacro.blogspot.com/.
Martin Ellison's picture Martin Ellison University of Oxford A moderate portion of the decline (around a half) Not confident
Federica Romei University of Oxford A small portion of the decline Confident
This question is very complicated. In short, I would say that the first lockdown did not impact much economic performance, but the absence of fiscal support would have had terrible consequences on the UK GDP. Let me split this answer into three subparts. First, a fraction of the UK GDP is composed of exports. Given the unfavorable world economic conditions and the disruption of the global supply chain, this fraction would collapse independently of the lockdown. Second, lockdown prevented agents from consuming certain types of goods, the so-called non-tradable goods, like restaurants, pubs, hairdressers, and estheticians. So, how much would the households consume these types of goods in the middle of a terrible pandemic with a lot of uncertainty and full Intensive Care Units in the absence of the lockdown? My answer would be not much. Most likely, some households with low-risk aversion would keep going out, but the vast majority would cut this consumption type. In my opinion, the main difference between Sweden and the UK's economic performance lies in the severity of the pandemic more than the severity of the lockdown. Indeed, despite the high death rate, Intensive Care Units were never running at full capacity in Sweden. The high death rate's main reason was the high spread of the virus in care homes. Therefore, a considerable fraction of Swedish households kept consuming non-tradable goods during the pandemic. Third, I think that the absence of fiscal stimulus would have a terrible impact on the GDP. Indeed, the drop in export, the disruption of the global supply chain, and the aggregate demand decline would have led to a disproportionate default of UK firms and a large fraction of unemployment with catastrophic consequences for the UK GDP.
Michael McMahon's picture Michael McMahon University of Oxford A small portion of the decline Very confident
The timing and precise distribution across sectors may have been different.
Dawn Holland's picture Dawn Holland NIESR A small portion of the decline Confident
Close to half of the decline in output can be attributed to spillovers from the rest of the world. Fiscal support measures have offset at least 2 percentage points of the potential decline in economic activity. Household spending and investment would have been higher absent lockdown measures, but this would have been at least partially offset by additional work lost due to illness, and the impact of voluntary social distancing as the infection rate surged and health services became overwhelmed. Overall, output would likely have declined only somewhat less in the absence of any policy interventions.
Morten Ravn's picture Morten Ravn University College London GDP would have been lower absent lockdowns Very confident
The lockdown came too late and therefore had to be extended for too long. The policy communication at the start of the pandemic was terrible. It was claimed that the UK had the best means for fending off the pandemic off in the world, a claim that clearly has been shown wrong. The PM telling that he shook hands with everyone in a hospital with Covid-19patients was very confusing to the population. The disregard for the lockdown regime of people in or close to government sowed distrust in the population. A faster, better communicated, and more decisive lockdown could have meant significantly smaller costs to health and the economy both in the short run and in the longer run.
Patrick Minford's picture Patrick Minford Cardiff Business School A substantial portion or the entire decline Confident
Had the government followed Swedish-style policies of social advice, there would have been a fall as people took social distancing measures. But it would have been much reduced, as indeed was the Swedish fall.
Thorsten Beck's picture Thorsten Beck Cass Business School GDP would have been lower absent lockdowns Very confident
The experience across countries suggests that there is not really a trade-off between public health measures and economic growth, so I would there would have been little if no difference in the GDP drop compared to the lockdowns. First, research suggests that people react with lower demand to the public health crisis and this reaction would have been stronger if the pandemic had exploded without any control. Second, an unlimited spread in the pandemic would have led to serious disruption in basic economic services (e.g., transportation) due to labour shortages, with wider negative repercussions for the economy. Not having any lockdowns and - additionally - not any economic policy measures would have exacerbated the economic outlook further. Widespread losses for corporations (with consequent insolvencies) and households would have resulted in further reductions in aggregate demand and in financial sector distress, adding another shock to the economy.
