Latest IMF data helps us see how political choices impact on health and economic outcomes

The IMF recently updated their – World Economic Outlook database – April 2021 – which allows for quick cross country comparisons. Some of the data series are suspect (like structural deficit estimates) for reasons that I have explained before, but many of the national accounts series are useful. I have been doing work on the relative responses to the pandemic and the impact on economic performance as well as researching the next chapter of one of the current book chapters. So today, I just present some interesting graphs and calculations. Nothing deep but the figures then provoke some deep thinking. The lessons are pretty clear: Covid elimination strategies protect health and the economy better; Austerity is highly damaging; and there is a massive shift in the world order going on and we should be learning from that. And all of the trends I examine are ultimately the result of political choices. That is the important point to keep in mind.

It is both health and economy not either

One of the themes I observe on social media continues to focus on the claims that lockdowns do not work.

The proponents of these ideas should come to Australia or New Zealand where our state governments (Australia) and national government (NZ) adopted successful elimination strategies using lockdowns as a powerful weapon.

They are painful and costly.

But they work and they get us back to more usual life more quickly.

The reality is most governments did not take adopt the elimination strategy and so they are caught in a sequence of virus waves, temporary lockdowns, eased to soon, and so it goes.

Of course lockdowns do not work if you don’t do them within an elimination strategy and shut borders tight.

And the other furphy that it is either economy or elimination has also been exposed by the evidence.

The recent report from the Paris-based Institut Économique Molinari (published April 2021) – The Zero Covid strategy protects people and economies more effectively – authored by Cécile Philippe and Nicolas Marques provides compelling evidence to support that contention.

Their research found that:

1. “Countries pursuing a Zero Covid strategy experienced a less severe economic decline in the second quarter of 2020 than the countries that allowed the virus to spread to such an extent that their health systems were saturated (-4.5% versus -11.7%).”

2. “The Zero Covid strategy is showing lasting positive effects: In the fourth quarter of 2020, the countries applying this strategy had almost returned to normal economic activity. Their GDP was down only slightly (-1.2%) compared to 2019. Meanwhile, the decline in GDP was greater (-3.3%) in countries that had not eradicated the virus.”

3. “Mobility data from Google show that “workplace” traffic in the second quarter of 2020 fell by less in the countries applying the Zero Covid strategy (-14 % compared to -36 %).”

4. “traffic in “cafés, restaurants, hotels, non-food businesses and leisure and cultural activities in general” was down by 14% in January and February 2021, compared to 2020, in the countries applying the Zero Covid strategy. This is a much smaller decline than in the countries applying a mitigation strategy (down 35%).”

5. “In contrast, the course taken by the G10 countries … The mitigation strategy is causing them to seesaw, making it difficult to project into the future and thereby penalising societies and economies. This is especially problematic for businesses that depend on significant social interaction, which have been closed for months, as representatives of the hotel, restaurant, culture and recreation sectors have stated repeatedly.”

They produced this Table based on official OECD data (reproduced) which shows the numbers.

It is hard to spin the numbers in any other way than to reach the conclusion the authors provide.

Elimination works.

Lockdown is required to eliminate the virus as well as other measures (contact tracing, social distancing, masks, etc)

Elimination is better for health outcomes.

It is better for economic outcomes.

It is costly but less so than the alternative that most nations have deployed.

The decision to eliminate or mitigate was a political choice.

And the IMF data provides further examples of the costs of poor political choices.

Eurozone has categorically failed

The publication accompanying the latest WEO database –
World Economic Outlook: Managing Divergent Recoveries, April 2021

The IMF WEO data allows for some cross-country comparisons.

The first graph shows the growth in real GDP per capita (so the average GDP per person) for a range of nations – currency-issuers and currency-users (Eurozone) from 2009 to 2020.

Obviously, China is an amazing story have increased its per capita real GDP by more than 100 per cent over the 11 year period, notwithstanding the GFC and its aftermath.

Ireland can be disregarded because of the way it has tricked its national accounts data (capital formation expenditure) in recent years.

The UK barely grew (0.24 points) as a result of the austerity inflicted on the nation in the period after 2010. It has created lasting damage.

But the performance of the core Eurozone nations bar Germany stands out also.

The GDP per capita in Greece has slumped by 23.8 per cent over this period.

Italy -7.8 per cent

Spain -2.9 per cent

France +0.97 per cent

If one then considers the income inequality in these nations, the contraction in real GDP per capita at the lower levels of the income distribution would be catastrophic in some of these nations.

Austerity is a political choice and it doesn’t work.

The next graph shows each nation’s real GDP per capita expressed as a percentage of the US real GDP per capita from 1980 to 2020.

