Select Page

The Money Fight: Public health vs the economy

28 minutes


Richard Holden

Professor of Economics

View Profile >

Episode Notes

It’s a discussion we’re hearing on repeat: do we save lives, or save the economy? For some, COVID-19 is the ultimate choice between two ‘must haves’.  But is it really? Professor Richard Holden explains why he joined economists from across the globe to explain to us the false dichotomy of public health versus the economy.  We’ll cover everything from game theory to social equalisers to the issue of whether economists are really the cold and calculating types they’re sometimes made out to be.


Ginger Gorman: Hello, and thank you so much for joining us for this episode of Seriously Social.

Well, there is no doubt about it. The pandemic has turned all of our lives upside down. As individuals and as a community, things are changing quickly and in unexpected ways. During this podcast, we will use the lens of the social sciences to help us consider how COVID-19 is impacting Australian society, our relationships, human connections and societal structures. We’ll get new insights and think about things in new ways.

With me now is University of New South Wales’ Economics Professor and a Fellow of both the Academy of Social Sciences in Australia and the Econometric Society, Richard Holden.

Richard, thank you so much for joining me.

Professor Richard Holden: It’s great to be with you.

Ginger: I saw a letter that yourself and 121 other economists wrote and it was titled ‘Don’t Sacrifice Health for the Economy’. Now, this is not the message we’ve been hearing from some commentators in the media. Can you briefly explain to us what is in that letter?

Professor Richard Holden: Absolutely. And we’re very pleased that we’re now up around 250 signatures to that letter. And given the size of the profession in Australia, it’s an overwhelming majority. But the point that we wanted to make in that letter and that we’ve been making more broadly is the following, which is if you have a public health crisis, an exponential outbreak of a very infectious disease and deadly disease, like COVID-19 is, then you’re not going to have a functional economy until you’ve got that under control.

And so, in the short run, you shouldn’t really be thinking about a trade-off between the economy and public health. You should be thinking about getting the public health crisis under control, doing what you need to to do that and then you can focus, once various measures are in place, on relaxing the social distancing provisions and getting the economy back to some kind of shape.

But the basic idea that we could take away those measures or never have had them in place and snap back to a December 2019 economy is just fanciful at best and dangerous at worst.

Ginger: There was one line that I read on the conversation website. It was almost the precursor to the actual letter and it said, “We believe a callous indifference to life is morally objectionable.” Tell me a bit more about that statement because it’s a very strong and powerful statement you’ve made there.

Professor Richard Holden: I think one of the things that economists get kind of a bad name for, and it’s our own fault, is being seen as sort of cold and calculating. So, some economists have tried to estimate the statistical value of the human life and put a number on it and come up with numbers like, “Well, it’s worth nine million US dollars is the value of a life.”

And there are some situations in public policy where you’re forced to make tradeoffs about things. And there are some situations where medical professionals are forced to make trade-offs. If you have one ventilator and two patients who need it and you’re a frontline medical professional, and you have no time to get another ventilator and no time to wait for the patients, you have to make a choice. You have to make a constrained choice and it’s a wrenching one for people like that.

The point we are trying to make here is that our public policy is about what those constraints are. And by making sure that we deal with the public health crisis, we’re going to have enough beds, have enough resources, have enough PPE, have enough testing equipment, have good enough contact tracing so that we don’t put ourselves in the invidious position of having to make those choices.

And the people who want to just sort of let it rip throughout the community seem to speak as if the human suffering from that is just a statistic. And they talk about, “Sure, you know, tens of thousands of people will die,” and then go make some comparison to the deaths from smoking or crossing the road or a bad flu season or things like that.

And I think we need to be very careful in making those sort of calculations, so we don’t gloss over the human nature and the suffering that’s embedded in those things.

Ginger: It’s really interesting, Richard, listening to what you’re saying because it’s almost as if there’s a false dichotomy people think, or some people think, you either save lives or you have an economy. And from what I’m hearing you say, that’s not your belief.

Professor Richard Holden: Yeah. That’s a perfect way to put it. That’s what we’re pushing back on, this false dichotomy between a perfect functioning economy like it used to be and some kind of lockdown that helps save lives. The way that I certainly prefer to think about it is what we’re doing during the, if you want to call it a lockdown or containment measures in Australia, and because we got onto this in reasonable time, and had a bit of luck among other things, and because population density isn’t what it is in New York City in most parts of Australia, we have been able to have containment measures that still allow people to go out and exercise, that still allow restaurants to have takeaway food, and coffee shops to have takeaway coffees and drycleaners to be open and various construction sites to be still operational and things like that. And that’s certainly not the case in, say, Spain or Italy or New York City for the most part.