Kate Barker's picture Kate Barker British Coal Staff Superannuation Scheme A moderate portion of the decline (around a half) Not confident at all
Ethan Ilzetzki's picture Ethan Ilzetzki London School of Economics A small portion of the decline Not confident at all
Much of the decline in economic activity would have occurred regardless, because of individual's reluctance to consume in sectors where infection and transmission risks were high. Many employers would have imposed voluntary work-from-home regimes. Moreover, the fiscal support will have mitigated some of the economic harm. However, I am sceptical of claims that there was no trade off whatsoever between the health and economic objectives.
Michael Wickens's picture Michael Wickens Cardiff Business School & University of York A substantial portion or the entire decline Extremely confident
The deserted high streets speak for themselves
Francesca Monti's picture Francesca Monti Kings College London GDP would have been lower absent lockdowns Not confident
Historical evidence and insights from models would suggest that the health-economy trade-off is far from clear cut. For example, Correia, Luck and Verner (2020), using regional data from the 1918 Flu Pandemic, find that social distancing measures did not seem to worsen the downturn: to the contrary, evidence on manufacturing activity and bank assets suggests that the economy performed better after the pandemic in areas with more aggressive public health policies. The reason is that, even if the restrictions depress economic activity when they are in place, such measures can mitigate the most severe and persistent economic disruptions, by reducing the severity of the pandemic. Many models (e.g. Bodenstein, Corsetti and Guerrieri, 2020, among others) have results in line with the evidence above.
Chryssi Giannitsarou's picture Chryssi Giannitsarou University of Cambridge, Faculty of Economics A small portion of the decline Not confident
It is hard to know how individuals would have responded in the absence of lockdowns, i.e. whether they would spontaneously withdraw from certain activities to protect themselves from getting infected. It is also hard to know how much aggregate productivity of the labour force would have declined if there was a much higher number of infections and deaths. Finally, the indirect impact due to potentially overwhelming the health sector is again potentially substantial. There is some evidence from countries that are comparable (Denmark and Sweden) that suggests that the extra decrease of GDP due to lockdowns is very small, as shown by Sheridan, Andersen, Hansen, and Johannesen (2020), 'Social distancing laws cause only small losses of economic activity during the COVID-19 pandemic in Scandinavia'.
Gino A. Gancia's picture Gino A. Gancia Queen Mary University of London A moderate portion of the decline (around a half) Not confident
Benjamin Moll's picture Benjamin Moll London School of Economics A small portion of the decline Confident
There is a simplistic view that needs to be dismissed from the outset: namely that, in the absence of lockdown measures, the economy would have experienced only a very mild recession or no recession at all. I'd call this the "cardinal sin of pandemic economics." Turning to the question, my rough best guess is as follows: without lockdown measures and fiscal support the recession would have been around 50-75% as deep as the one we actually experienced, i.e. the portion that would have been avoided is 25-50%. Here is how I arrived at this ballpark number. First note that the question asks about two counterfactuals: (1) no lockdown measures and (2) no fiscal support. I find it useful to break this down in reverse and consider two counterfactual economies: (A) lockdown measures but no fiscal support, and (B) neither lockdown nor fiscal measures, i.e. a "laissez-faire" scenario. Going from the actual UK economy to counterfactual A, I think the recession would have been substantially deeper, e.g. perhaps UK Q2 GDP would have dropped by as much as 25-30% rather than 20%. Going from counterfactual A to counterfactual B is obviously even harder but I think perhaps GDP would have dropped by about 40-60% as much without any lockdown measures. My basis for this latter number are (1) the substantial evidence we have on voluntary social distancing, e.g. see the evidence surveyed in Section 2 of the DELVE report (see e.g. the comparison of Sweden and Denmark from Andersen et al. in Figure 3), and (2) simulations that come out of calibrated epi-macro models, e.g. see Figure 8 in this paper with Kaplan and Violante https://benjaminmoll.com/PPF/ (though note that this calibration is for the U.S.) and Chart 3 in the Tenreyro reference (note that these numbers are also broadly consistent with average welfare losses predicted by our model (Figure 1): 3.5 times monthly income with lockdown and fiscal support and 2.5 times monthly income in laissez-faire (= 71% of 3.5).
