YELLOW PAD
By Filomeno S. Sta. Ana III
The Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF) has proposed the further easing of quarantine restrictions. From GCQ (general community quarantine), the IATF wants the country to shift to MGCQ (modified general community quarantine).
But let’s have a reality check. Do ordinary people know what the features of GCQ and MGCQ or for that matter, ECQ (enhanced community quarantine) and MECQ (modified enhanced community quarantine) are? Because these abbreviations confuse, word mavens describe them as an “alphabet soup.”
As a result, policies and their implementation also get muddled. What is common in all these abbreviations is the term “community quarantine.” These different abbreviations convey the necessity of continuing quarantine though in varying degrees and forms, depending on the conditions. The message is stay at home, unless it’s essential to go out.
This is in recognition of the fact that the quarantine is the effective way to prevent the fast and uncontrolled spread of COVID-19 (coronavirus disease 2019). And so long as the virus is not contained, the quarantine (of different types) remains.
It is thus odd that the public debate is reduced to whether the economy should further open up or to retain the restrictions. This debate misses the point.
Let’s return to the basics. Society has agreed that the biggest problem we face is the pandemic. The pandemic has created a deep crisis affecting our people’s health, quality of life, employment, and incomes. Society thus has forged the consensus that “flattening the pandemic curve” is the principal objective.
Flattening the curve renews confidence in the economy or triggers “animal spirits,” and thereby facilitates economic recovery. One can argue that the economy has taken a long time to recover precisely because we have not been successful in flattening the curve.
Some mistakenly perceive that the current policy debate is about locking down or opening up the economy. But recall that the constraint on mobility and opening up is the operative word that is “quarantine.” The IATF is proposing a version of the quarantine, but which is lighter. MGCQ is essentially quarantine.
However, MGCQ is but a combination of letters that ordinary folks could not spell out. But what we are fed is that MGCQ means opening of indoor cinemas, allowing large gatherings like resuming mass services, easing physical distancing on public utility vehicles, and encouraging dining at indoor, air-conditioned restaurants. The statement of Central Bank Governor Ben Diokno says it all: “Let’s not keep cowering and hiding in our residences.”
The fact is that the country has already opened up, albeit gradually. Moreover, everyone — the epidemiologist or the doctor as well as the businessman or the economist — agrees that the direction is toward further opening up as the spread of the virus is further contained.
The substantial policy question is about the appropriateness or ripeness of the further opening up the economy. Do the conditions allow it? It is a question of timing and sequencing, and how to do it.
Fellow BusinessWorld columnist Diwa Guinigundo wrote that the case for economic reopening should be “made consistent with the established metrics on when we migrate from one quarantine to another.” (See “Social loafing in the time of COVID-19,” Feb. 18, 2021.) Diwa further argued: “Doing both health mitigation and business reopening would be difficult given this confusing status of our vaccine procurement and the threat of new strains and new epidemics.”
Diwa is raising an essential behavior that the policy bias for reopening has missed. It is about fear — the fear of “new strains and new epidemics,” the fear of getting infected, the fear of getting hospitalized, and, worse, the fear of dying. (Inversely, people of all walks of life buy lotto tickets, hoping to win, even if the odds of winning are close to one in 14 million.) The assurance that the critical care system has improved or that only around 2% of those infected would die or that severe cases make up only 2.5% of infections is abstract. Ordinary people, especially in an extraordinary situation, do not make decisions based on calculating probability.
Diwa likewise mentions loss aversion in another column titled “Financial literacy and behavioral economics” (Manila Bulletin, Feb. 18, 2021). The famous phrase from Daniel Kahneman and Amos Tversky (“Prospect theory: An analysis of decision under risk,” Econometrica, 47, 1979) is: “Losses loom larger than gains.”
Thus, the average person prefers staying home to shopping in the mall during a pandemic. He is afraid of being part of the 2% who will die or who will get hospitalized. What makes him fearful is the absolute number of people that the pandemic has contaminated and killed globally: 110 million people infected and close to 2.5 million people dead.
This brings us to the famous term used by John Maynard Keynes: “animal spirits.” As Keynes articulated in The General Theory of Employment, Interest and Money (1936), it is “animal spirits,” described as a “spontaneous urge to action,” that would drive business activities forward especially in a recession.
But the current situation is not just an economic crisis; the bigger crisis that has begotten the economic crisis is the pandemic. The magnitude of optimism that is needed to recover is arguably much larger than what Keynes would have expected in his time.
Fear is associated with animal spirits. Note this sentence from Keynes’ The General Theory of Employment, Interest and Money: “If a fear of a Labor government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or a plot with political intent — it is the mere consequence of upsetting the balance of spontaneous optimism.”
Now apply the above statement to the present and replace “fear of a Labor government” with fear of the pandemic. (Keynes disliked the Labor Party. In the essay “Am I A Liberal?” [1925], Keynes described the extreme left-wing section of the Labor Party as the “Party of Catastrophe.”)
In a word, the policy rhetoric of moving from GCQ to MGCQ does not remove the fear. The virus continues to threaten lives. The MGCQ does not stimulate the animal spirits. In fact, it can aggravate the fear when MGCQ is meant to open cinemas, encourage large gatherings, promote malling, and the like.
This is not the case of Ali Baba shouting “Open, Sesame,” and the treasures magically appear. That’s fiction for children.
Neither is this a baby’s play of “close-open.” The debate of lockdown versus opening is false. What we want is to avoid another lockdown arising from a steep rise in transmission brought about by lowering our guard.
Stark lessons from other countries should inform our strategy and policies. Take Germany. It was initially hailed as a success story in containing COVID-19. But because it relaxed its guard, the virus came back with a vengeance. Now Germany is under a long strict lockdown, and it will only lift the lockdown in areas that would be able to bring down the number of cases to 10 per 100,000 people a week.
The essential questions are: How do we open up in a way that serves the objective of flattening the curve? How do we open up in a way that meets the health and safety standards and hence make people confident to go out of their homes to consume goods and services? How do we stimulate the animal spirits during a pandemic? And how do we open up in a way that will lead to a better new normal, a new normal where we are better prepared to fight new strains, new viruses?
We cannot resume old habits. It is shallow talk when business merely wants to open up the economy without introducing new solutions. Government’s commitment to revive markets and renew consumer confidence becomes credible when agencies are moving forward the overdue reforms. Said differently, a mere statement about opening the economy but without the reforms is not credible at all.
Absolutely necessary is bolder public spending to contain the virus, accelerate vaccination, provide social protection or safety nets, and support struggling small enterprises. Other critical reforms are: Having safe and adequate public transportation and promoting active transport; providing digital connectivity to all, especially to the under-served poor areas; and ensuring minimum health standards for safe workplaces.
It is high time we acted unconventionally. I found some concrete and innovative answers to the questions I have raised not from an economist, but from a doctor friend, Tony Dans. His recommendations serve the Keynesian “animal spirits” we need.
Said Tony: Instead of opening movie houses, why not have outdoor cinemas, and use green outdoor spaces for entertainment? Instead of telling people to mall, why not urge them to patronize street markets? Instead of promoting indoor dining, why not support al fresco dining? Instead of permitting crowded public vehicles, why not have service contracts to incentivize physical distancing in public transport and guarantee income of drivers and operators?
Be bold. Be imaginative. And don’t be reckless. These are the qualities we need to beat the virus, fight fear, boost optimism, and let the economy recover.
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.