IAN McAULEY.  Economic reflections on the lockdown

May 21, 2020

Changes in behaviour during the lockdown reveal the limitations of economic indicators.

Last month Tim Costello pointed out that as a result of the Covid-19 shutdown Australia’s  200 000 poker machines have fallen silent.

Earlier this month the Bureau of Infrastructure, Transport and Regional Economics reported that there has been a sharp fall in road fatalities in April. This would be almost certainly a result of our staying at home, because over the last few years there has been a general increase in road fatalities. For every recorded fatality there are many more serious injuries, and many more vehicles damaged or smashed up in minor accidents.

An ABS survey released a few days ago shows, unsurprisingly, that with restaurants and cafes closed we have been making more use of our own kitchens. And even though take-away meals have been available, it reveals that we’re eating fewer of them. That same survey shows that were spending more time on tasks such as household maintenance and renovation – confirming reports that Bunnings stores are seeing a surge in DIY activity.

I don’t want these instances of good things happening to downplay the hardship of the Covid-19 restrictions. People have lost jobs, businesses have gone to the wall, social distancing is stressful for all concerned, children confined with their parents are crawling up the wall. But these instances provide an opportunity to reflect on the meaning of economic indicators such as GDP and employment.

As the economy ramps up – or more likely crawls back towards previous activity – we will be out on the roads more, and inevitability there will be more accidents. That will mean more employment for medical practitioners and rehabilitation workers, more work for smash repairers, more insurance claims, and so on. It will all show up as a rise in GDP and as a recovery of lost jobs.

When gambling addicts return to the poker machines there will be a boost to the revenue of pubs and clubs, which will kick up our GDP a little. Also, because state governments have become addicted to poker-machine taxes, there will be a boost to state revenue. And there will be more work for those who deal with the consequences of gambling addiction – social workers, counsellors, debt collectors.

We’re probably all looking forward to eating in cafes and restaurants, and that activity will show up in economic indicators, but to an extent that will simply be a transfer of activity from the home, where it is not recorded, and into the market economy, where it is recorded. As Keynes said in a comment that complied with the political correctness standards of his time, if he were to marry his housekeeper nothing would change except for a rise in the recorded GDP.

Over the coming years and months gross economic indicators will attract a great deal of attention and glib commentary. For the most part, rises in GDP and reductions in unemployment numbers will correspond with improvements in human welfare. But, as with any gross indicators, they tell only a partial story. Much of what improves our life is not recorded in national accounts, and much of what is included in national accounts is the cost of adverse consequences of society’s ills. Not every job is a good job, and not all productive work takes place in the “labour market”.

Maybe the lockdown has given us a chance to be more questioning about economic indicators, and to be more sceptical when politicians treat them as measures of economic success or failure. The economy is a little more complex than that.

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