Roger Farmer's picture Roger Farmer University of Warwick A substantial portion or the entire decline Extremely confident
The incidence of Covid falls almost entirely on the elderly. At the risk of being misinterpreted the elderly do not contribute substantially to GDP. This is NOT a moral judgement of any kind. It is a statement of fact.
John VanReenen's picture John VanReenen London School of Economics A small portion of the decline Very confident
Ricardo Reis's picture Ricardo Reis London School of Economics A small portion of the decline Confident
Back in March, by the time the UK government imposed a lockdown, people had already been voluntarily withdrawing from contact with other isolating. The people led, the government followed. There would have been a large tumble in GDP even without the lockdown, as the experience in Sweden suggests.
Angus Armstrong's picture Angus Armstrong National Institute of Economic and Social Research GDP would have been lower absent lockdowns Very confident
While there would have been voluntary lockdowns (a lot of activities had already closed) without the official lockdown, the reproduction and infection rate would be higher and hence later voluntary interruption to economic activity even greater. Without policy interventions (especially the CJRS) unemployment would have been much higher judging by the 9.6 million furloughed jobs since the crisis, meaning much weaker income and spending possibly leading to a secondary financial problem. The Treasury deserve real credit for acting fast and on scale once the emergency was recognised.
Wouter Den Haan's picture Wouter Den Haan London School of Economics A substantial portion or the entire decline Confident
Although there definitely will be some voluntary social distancing but it wouldn't come close to what was brought about by the first lockdown.
David Miles's picture David Miles Imperial College A moderate portion of the decline (around a half) Not confident
The rules in the UK told people to stay at home (without exceptional reasons) and closed all non essential shops. It is hard to believe that the decline in activity would have been little different had the government instead closed some high risk activities (mass audience sports and entertainment events) and given guidance on risks.
Sir Charles Bean's picture Sir Charles Bean London School of Economics A moderate portion of the decline (around a half) Not confident
Linda Yueh's picture Linda Yueh London Business School No opinion Confident
Costas Milas's picture Costas Milas University of Liverpool A small portion of the decline Confident
This is arguably not as tricky as it looks. In the very short run, GDP would have dropped by less. In the medium run, however, an "unchecked" virus would have triggered a much larger number of infections and a huge loss in terms of lives, in which case, the economy would have suffered in an unprecedented scale.
Lucio Sarno's picture Lucio Sarno Cass Business School A small portion of the decline Confident
Natalie Chen's picture Natalie Chen University of Warwick A small portion of the decline Confident
Some activity would have continued (restaurants etc. would have for instance remained open), but without any lockdown infections and deaths would have sky rocketed, people would have stopped going out and the economy would have taken a hit anyway.

Question 2

Participant Answer Confidence level Comment
David Cobham's picture David Cobham Heriot Watt University The economy will benefit from lockdown Confident
Under the new measures the incidence of Covid will rise less, and this will facilitate over time a smaller fall in GDP
Martin Ellison's picture Martin Ellison University of Oxford Small damage Confident
Federica Romei University of Oxford Large damage Confident
The second lockdown has been done in a different situation than the first. There is less much less uncertainty: we know that the Covid-19 virus hits disproportionally more the older adults than the young. For this reason, I would think that a considerable chunk of the population would keep consuming non-tradable goods in the absence of a lockdown.
Michael McMahon's picture Michael McMahon University of Oxford The economy will benefit from lockdown Very confident
Dawn Holland's picture Dawn Holland NIESR Small damage Confident
The distribution is very uneven, and some sectors will continue to suffer significant damage. But overall economic activity is far less restricted than in the spring.
