Will a COVID-19 vaccine exacerbate the economic downturn?
At the moment, the world’s COVID-19 strategy are various forms of “waiting for the vaccine.” Of course, we are not really doing enough towards that end, a vaccine may not be even possible and, even if we get a vaccine, we face an immediate issue of who will get it first. Nonetheless, “waiting for vaccine” is what we are doing.
The appearance of a vaccine is heralded as the way out of this mess. After all, if people can be given immunity, once enough of them have it, the virus will naturally die out (i.e., ‘herd’ immunity works regardless of whether immunity comes from recovery or from vaccination). But in no other pandemic have we so relied on a vaccine to get us out of the mess. For SARS, MERS and Ebola, eradication was the policy used. For the 1918–21 Flu, Yellow Fever and H1N1, we relied on herd immunity with a large number of infections. Nonetheless, the theory is simple: a vaccine will be a miracle that will restore normality.
The problem is that there will be a lag between when we know a vaccine is possible and the distribution of that vaccine to enough of the world’s population to get back to normality. What happens during that time?
To listen to discussions regarding a vaccine, I get a strong impression that a vaccine’s arrival is seen as an event that the pandemic is over rather than a time stamp on the end of the pandemic. In other words, it seems that the expectation is that lockdown can end and there will be an economic recovery at that point.
This, however, belies the true reason why there is an economic downturn in the first place. To be sure, mandatory lockdowns can cause people to socially distance more than they would otherwise do. However, as we have seen with reopening — as well as people’s behaviour prior to imposed lockdowns — social distancing is, to a very large extent, happening because people have chosen to forego activities that are too risky. They have changed their behaviour — especially with regard to travel, retail shopping and outside of the house entertainment/eating — of their own volition. To be sure, we see examples where many people take the risk anyway but the data is pretty clear that those changes are relatively insignificant in the scheme of things. For one thing, the third of us who can work at home, are still working at home.
The question to ask is: what will happen to peoples’ own social distancing behaviour once a vaccine appears and there is a time when they believe they will become immune and free to return to normality? In that critical time period, something will have changed. Today, without a vaccine, we may socially distance because we don’t want to be infected although we also take some risks because there is a chance we may be infected eventually anyway. This effect is sometimes given the term fatalism.
When a vaccine is on the horizon, the risk equation changes. A fatalistic belief is no longer sustainable and people will realise that, if they take care for a few months, they can come out of this without having contracted COVID-19. In other words, their incentives to socially distance increase when they know a vaccine is available.
It is not hard to forecast the immediate economic impact of that. The activities that were optional will face a hit to their consumption. Those businesses will be back in the position they were in March/April and will likely be there for some months. How long will depend on a myriad of factors but, at the moment, it could easily be six months to a year. In other words, the downturn that hit in March will likely be there again with all of the consequences we had to face including the need for government assistance etc.
To be sure, in the long-run, the vaccine will be good for the economy and some sectors may pick up again as a result of that. But, in the short-run, we have to prepare for the vaccine being somewhat bad news for the economy.
The danger of “waiting for a miracle” is that you have to be prepared for that miracle and all of its consequences. I fear, at the moment, that governments and probably most of us have not really got their heads around that brutal conundrum.