And so, we really think that painting it as this false dichotomy between the economy and public health as if they were the only two options is very dangerous. I prefer to think about it as what economists call and intertemporal tradeoff, a tradeoff over time. So, what we’re doing now is we’re making essentially an investment in the economy for the future by enacting some of these containment measures today.

We’re enacting these containment measures today while we build up hospital bed capacity, PPE capacity, testing capacity, develop a really good contact tracing capability. That’s an investment in the economy of the future. And if we don’t do that, the economy of the future will be severely compromised. And we’ve seen secondwave outbreaks recently in Singapore that have been very dramatic. We’ve seen them in other jurisdictions. I saw Boris Johnson overnight saying that he was very concerned about secondwave outbreaks and that’s why he wanted to keep the containment measures in place.

Ginger: As you say, there are all these dissenting voices, who are not on the same side as your 200-plus economists. We’ve seen conservative commentator, Andrew Bolt, call it hysteria all the measures that the Government’s doing. We’ve seen experts from the Institute of Public Affairs claiming we should relax social distancing because they are clearly “over the top” and that they are destroying the economy. So, how would you respond to some of these voices, Richard?

Professor Richard Holden: Well, I think one of the things that these voices confuse, and it’s really I think a bad flaw of logic, is they look at our body count and our infection rate, and they say, “See, it’s not nearly as bad as it was overseas, so we don’t need these measures.” And of course, it’s not nearly as bad as overseas precisely because we have taken these measures.

And so, it’s rather like saying, “We have a lot of police on the beat and we have a relatively low crime rate. So, look at the low crime rate, we don’t need all the police on the beat. We could save the money.” And of course, if you put it that way, which is precisely analogous, if you put it that way, everyone would say, “Well, that’s a crazy suggestion. You’ve got to think about what would happen absent the police.” And these commentators are not looking at what would happen absent these measures.

Now, we don’t know exactly what that counterfactual is in Australia because our First Ministers and Federal Government acted relatively decisively and very effectively. But we can look overseas to what the counterfactual is. And if you talk to anyone in New York, or Lombardi, or Spain, or various other jurisdictions and that’s what the counterfactual is. And so, I think those commentators are just making a mistake of logic as much as anything else.

Ginger: It’s interesting. I saw an epidemiologist from Chicago and she was saying the best thing that can happen is if nothing happens, if you don’t notice it. And that means our lockdown measures are working. And I kind of think that’s the same in this situation, isn’t it? We are lucky that we’re sitting safely at home and nothing’s happening.

Professor Richard Holden: Well, that’s exactly right and if you wake up one morning and see the infection rate in Australia for the previous day. Now, that’s only from active tests, so it may be higher than that. It’s surely higher than that. But if you see a number like 20, we should be celebrating how successful the measures we’ve got in place are and looking at whether we’re getting in place those things like testing and contact tracing in place so that at some point in the future, those measures can be relaxed.

Ginger: Do you think all the commentators, who are accusing everybody who is prolockdown measures of hysteria are almost being hysterical about the economy themselves? I’m not suggesting there’s not very serious impacts and obviously, we’ve got a million unemployed and some experts are suggesting there will be another million unemployed. But are they swinging too far in the other direction in terms of predicting this economic decimation?

Professor Richard Holden: Look, I certainly think they are. The economic effects are huge and they’re real. One of my good friends and favourite Australian abroad economist in the US, Justin Wolfers, who’s a professor at the University of Michigan actually wrote a piece in the Sydney Morning Herald at the very early stages of the outbreak and said, “This is going to be worse than the Great Depression.”

And so, the economic effects are really, really serious and that’s right. But the economic effects will be even worse if we don’t get the public health crisis under control. You just simply can’t have a functioning economy when a virus as severe as this is just ripping through the community.

Ginger: And we have seen actually the Government act very quickly to put in place all kinds of measures to help small businesses, to help individuals and things like that. And your colleague, Frank Bongiorno said, when I was speaking to him that in fact, these are economic lessons we’ve learned from the Great Depression. And so, actually, we’re doing quite well.