Morten Ravn's picture Morten Ravn University College London The economy will benefit from lockdown Very confident
Again, this came too late, the signs were there for a few weeks before the government eventually moved for a national lockdown. It should have been done earlier - it would have been more effective and induced smaller costs. But not doing anything would just have meant even stronger measures becoming necessary later and with larger economic costs. Therefore, relative to doing nothing, this is benefitting the economy.
Benjamin Moll's picture Benjamin Moll London School of Economics Small damage Confident
Let me comment on questions 2 and 3 jointly. My view is that: (a) there likely *is* a tradeoff between "saving lives" and "preserving livelihoods" if the primary policy tool being used are blunt lockdown measures (and those measures are used only to slow down virus spread as opposed to eliminate it or bring it to levels that are low enough to manage without lockdowns, i.e. without an "endgame plan"); but (b) that, at the same time, there isn't necessarily a tradeoff once other policy tools are included in the policy mix and, in fact, lives and livelihoods can go hand in hand. Turning to question 2, consistent with this, I do expect the current UK lockdown measures (that shut down the entire hospitality industry and non-essential shops) to have a negative effect on economic activity, even relative to a counterfactual with milder measures that factors in behavioral responses to the pandemic (which would likely be much larger with such milder measure). I think that everything else would just be wishful thinking. For more background, see e.g. "choosing among lockdowns only = choosing among set of bad options" in these slides https://benjaminmoll.com/epi_macro_takeaways/. Or as a recent paper by Berger, Herkenhoff, Huang & Mongey shorturl.at/kntQS put it nicely: "Theories of economic-activity vs. mortality trade-offs with only a lock-down policy available to the policy-maker are hence necessarily discussions of second best policies." The fundamental problem with lockdown-only strategies is that (a) the policy maker can only stop intervening once the population immunity threshold is reached and this takes a long time and (b) long or intermittent lockdowns are costly. See e.g. slide 48 here https://benjaminmoll.com/SIR_notes/. Turning to question 3, and also consistent with this, I think that with a broader policy mix lives and livelihoods can go hand in hand. Though I'm generally extremely skeptical of cross-country correlations, they are suggestive in this regard (see e.g. the Fernandez-Villaverde and Jones paper https://web.stanford.edu/~chadj/MacroCovid.pdf). What seems to be important is to have some sort of an endgame plan, in particular a plan that keeps the disease under control or eliminates it even before reaching population immunity. For example, a New-Zealand-style disease elimination strategy that closes borders and then aims to eliminate the disease within geographic borders seems like a pretty good option, precisely because it can stop intervention before reaching population immunity, see e.g. slides 45-47 here https://benjaminmoll.com/SIR_notes/ (in the UK this seems to have never been on the table though). Also see slides 49-50 for alternative policy options.
Patrick Minford's picture Patrick Minford Cardiff Business School Small damage Not confident
It seems that most of the economy has now found ways of working around lockdown. There will be disruption of hospitality and travel which were beginning to recover; the extent is hard to gauge but given that the lockdown ends by December, it should be limited.
Thorsten Beck's picture Thorsten Beck Cass Business School Small damage Confident
I am comparing the economic development in the fourth quarter (dominated by lockdown) to the third quarter (between lockdowns): there will be an economic shock, mainly to the service sector. The negative impact of this lockdown, however, will be less than the impact from the first lockdown, as people have adjusted consumption habits and there will most likely be less precautionary savings.
Kate Barker's picture Kate Barker British Coal Staff Superannuation Scheme Small damage Not confident
Ethan Ilzetzki's picture Ethan Ilzetzki London School of Economics Small damage Confident
I would assess the damages to be small to moderate. Consumption data over the summer both in the UK and in other countries indicate that individuals (particularly young adults) had returned to nearly normal levels of consumption. In other words, there is far less voluntary social distancing than there was at the beginning of the pandemic. This implies a sharper trade-off between the public health and economic objectives than there previously was.