The numbers are:

1. Australia 1980 82.7 per cent, 2020 80.1 per cent.

2. France 1980 89.9 per cent, 2020 72.6 per cent.

3. Germany 1980 95 per cent, 2020 85.3 per cent.

4. Greece 1980 75.4 per cent, 2020 45.3 per cent.

5. Italy 1980 93.2 per cent, 2020 64.4 per cent.

6. Spain 1980 65.8 per cent, 2020 60.5 per cent.

The relative declines for the Eurozone nations are rather staggering especially considering that the US has not exactly shone over this time itself.

The shifting world order

But then there is the small matter of the shifting world order in material prosperity.

The next graph shows each nation’s real GDP per capita expressed as a percentage of the Chinese real GDP per capita from 1980 to 2020.

And the subsequent graph just shows the relative performance of the US to make things clearer.


These trends help us clarify prior held views, such as austerity is damaging in the long term.

They also help us frame questions that then inform the research process.

For example, if we are concerned with material prosperity, what can we learn from China?

More later on those matters.

Off to the airport.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

This Post Has 17 Comments

  1. Although China has been exporting most of its productivity during this 2000s period. I wonder if they can turn that wealth inwards towards their own citizens without facing major political upheaval and challenges to the party (which of course would be welcome).

    If they are unwilling to do that, at some point the law of diminishing returns will set in.

  2. @Eugenio Triana;

    China has already formulated its “dual circulation” policy (in the the face of fierce competition and paranoid US concerns about China’s unstoppable rise) which means lifting consumption and services quality within China itself (with a market bigger than the US and the EU combined) while concentrating on increasing productivity via investment in AI and IT, and progressing its BRI to assist development in the developing world.

  3. Dear Aiden (at 2021/04/08 at 5:02 pm)

    Ireland has been able to attract large multinational firms (Google etc) to set up there with massive tax advantages.

    They also allow the companies to transfer their balance sheets to the new tax friendly jurisdiction, which means each time one of these companies sets up there, there is a massive boost to private capital formation recorded in the national accounts (that is, business investment) even though nothing has actually changed other than an accounting entry from one jurisdiction (nation) to another.

    best wishes

  4. Dear Eugenio and Neil. Despite a lot of production going on making things for others, I can assure you that China has clearly had sufficient manpower left over for massive infrastructure development (contrast Germany) and conspicuous consumption in recent years reaches far beyond a wealthy elite. Much of the building work may be shoddy, but I wouldn’t say that of the roads and rails. I do wonder, even with an aging population to take care of, what all these people are going to do if they do more producing for themselves. I’d suggest not producing more stuff, but more health and social care, maybe more education as class sizes are large (wishfully, less indoctrination) and shorter working hours to spread the work around. Not that the export model has been ditched as we see with the Belt & Road Initiative (BRI), which just may have a side-effect of increased consumption for some non-Han.
    Re. today’s blog, on the pandemic, lockdown with proper travel restrictions clearly work. Taiwan, 10 dead, restricted entry from the PRC (China) from the beginning of Feb last year. It’s bicycle industry is surely beyond overdrive. And with the exception of occasional speedy local lockdown, people in the PRC have been able to eat, drink and be merry, go to work and go to school without interruption since last May. Both still wisely keep entry restrictions while the virus flows around elsewhere.

  5. “furphy” — I had to look it up!

    A furphy is Australian slang for an erroneous or improbable story that is claimed to be factual. Furphies are supposedly ‘heard’ from reputable sources, sometimes secondhand or thirdhand, and widely believed until discounted. (

  6. The conclusion is that policy focusing on combating the virus and making sure people are not sick is also good for the economy.

    I remember the professor brought attention to an economist who said that its choice between health vs economy.

    How embarrassing has that been!?

    Finally, every time i look a Greece’s data, I am baffled as to just how mean the “modern civilized” world can be.

  7. What happens to the world economy–yes, including China’s–if Covid 19 turns out to be what some scientists have reason to fear it may be: a novel virus which easily and rapidly mutates, one already spread globally into the poorest countries and poorest sections of the richest countries where vaccines and other medical treatment are scarce, one which finds therein fertile ground for further spread and ever-increasing mutation? What happens if more and more of these mutations become more and more virulent, more easily transmissible, begin to more seriously affect younger people, begin in all age groups to cause more incapacitating disease and death, and, worst of all, continue to evolve to go end-around all of our most recent vaccines and treatments? I submit that there is every reason to suspect that this nightmare scenario is at our doorstep. So I ask you, all of you, what the hell happens to the world economy–indeed, to global civilization itself–if what I have outlined becomes our new reality in the near future, perhaps much nearer than any of us want to believe? Does anyone have any sort of game plan to deal with this possible, perhaps probable, perhaps unavoidable, existential crisis for the entire human race? Are we all still playing the fiddle in our little minds as the only world we’ve known has caught fire, a fire quite capable of suddenly consuming it in toto?

