No Health Without Wealth

Updated: May 17

While it is essential that we protect the integrity of health services, it is equally important that we stop what will undoubtedly be severe recessions for many countries turning into a global economic depression. I fear policymakers are underestimating the risk of the latter, and I therefore worry that financial markets as well as societies more broadly remain extremely vulnerable.

"It would be foolish in the circumstances to think of this confidence as being anything other than fickle"

My concern is twofold. The first relates to human beings not generally being able to grasp the extent to which conditions around them can in an instant deteriorate rapidly. Our brains think ‘linearly’, meaning that in our daily lives we see the world progressing in a ‘straight line’ fashion – or arithmetically – with one day passing after another, one meal after another etc. Much of the world, however, does not work that way. Populations and bushfires grow exponentially – or geometrically – not linearly. Interest on bank accounts gets compounded.


A tale to illustrate the power of compounding goes like this. Wishing to thank the inventor of chess for his wonderful new game, the emperor of India asks him to name his reward. The man replies that his wishes are simple and that he would like one grain of rice on the first square of the board, two on the second, four on the third and so forth for all 64 squares. The emperor gladly agrees, until he realises that he owes the man 18 billion billion grains of rice.


I realise that for many, life has become extremely difficult in recent weeks. However, there are also many for whom it has been bearable. The temptation may be to think that this can continue, and thus to remain unaware that a tipping point could be reached, perhaps as soon as tomorrow, when things take a rapid turn for the worse.


Governments around the world have been ramping up net borrowing, both to finance the rise in spending relating to, say, private sector employee furlough programs, or to fill holes left by lower tax revenues. Thus far, faith that governments can honour these debts down the road has been maintained, with short- and long-term bond yields remaining close to the lows reached in March.


It would be foolish in the circumstances to think of this confidence as being anything other than fickle – history is littered with collapsed ‘safe haven’ bond markets and the associated problems of high inflation and depressed economic growth. It is essential therefore that we get people back to work and spending again without, of course, putting health services at risk.


We can do this through ‘enhanced shielding’, in which lockdowns are lifted for low risk groups – while keeping measures in place to limit transmission – but kept in place for the vulnerable, until such time as a treatment or vaccine is available that is.


Mark Woolhouse, professor of infectious disease epidemiology at the University of Edinburgh, is a supporter of ‘enhanced shielding’. “Very crudely, for 80% of us who are not vulnerable this is a nasty virus, it is certainly a significant health problem, but it would not overwhelm the healthcare system and it would not lock down society”, he told the BBC in April.


Which brings me to my second concern, the politicisation of decision making.

While lifting lockdowns for low risk individuals while applying an ‘enhanced shielding’ approach for the vulnerable may be the best way to avoid a depression, it may not be the one governments choose, at least not as soon as they should.


Mortality rates for those in younger age groups and with no underlying health conditions are low, but not zero. Governments will want to avoid newspaper headlines blaming them for even one death that would result from them having lifted lockdowns; the temptation to wait a bit longer would be great.


Most governments have been ignoring for years warnings about the risk of pandemics such as the current one. It would be unforgiveable if they compounded the mistake of not being cautious enough before this crisis by being too cautious now. Of course, we must protect the vulnerable, both for their own sake and to prevent health services being overwhelmed.


If the world were allowed to slip into economic depression, however, we can kiss our health services goodbye. The same goes for financial markets.


Published in What Investment





The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.

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