Michael Wickens's picture Michael Wickens Cardiff Business School & University of York Large damage Extremely confident
Francesca Monti's picture Francesca Monti Kings College London No additional damage or benefit Not confident
Chryssi Giannitsarou's picture Chryssi Giannitsarou University of Cambridge, Faculty of Economics Small damage Not confident
Same reasoning applies as in Question 1. If we are facing a second wave it is reasonable to ramp up measures to suppress the second wave as much as possible. If the measures are not implemented at the right time and with the right intensity, there is a risk of overwhelming the health sector, as well as the risk of large loss of life.
Ricardo Reis's picture Ricardo Reis London School of Economics Large damage Confident
Previous stocks of savings have been depleted. Uncertainty is high because the government's credibility is low so, according to the media, many do not believe the lockdown will only last until early December. And, again from media reports, it seems harder to get people to comply, as they have adjusted their risk tolerance, in which case the government restrictions will bind behavior, unlike back in March.
Gino A. Gancia's picture Gino A. Gancia Queen Mary University of London Small damage Confident
Roger Farmer's picture Roger Farmer University of Warwick Large damage Confident
Large ... medium small? That's hard to assess. What is clear is that economic activity will be lower as a a consequence and the incidence will fall disproportionately on the poor.
John VanReenen's picture John VanReenen London School of Economics The economy will benefit from lockdown Confident
Angus Armstrong's picture Angus Armstrong National Institute of Economic and Social Research The economy will benefit from lockdown Very confident
The economy will contract in Q4 by 4 to 6% but, IF well managed thereafter, the R rate can be kept 1 or below while the vaccination programme is deployed. If there was no lockdown and R at 1.5 or above this would greatly complicated delivering the vaccination programme. it is only when citizens FEEL safe will the economy really recover.
Wouter Den Haan's picture Wouter Den Haan London School of Economics Large damage Confident
I interpret large to mean substantial but clearly not as big as the downfall of the first lock down.
David Miles's picture David Miles Imperial College Small damage Not confident at all
Relatively "Small damage" IF the lockdown is designed to cut infections so as to reduce chance of hospital meltdown and that is achieved by December 2.
Sir Charles Bean's picture Sir Charles Bean London School of Economics Small damage Not confident
Linda Yueh's picture Linda Yueh London Business School Small damage Not confident
Costas Milas's picture Costas Milas University of Liverpool Small damage Confident
I think that we have now started living with the virus around us so the damage will be fairly small.
Lucio Sarno's picture Lucio Sarno Cass Business School Large damage Confident
Natalie Chen's picture Natalie Chen University of Warwick Small damage Confident
The lockdown is less restrictive than in March and is limited in time, so the economy should slow down but not too much.

Question 3

Participant Answer Confidence level Comment
David Cobham's picture David Cobham Heriot Watt University No tradeoff at all Confident
Small trade-off in short run but no trade-off at all in long run. See comment under question 1.
Martin Ellison's picture Martin Ellison University of Oxford Small tradeoff Confident
Michael McMahon's picture Michael McMahon University of Oxford No tradeoff at all Confident
I would even think that the two are complementary; to save the economy, action will need to be taken to suppress the virus and save lives.
Federica Romei University of Oxford Large tradeoff Very confident
The current measures have been implemented to protect mainly the old and the most vulnerable. Nevertheless, they impose a huge burden on the less-wealthy/lower-income households in the economy. Most of these households work in sectors where it isn't easy to work from home. Hence, they seem to have a higher probability of losing their job. These households can have some difficulties in finding a job after being unemployed for many months. Therefore, less-wealthy/lower-income households before the pandemic are becoming poorer. This imposes a huge trade-off between lives and livelihoods.