  8. @Newton Finn,

    You are right. I don’t think anybody has a grand plan, and even if they do, they are not in charge, so it doesn’t matter. Look, I know its frustrating. I am frustrated on many occasions about why a lot of people are so passive still.

    Consciousness cannot be built by a snap of the finger. We have to spread the word and commit to a daily grind. Advanced individuals simply have to step up and push the masses forward.

    Whats the worst outcome? If we die then we die. At least I can say I tried. We do the best in the brief time we are here.

    Anyway that’s how i look at it. The best we can do is to keep learning and keep struggling.

  9. @Newton Finn
    What I take from Bill’s post is that, given the success of the Zero Covid strategy in a number of quite different countries, allowing Covid to rage on is a policy choice.
    I do have some sympathy for politicians who would like to do the right thing but find it nearly impossible for internal political reasons. For instance in the province of Ontario (Canada) while 70% of people are careful, 30% of people have refused to follow distancing (and I think masking) according to the Conservative Premier Doug Ford. So what do you do? Arrest all 4 to 5 million of them? We don’t have enough police/military/prisons for that.
    Within Canada, the province of Nova Scotia (1 million people) provides a contrary example. It has prevented wide-spread problems using the proven methods of shut the borders, lock-down-and-trace strategy of the successful countries. The province of Quebec where I live is in-between. Different political and social cultures, different results.
    The current hope of the countries that have dealt with Covid inadequately is that vaccination will solve the pandemic. If that fails due to ongoing variants a hard lockdown and control, etc., remains an option. And that will put an end to the pandemic where it is applied. Another policy option is to stumble along with a permanent pandemic and yearly, even semi-yearly, vaccinations and high deaths among the immuno-compromised.
    Let’s hope mass vaccination works out.

  10. @ Tom Y.

    The key to ending the pandemic is to stop transmission. We spread the virus – it isn’t a mobile predator.

    Keep it simple: Spread out. Stock up. Stay still. Be patient. Four easy principles.

    The close everything down except essential utilities and communications. No shops. No travel. No hospitals – everything closed. Use local volunteers and the army to support the communities, provide weekly sera-survey tests for everyone – and enforce compliance. Everyone at home and maintaining strict NPI measures.

    Providing there isn’t a zoonotic reservoir and all positive cases are quarantined and isolated until resolution, we could attain Covid-free within six weeks – and maintain that status as long as borders are tightly secured.

    Lockdowns haven’t worked because the measures were insufficient or lax. The measures reduce infections and transmission, but they simply didn’t go far enough. Hospitals account for 40% of infections. They must be closed. We all have to make that sacrifice and stay at home if we fall ill. Provide emergency care via the army medics – but we have to accept there will be some avoidable deaths and suffering for the six-week duration.

    It’s the only solution – and doesn’t cost any money – just everyone’s co-operation. Common sense, ingenuity and patience. Six weeks – then a much needed rest before the real work starts.

    The last chance..

  11. It’s all been predicted before, guys… try this UK TV series from 1975.
    And frankly, with all the crap I’ve been hearing over the last few years, it couldn’t happen to a nicer species.
    In the meantime, we’ll argue about macroeconomics.

  12. @Mark russell,

    Thanks and what you said is right.

    I was not responding to how to combat the virus specifically but just the doom and gloom in general with respect to organizing around in changing our economy and society to meet unprecedented challenges.

    Sorry for confusion.

  13. re:
    Friday, April 9, 2021 at 21:32

    It’s all been predicted before, guys… try this UK TV series from 1975.
    And frankly, with all the crap I’ve been hearing over the last few years, it couldn’t happen to a nicer species.
    In the meantime, we’ll argue about macroeconomics.”

    I’d forgotten about the ‘Survivors’ TV series, I vaguely remember watching the first episode. Your comment gave me a good laugh but in fact the best thing that could happen to our planet and every other species on it is the extinction of us humans. Can a better application of macroeconomics and a new generation of politicians to implement it make us more worthy of survival?

  14. @Kitwn: Can a better application of macroeconomics and a new generation of politicians to implement it make us more worthy of survival?

    Of course. But those who control the rule book will have to be replaced. The undoubted potential of applied macroeconomics as discussed here demonstrates that anything is possible economically – providing we have sufficient resources and the political will.

    Unfortunately, as we are witnessing with the pandemic – mankind appears incapable of contemplating such a paradigm shift, even when threatened by a cataclysmic existential threat. Just when we needed that ‘level playing field’ – the fiscal capacity of most governments has been directed towards the same old economic preference model that’s always been used – and the divisions across society have been exacerbated substantially.

    Rewind one year and apply the kind of thinking you all possess at a political/leadership level then we could be in a very different place just now.

    If you view the pandemic as a test for humanity in the survival game, then we have failed miserably. What’s coming down the line and not too far behind, is something of an altogether different magnitude that will require a completely new approach to just about everything we presently do. On present form, we have no chance whatsoever.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back To Top