Benjamin Moll's picture
Affiliation: 
London School of Economics

Voting history

Lockdowns and UK Economic Performance

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? 

Answer:
No tradeoff at all
Confidence level:
Confident
Comment:
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.

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?

Answer:
Small damage
Confidence level:
Confident
Comment:
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.

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)?

Answer:
A small portion of the decline
Confidence level:
Confident
Comment:
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).

Should the ECB Reformulate its Inflation Objective?

Question 3: Which of the following best reflects your opinion on the following statement? “The ECB should explicitly recognize unemployment and/or economic growth as a secondary aim, secondary to its price stability mandate.”

Answer:
Agree
Confidence level:
Confident
Comment:
Yes I think that a mandate of this type or even a US-style dual mandate would likely result in better economic outcomes for the Eurozone economy. Monetary policy is a flexible policy tool with a potentially powerful effect on real outcomes like unemployment, GDP etc so why not partially use it to this end?

Question 2: Would you support increasing the ECB’s inflation target to a higher rate of inflation than the current 2% target?

Answer:
Neither support nor oppose
Confidence level:
Not confident at all

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