Benjamin Moll's picture Benjamin Moll London School of Economics No tradeoff at all Confident
Let me comment on questions 2 and 3 jointly. My view is that: (a) there likely *is* a tradeoff between "saving lives" and "preserving livelihoods" if the primary policy tool being used are blunt lockdown measures (and those measures are used only to slow down virus spread as opposed to eliminate it or bring it to levels that are low enough to manage without lockdowns, i.e. without an "endgame plan"); but (b) that, at the same time, there isn't necessarily a tradeoff once other policy tools are included in the policy mix and, in fact, lives and livelihoods can go hand in hand. Turning to question 2, consistent with this, I do expect the current UK lockdown measures (that shut down the entire hospitality industry and non-essential shops) to have a negative effect on economic activity, even relative to a counterfactual with milder measures that factors in behavioral responses to the pandemic (which would likely be much larger with such milder measure). I think that everything else would just be wishful thinking. For more background, see e.g. "choosing among lockdowns only = choosing among set of bad options" in these slides https://benjaminmoll.com/epi_macro_takeaways/. Or as a recent paper by Berger, Herkenhoff, Huang & Mongey shorturl.at/kntQS put it nicely: "Theories of economic-activity vs. mortality trade-offs with only a lock-down policy available to the policy-maker are hence necessarily discussions of second best policies." The fundamental problem with lockdown-only strategies is that (a) the policy maker can only stop intervening once the population immunity threshold is reached and this takes a long time and (b) long or intermittent lockdowns are costly. See e.g. slide 48 here https://benjaminmoll.com/SIR_notes/. Turning to question 3, and also consistent with this, I think that with a broader policy mix lives and livelihoods can go hand in hand. Though I'm generally extremely skeptical of cross-country correlations, they are suggestive in this regard (see e.g. the Fernandez-Villaverde and Jones paper https://web.stanford.edu/~chadj/MacroCovid.pdf). What seems to be important is to have some sort of an endgame plan, in particular a plan that keeps the disease under control or eliminates it even before reaching population immunity. For example, a New-Zealand-style disease elimination strategy that closes borders and then aims to eliminate the disease within geographic borders seems like a pretty good option, precisely because it can stop intervention before reaching population immunity, see e.g. slides 45-47 here https://benjaminmoll.com/SIR_notes/ (in the UK this seems to have never been on the table though). Also see slides 49-50 for alternative policy options.
Patrick Minford's picture Patrick Minford Cardiff Business School Small tradeoff Confident
Had the government focused on preventing infection among vulnerable groups, including in care homes and hospitals, it could have saved many lives while causing less disruption to the economy.
Ethan Ilzetzki's picture Ethan Ilzetzki London School of Economics Large tradeoff Not confident
There is no single answer to this question. There are some policies that can save lives with nearly no economic impact: for example wearing masks, encouraging moderate social distancing, personal hygiene. But Covid-19 spread eventually even where these "low hanging fruit" were broadly followed. This means that to further mitigate Covid's spread, additional measures need to be taken and these appear to be rather costly at least in certain sectors (closing theaters, enforcing 2-meter distancing in restaurants, closing pubs, ect.).
Michael Wickens's picture Michael Wickens Cardiff Business School & University of York Large tradeoff Very confident
The government has completely failed to give any analysis of the trade-off between lives and livelihoods. This alone suggests that the cost in livelihoods is likely to be large and therefore unmentionable. Most of the academic research indicates that the benefit in lives is less than the cost in GDP. Many of the current lockdown measures - especially those involved in outdoors activities - make little sense even in terms of lives saved.
Francesca Monti's picture Francesca Monti Kings College London Small tradeoff Not confident
Chryssi Giannitsarou's picture Chryssi Giannitsarou University of Cambridge, Faculty of Economics No tradeoff at all Confident
Well designed policies can both preserve livelihoods and save lives. Suppression measures not only save lives, but also ensure that the rest of the population has better health and therefore is more productive and eventually economically active.
Ricardo Reis's picture Ricardo Reis London School of Economics Small tradeoff Not confident
The tradeoff was not there back in March, since controlling the virus was needed to both save lives as well as to preserve economic activity. Now, uncertainty is lower (even if the danger is as high), and the marginal pain of economic losses is higher. So there possibly is a tradeoff.