Professor Richard Holden: Well, I think that’s exactly right. And I and others have given a lot of credit to this government, the Federal Government, whose political brand, to be perfectly blunt about it, has been built on the back of balancing the budget and the sort of back in the black mantra. And they’ve acted incredibly responsively and very decisively. And they’ve enacted $200 billion worth of spending measures.

And for a prime minister, who must have used the phrase ‘debt and deficits’ more times than almost any other phrase out of his mouth other than perhaps supporting the Cronulla Sharks, to reverse on a dime like that, I think is comforting and impressive, but it also does put in place a lot of measures. Now, that doesn’t take away the suffering, but the JobSeeker unemployment benefits have been doubled. That doesn’t mean that people who are unemployed are in a financially comfortable position, but they’re a lot better off than they would have been.

The JobKeeper wage subsidy program that’s estimated to cost about $130 billion over six months, again, I would have preferred something that looked more like 80% to 90% wage replacement along the lines of the UK program. Our government went with something different, but that’s not to say that they haven’t acted in a very meaningful way to try and help keep employers attached to employees and to keep those people, those employees able to survive the crisis.

[Music and voiceover 12:38 – 12:45: This is Seriously Social.]

Ginger: But there are some economists, who are very nervous about the amount that the Government’s spending. Have we gone over the top?

Professor Richard Holden: Not at all. So, I think one of the really notable things about this economic climate is that interest rates are incredibly low. So, the Australian Government has been able to issue debt that’s due to be paid back or really rolled over, sort of reborrowed, in 10 years from now at less than 1% interest rate. So, if you think about, say, the JobKeeper Program at $130 billion sounds like a lot. In one sense it is a lot. In another sense, that’s got a servicing cost and interest bill of only $1.3 billion a year.

So, to put that in perspective, the tobacco excise generates $17 billion a year in revenue. So, the scale of the measures is large in dollar terms, but our ability to service it is very, very strong, given both low interest rates and our ingoing position of having one of the lowest ratios of net debt to GDP among all advanced economies, the OECD economies.

Ginger: You are a fan of the so-called track and trace and widespread testing, which you said earlier. If you think about that as an economist, why are you so in favour of it?

Professor Richard Holden: So, as an economist, you think about these two things, the testing and the contact tracing as being complements. And in economics, the idea of complements is if you do more of one thing, it makes it more attractive, and more valuable and more in your interest to do more of the other thing.

And so, if you think about what the dilemma that we’re faced with when social distancing provisions or so-called lockdown provisions are relaxed a bit. So, imagine we go to a situation where instead of it’s groups of two that can meet outside, it’s groups of five or something like that, or we allow certain businesses to open up a little bit more, like restaurants, or pubs or something along those lines, and schools indeed, and we’re going to see almost surely some kind of infections spike at that point.

And you want to get onto that absolutely as quickly as possible. And so, how do you do it because you don’t want this thing to spread exponentially. So, how do you do that? Well, firstly, you’ve got to know that people are infected. That’s why testing’s really key. Secondly, you’ve got to know who they’ve been in contact with and so who they might have infected so that those people can go get tested really quickly.

And you’re not going to be able to do that on a large scale with a bunch of public health officials running around with clipboards trying to track where people go or ask people to keep diaries of where they go and things like that. Those are the sort of things you’d do if we didn’t have fancy technology, but we do have fancy technology.

The overwhelming majority of Australians have a mobile phone. Those phones have Bluetooth technology. That Bluetooth signal can tell you how long you’ve spent in what intensity of proximity with other people who have a phone with that Bluetooth capability. And that’s what this app does and that’s incredibly powerful.

One point that I’ve made and I wrote an opinion piece in the Financial Review with Joshua Gans, another expat Australian, who’s at the University of Toronto, we made the point that you want to provide incentives for people to take this up. So, if people take it up and use it, maybe they should get a $10 a month rebate on their mobile phone bills. Maybe there should be certain public places, like parks and shopping centres that people can’t go to if they don’t have the phone with them with the app enabled.

And part of the point about this that’s really, really important to get through is that the higher the take-up rate, the better, but in a way where the numbers might surprise you. So, imagine we have a 40% take-up rate. That’s what the Chief Medical Officer, Brendan Murphy said is the kind of bare minimum that we can get away with. Well, you take two randomly-selected people, they’ve each got a 40% chance of having the app and they get in contact with each other and, say, one of them is infected. Well, what’s the chance that we have the other person being matched with somebody who’s got it? Well, there’s a 40% chance that one person’s got the app and there’s a 40% chance the other person’s got the app. If you multiply those two together, it’s 16% that we catch that infection or potential infection.

