New Zealand's approach to trying to keep Coronavirus off its shores has been lauded by many commentators around the world. Sadly, the biggest threat to this approach may have just made an appearance. It comes in the form of a prominent University of Chicago economist, Steve Davis, who has highlighted the huge role that policy uncertainty plays in determining outcomes. He argues that "about half of the forecasted output contraction [in the US] reflects a negative effect of COVID-induced uncertainty".
How is this relevant to us? Look at the latest Oxford University index of COVID-19 policies below. NZ went from one of the most stringent in the world, to one of the least stringent. Now, out of the blue, we are back to being one of the most stringent. Compared with many other countries, our stringency index is looking particularly unpredictable. For example, Germany and Sweden have maintained a more steady policy these past five months.
Policy uncertainty can crush businesses because planning becomes hard. As a consequence, it can crush jobs and hurt the health system, to the extent its funding becomes threatened. "Go hard, go early" has appeared to be a successful medical strategy when one's aim is to eliminate the virus once an outbreak occurs. But unpredictable on-again, off-again strict lock-downs may produce so much uncertainty that other outcomes sharply deteriorate.
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