Roger Farmer's picture Roger Farmer University of Warwick Large tradeoff Very confident
For better or worse, there is a difficult tradeoff here. The lives saved are predominantly the elderly and the sick. The livelihoods preserved are predominantly the poor and the young. I would add that lockdowns do not just affect livelihoods, they contribute to deaths through despair, suicide, and faliure to access medical care for otherwise treatable conditions.
Angus Armstrong's picture Angus Armstrong National Institute of Economic and Social Research No tradeoff at all Very confident
Citizens have to feel safe to interact for the economy to recover. This means keeping R at or below 1 on an ongoing basis. Lockdowns are necessary because other measures to limit interaction have failed (like test track and isolate). So I see health and economic activity as complements not substitutes. All this said, many of the policies could have been much more imaginative e.g. tailored for those and places most likely to suffer.
Wouter Den Haan's picture Wouter Den Haan London School of Economics Large tradeoff Very confident
In the short-run there definitely is an important trade-off. I guess one could argue that if health issues are ignored then the consequences of the pandemic really become overwhelming with hospitals not being able to cope, many people being sick for long periods of time, and lots of people dying. This would be bad for livelihoods since one cannot work if one is sick (or dead). And such a disastrous outcome could have further negative consequences such as complete distrust in the government. So it is in principle possible that there are some long-run economic benefits of focusing on health at the cost of short-term economic damage.
Sir Charles Bean's picture Sir Charles Bean London School of Economics Small tradeoff Not confident
The answer depends on whether or not the search for an effective vaccine and other treatments is successful. If it is, then lockdowns and other public health measures can act as a bridge, saving lives (or more accurately saving a few years of life - 10 or less on average, given the age-mortality profile of those infected) but at considerable economic cost. In this case, the nature of the trade-off is clear. (The news on the Pfizer/BioNTech vaccine is obviously encouraging but there is still a long way to go before we can be sure that it is the answer and there is also the possibility of the virus mutating in the meantime.) If, however, the search for a vaccine is unsuccessful, then we have to learn to live with disease and the unavoidable destination is herd immunity. Getting there will involve a considerable number of premature deaths, though behavioual changes, mandated or voluntary, can affect the fraction of the population that need to be infected before herd immunity is achieved. In this case, the trade-offs are more subtle, involving setting the economic costs from periodic health restrictions against the benefits from preventing hospitals being overwhelmed. In both cases, it makes sense to adopt the most effective methods of controlling the virus. Experience in Asia strongly suggests that an effective track, trace and isolate system is the key to limiting the economic costs of keeping the virus in check. Finally, it is worth noting that the data are not strongly suggestive of a trade-off between lives and livelihoods. Looking across countries there is a very clear positive, rather than negative, correlation between covid deaths/million and the GDP loss during the first wave.
David Miles's picture David Miles Imperial College Large tradeoff Confident
It may well be a tradeoff between lives lost to COVID now and lives lost (and others blighted) for many years to come. To go for total suppression now until a vaccine is widely available so as to minimise lives lost now due to COVID would plausibly wreak widespread costs to health, life expectancy and livelihoods for years to come.
Linda Yueh's picture Linda Yueh London Business School No tradeoff at all Not confident
Costas Milas's picture Costas Milas University of Liverpool Small tradeoff Confident
It is reasonable to argue that there is a small trade-off, at least in the very short run between controlling COVID-19 (e.g. based on non-pharmaceutical interventions) and saving jobs by keeping part of the economy open. In recent research of mine (co-authored), however (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3602004), we show that the greater the strength of government interventions at an early stage, the more effective these are in slowing down or reversing the growth rate of COVID-19 deaths. In fact, the earlier these interventions take place, the smaller the associated economic hit (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3611386).
Lucio Sarno's picture Lucio Sarno Cass Business School Small tradeoff Confident
Natalie Chen's picture Natalie Chen University of Warwick No tradeoff at all Confident
If we do not control the spread of the virus, and people are sick and die, the economy will suffer anyway so policymakers should do all they can to stop the spread.