If it’s 20% take-up, like in Singapore, that’s a 4% overall chance that we catch that infection. That’s really low. If we have an 80% take-up rate, we’re talking about more like 64%, a two-thirds chance that we catch it. So, this take-up rate is incredibly important.

Ginger: There are privacy concerns, obviously though, with people feeling uncomfortable with being tracked in that way.

Professor Richard Holden: I think it’s really important to both take seriously these privacy concerns and not kind of poo-poo them, but also for people to understand exactly what this app does. And so, firstly, it stores data on your own device. Secondly, let’s think about what kind of data it stores. It doesn’t store where you were. Now, to be honest, Google and Apple and a whole bunch of other apps are storing exactly where you were, but let’s set that aside for the moment.

This app doesn’t store where you were. All it does is say, “Oh, Richard was next to this other unknown person, but he’ll never know who they were, and he was in contact with them. Richard had some symptoms, got tested, was tested positive for COVID19.” And then the Department of Health can contact that other person and say, “You should get tested.” Or ideally, it would just pop up on their phone and say, “You have been in contact with someone who’s tested positive and you should go get yourself tested.”

You can see now why testing is such an important complement to the app tracing because ideally, you want an alert to go off on their phone and a Google Map to tell you or an Apple Map to tell you, “Here’s the nearest testing centre. Go as soon as you can to do that.”

And I think the other thing that’s really important about not only what it stores, it’s for how long. And it’s on a 21-day rolling basis. So, even that relatively limited amount of data is deleted every 21 days off it. So, I think when people understand what’s actually stored and what the privacy concerns are, I think people would be very comfortable with it.

Ginger: And like a lot of the things you’ve been saying, Richard, it’s a balancing act, isn’t it, where we’re balancing our own privacy or our own concerns about that against what could happen to the whole community if we don’t get this right.

Professor Richard Holden: Well, that’s exactly right. I mean, the language of economics, we’re imposing a negative externality on other people if we’re don’t do this. It’s something that affects other people that’s not captured in the market mechanism or the price mechanism.

And so, if people don’t install this app, it’s not going to be compulsory in Australia. It’s not going to be compelled. That’s not the kind of society we are. I obviously accept and understand that. But people should understand that if they don’t do this, they’re being selfish and they’re imposing a risk on other people. And the more extreme form of that is people who know that they’re infected with this thing or might be infected with this thing and go around in close proximity to other people and flout social distancing provisions. That’s a negative externality.

Now, the latter is dealt with through things like fines from the police for violating orders. But people should be under no illusion that they’re not going to get a fine, they’re not going to get $1,000 fine or get written up by the police for not having this app, but they’re doing damage to other people and they should really consider that when they decide to put their, once they understand it, very, very minor privacy concerns above the health of their fellow citizens.

Ginger: One of the pieces you also wrote, Richard, you seem to very busy. You must be up day and night writing opinion pieces, I think. But you cowrote a piece suggesting that the community was essentially in a kind of game with the virus. And you brought in the idea of game theory. Do you want to tell us first of all what game theory is and then how it applies to the kind of “game” we’re playing with the virus?

Professor Richard Holden: Sure. So, this was a piece in The Conversation. I have a regular column there called Vital Signs. And game theory was something that was developed originally by mathematicians and along with economists, kind of jointly between mathematicians and economists during and just after world war II. Perhaps the most famous game theorist that people might know is John Nash from the book and movie A Beautiful Mind, who wound up winning a Nobel Prize for economics with two other very fine economists, John Harsanyi and Reinhard Selten.

And what they developed was various concepts of the equilibrium of the game, which is the situation where basically no party or no player can improve their position or payoff by changing their strategy unilaterally. And that began with Nash’s famous concept, which of course, he didn’t call it this, but became known as Nash Equilibrium.

And we can really think about the containment measures we’re putting in place as a game. It’s an unfortunate game that we’re playing with the virus and the virus wants to infect people and we want to try and figure out what the best thing for us as a society to do is.

And that’s why I said that this really links back to people looking at the equilibrium, or the outcome of this game, which is the infection rate in Australia and the death count or death toll in Australia. That’s an equilibrium phenomenon in the language of game theory. That’s the consequence of the strategy that we’re playing.

