A Covid-19 testing station at Otara, Auckland. Photo / Dean Purcell
A Covid-19 testing station at Otara, Auckland. Photo / Dean Purcell
COMMENT:
The Government and the Opposition remain committed to a policy of eliminating Covid-19.
They are right to do so.
Those who contend that a policy of elimination is economically unsustainable, and that the costs massively outweigh the benefits, should be absolutely clear about what they are saying.
They aresaying it is okay for some New Zealanders to go to an early grave for the sake of things that can be measured in dollars, like incomes, profits or future tax bills.
It might be that one day the country will come around to that view. It hasn't yet.
And it would be dishonest to pretend that it was one justified by tough-minded, rigorous, objective cost-benefit analysis.
To be clear, that is the central contention of this column. It is not about whether the Government is right to argue that the best health response is also the best economic response.
Rather, it is to dispute the idea, which seems to be at risk of taking root, that there is some unit of measurement with which we can weigh up deaths averted against a hit to gross domestic product.
If New Zealand's death toll from Covid-19 was in line with the global average so far, it would be more than 500 people. Not 22.
The idea that what those lives saved are worth can be measured in dollars is repugnant on its face.
It relies on a concept used in health economics of "quality-adjusted life years" (QALY). It is a way of quantifying the relative effectiveness of different public health interventions, such as Pharmac subsidising one drug but not another within its finite budget.
It reflects the fact that there is an opportunity cost to funding a drug: "by choosing to use resources one way, we forgo other opportunities to use the same resources" is how Pharmac puts it.
Because a life cut short or not has an effect on the economy — one less producer or consumer — they can quantify that effect in dollars, based on some measure like per capita GDP or per capita real gross national disposable income.
The Treasury's figure, it seems, is $33,000 per QALY. A similar but cruder measure is used in the context of allocating that part of the infrastructure budget earmarked for improving the safety of the nation's roads.
If subsidising a drug costs the taxpayer less than $33,000 per QALY, that is one reason for doing it.
But hardly the only reason. "If" does not mean "only if".
If loss of income were the only reason to mourn someone's passing, their funeral would be poorly attended.
It is a mistake to treat the economy as a whole as if it were the Pharmac budget writ large. The benefits and opportunity costs are not all of a piece.
Yet that is essentially what the Productivity Commission has done in offering a cost-benefit analysis of the Government's April decision to extend the period of lockdown at alert level 4 by five days.
It figures the extended lockdown would most likely have saved two lives or 14 QALYs, or maybe 30 lives and 239 QALYs at the outside.
Taking those years of life as "worth" $33,000 apiece, the commission then compared that with its estimate of the hit to GDP from the extra days of lockdown. It concluded that on the best case scenario (30 deaths avoided) the net cost was just under three-quarters of a billion dollars.
The commission's explanation of this approach deserves quoting in full: "GDP and QALYs are at one level incommensurate. However it is common in public health and economics to convert QALYs to dollars.
"If it is reasonable to convert from QALYs to dollars and present this as a % of GDP then it is also reasonable to convert the other way.
"The logic behind this two-way conversion goes like this. If one argues that a country should be willing to spend, say, $33,000 to avoid the loss of a QALY, then not having $33,000 destroys the option to avoid the loss of a QALY.
"This is not an ethical judgment that the two are somehow equivalent and can be traded off against each other. Rather it is a recognition that the two are interdependent — a healthier population results in a healthier economy and a healthy economy results in a healthier population."
But a reduction in GDP, even if it is permanent, does not just pre-empt the future ability to spend money on QALYs. There is nothing inevitable about treating that as the opportunity cost of lockdown, or of a policy of eliminating Covid-19.
Less GDP also reduces the option to spend on beer, or designer clothes, or marina fees or myriad other things on which we spend the 90 per cent of GDP not spent on health.
The Government in every Budget round decides how much of the national income it wants to spend and how to allocate it between disparate things: not only public health but also schooling the young, preserving law and order, and the rest (including the Productivity Commission).
All those things cost money, but that does not mean there is some common unit of value on the benefit side they can all be reduced to.
Prime Minister Jacinda Ardern and director general of health Dr Ashley Bloomfield arriving for their alert level announcement. Photo / Mark Mitchell
Their relative shares of the fiscal and broader economic pies are a political choice, in the first instance by Parliament and ultimately endorsed, or not, by voters in a general election.
That is the ultimate expression of our collective values.
A neighbour told me recently she was sick of people catastrophising.
That is making things out to be worse than they really are.
"Our parents lived through six years of world war," she said, "and we think this is hard?" She has a point.
Of course lockdowns are bad for business. So is having the border closed to all but returning expatriates.
Perhaps the Swiss found World War II bad for business.
But were they not fortunate to be an island of peace and neutrality amidst the carnage?
Did they count their blessings as they waited for the global ordeal to pass?
