Why economy had to hibernate to stop deaths

Why economy had to hibernate to stop deaths

The Aussie way of life has changed yet again as a series of tough new rules designed to slow the spread of coronavirus are rolled out.

On Friday, Prime Minister Scott Morrison announced a plan to “hibernate Australian business” during the COVID-19 crisis, with measures to be put in place to financially protect businesses throughout a shutdown period.

Meanwhile, fresh new restrictions have also been introduced, with Australians now forbidden from going out in public with more than one other person.

Playgrounds, skateparks and outside gyms will also be closed down, and the population has been ordered to stay home unless they are shopping for food, receiving medical attention or for work, education or exercise purposes.

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While more details will be revealed in the days to come, Mr Morrison said a “hibernation” would ensure businesses forced to temporarily close would not become “so saddled by debt, so saddled by rental payments, so saddled by other liabilities that they will not be able to start again on the other side”.

“This will underpin our strategy as we go to the third tranche of our economic plan, and that will include support by states and territories on managing the very difficult issue of commercial tenancies and also dealing ultimately with residential tenancies as well,” he said last night.

While hibernating the Australian economy sounds drastic, AMP Capital chief economist Dr Shane Oliver told news.com.au there was no other option.

“We had no choice – there is a debate about whether we should be doing this shutdown, but if we want to minimise the number of deaths and keep our loved ones safe, particularly elderly Australians, then we have to do this,” Dr Oliver explained.

“It’s the compassionate choice and ultimately the better one for the economy, because if we let the community be devastated, there will be a longer-term negative impact.”

Dr Oliver said most people who tested positive for coronavirus only had mild symptoms, while roughly 15 per cent needed hospitalisation and another 5 per cent required intensive care hospitalisation.

“The government could say ‘go about your normal life’ … because most of us will only get a mild case, so why worry?” he said.

“The problem is … if we just let this thing run wild through the community, it will quickly overwhelm our healthcare system and more of us will die.”

That’s the logic behind the government’s decision – effectively shutting down the economy to prevent greater tragedy, and propping up affected businesses and workers in the meantime.

“There are choices all the way along here – we could say don’t worry about a shutdown, but the outcome would be a much higher death rate. Italy and Spain, for example, left it too late and as a consequence, their health system has been overwhelmed, and in Italy the death rate is over 10 per cent and in Spain it’s over 7 per cent,” Dr Oliver said.

“The next choice is what do we do when we have a shutdown – do we let the free market run its course, which means companies that can’t pay their debts go bust and people become unemployed?

“If we do that we may not have much of an economy at the end of this and there will be a bit of a mess.”

Instead, the government’s multibillion-dollar stimulus package and the Reserve Bank’s measures were designed to help us survive the shutdown, just as bears in the wild made sure they had enough reserves of food to get through their winter hibernation.

“If you don’t protect banks and businesses in terms of their rent and debt commitments and households in terms of their commitments and salaries, you end up with a much bigger hit to the economy than from the coronavirus shutdown alone, which will take a lot longer to recover from,” Dr Oliver said.

“If you can imagine a suburb with around 30 small businesses, if we allow half of those to go bust through the shutdown, then it will take longer for the community to recover, whereas if we keep the bulk on life support … they will be able to keep staff on with some sort of salary and will be able to bounce back a lot faster.”

Dr Oliver said we needed to take the shutdown period seriously, because if we relaxed the rules too early, it could cause a sudden spike in new coronavirus cases which would then undo the achievements of the earlier sacrifice.

“That would cause two hits one after the other, so let’s get it over with,” he said.

“This has devastated parts of the world like Spain and Italy – they have very tough shutdowns now, but they left it too late and have been hit by a freight train with horrendous death rates, which means doctors have to make tough choices about who gets ventilators.

“We don’t want that.”

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