And so, one of the points I just wanted to make is that you can’t look at the equilibrium outcome of the game and draw conclusions about what the payoffs would have been and what the equilibrium would have been. If you went and played a different strategy, and in this context, a different strategy would be like no lockdowns whatsoever and we would likely have a very different outcome. And the epidemiological modelling said that we’d have perhaps as high, quite realistically, a 3% death rate across Australia if we didn’t have these measures in place. And the same in the US pointed to at least 2.2 million deaths in the United States and these are terrifying numbers.

Ginger: One of the interesting things about applying game theory is this idea of doing something unilaterally because nothing we do to beat the virus can be unilateral.

Professor Richard Holden: Yeah. We can only control what we do. So, one thing we know about the virus – there are many things we don’t know about the virus, but one thing we do know about it is it just wants to infect as many people as possible. It just wants to find a host. So, that doesn’t make it easy to beat, but it’s very easy to understand.

So, it’s very easy to understand what it does and so, we need to focus on what we’re going to do and make sure that we’re doing the best for society as a result of that.

Ginger: Is there a chance, if we just look at the economy for a second that we’re going to see a kind of correction? We’ve had this economy that, sitting where we’re sitting right now, seems very vulnerable, like so much casual work, people on shortterm contracts and so forth, who’ve all immediately lost their jobs. Will there be now a stronger, and better and more robust economy because we’re going to have to correct this stuff?

Professor Richard Holden: I think you’re exactly right that at a bare minimum, what this crisis is going to do is going to shine an even brighter light on some of the – and I say this as an economist. I say this as a fairly mainstream economist. I’m routinely called a neoliberal shill in comments on things that I write in the popular press. So, I say it without perspective, I think this is going to shine an even brighter light on some of the failings of our liberal democracy and of our economic model.

Now, I don’t think those are irreparable failings. I think some of the things you point to are things that we may well be able to solve relatively easily. So, I think that job security is a really important thing. Now, if you take one example, like ride sharing, ride sharing’s benefited a huge number of people, but people who work in the gig economy and ride sharing more broadly obviously don’t typically have the same kind of, say, leave provisions and kind of safety net that fulltime employees have. Again, in Australia, that’s less dramatic than it is in places like the United States.

So, I think we’re going to see things like universal annual leave or universal leave of other kinds pushed for so that maybe there’s a baseline where everybody in the economy gets it. And if your employer provides above the baseline, you can’t double dip. But if your employer doesn’t because they treat you as a contractor or such things, then you’ll have access to a baseline level of leave, potentially have a baseline level of medical protection in Australia with our system, which is I think world-leading and world class. And I think that that kind of an idea of, again, what Professor Dickson and I call a generous social minimum I think will extend to other parts of the economy.

We saw the government, mainly as far as I can tell, to try and make sure that childcare centres didn’t all go bankrupt, and spend $1.6 billion relatively quickly to hand out for childcare. Now, I think that’s something that is a lot of good evidence that free childcare has large social and economic benefits for a great many children. So, I think that’s something that might stay free socalled preK education and so on might be things that stay.

So, I think some things will go back to normal. We’re not going to have the Commonwealth Government funding the wage bill of private sector companies after this is all over, so don’t expect JobKeeper to stay around. But the increase to unemployment benefits under JobSeeker, I don’t know if it’s going to stay at doubling the existing rate, but there was almost no one in the country defending the incredibly low level of unemployment benefits that was offered.

John Howard, generally known as a fairly conservative politician was in favour of raising it. The Business Council of Australia was in favour of raising it. I don’t know of a single economist who wasn’t in favour of raising it. So, I don’t think we’ll go back to the old ways when it comes to that.

It’s sort of hard to talk about something good coming out of such a terrible, horrible event that still we don’t even know how it’s going to pan out other than it’s going to continue to be terrible. But there are things that will cause us to reexamine and that could, I hope, cause us to modify our economic model in ways that will make us all better off.

Ginger: Thank you so much for your time.

Professor Richard Holden: Great to talk to you.

[Music and voiceover 27:47 – 28:18 This episode of the Seriously Social podcast was brought to you by the Academy of the Social Sciences in Australia and hosted by Ginger Gorman. For episode notes and transcripts, visit]

Useful Links

Aboriginal and Torres Strait Islander people should be aware that this website may contain images, voices and names of deceased persons.