Morning Brief – Firebreak

Firebreak

Ireland and Wales have both announced firebreak lockdowns designed to stop the spread of Covid-19 in its tracks. The logic is simple: with the lifecycle of the virus in humans estimated to be a little over 10 days, if every member of the population follows the lockdown perfectly the virus should be eliminated within a couple of weeks. Short, sharp lockdowns have not been common place on the continent and the measures will be an important litmus test for their efficacy moving forward. The logic of a firebreak lockdown however, relies upon several assumptions: members of the public living alone, abiding by the lockdown perfectly, and the assumption of a ten day lifecycle being accurate. Not many loose ends then…

Given the long asymptomatic incubation period of the virus it is perfectly possible that one member of a household enters the firebreak lockdown carrying and incubating the virus. The UK government estimates that persons are infectious and can therefore pass on the virus two days before they begin to show symptoms. Based on these two facts, it is perfectly possible, indeed likely, that one member of a two-person household could enter the firebreak lockdown, become infectious towards the end of it and pass the virus to their cohabitant who would at that point be free to pass it onto the rest of the country that is now out of lockdown. So a two-week circuit breaker logic whilst seemingly simple and elegant actually doesn’t work even in the smallest of multiple occupancy households. When the number of inhabitants rises yet further, the probability of success falls and the likelihood of public transmission post-micro-lockdown rises considerably. The only effect being those infected during the circuit break lockdown are changed from strangers to families and housemates.

At the opportunity cost of 4% of a year, a two week lockdown is not small speed bump in an economy’s path. The threats to success in Wales, with an average household size of 2.27 persons and Ireland’s 2.75 persons threatens to undermine the efforts entirely. Purely from a household size standpoint you would need a 32 day and 39 day lockdown in Wales and Ireland respectively on average, with multiple occupancy dwellings needing considerably longer. That is still, of course, before we look at the level of adherence, assumptions about infectious horizons and the degree of essential industry that cannot stop. Our two-week fixer-upper has therefore suddenly transitioned into a return of March and April’s seemingly endless lockdown.

At the risk of being branded another markets-turned virology guru, I ask you to afford me a final paragraph and I’ll get to the point. Firebreak lockdowns carry a large risk of failure that will likely present an opportunity cost to economic growth without a meaningful decrease in the level or rate of infections. Therefore, countries that adopt such measures are likely to be held out of favour by currency markets given the unnecessary obstacle to growth without altering the national threat posed by the global pandemic. Ireland and Wales are both parts of much larger monetary systems. Adopters of the Euro and Pound respectively, these experiments are unlikely to alter the course of these currencies considerably. They will however provide simultaneous litmus tests concerning the efficacy of circuit breaker lockdowns which other countries more directly correlated with their currencies would do well to heed the results of.

Discussion and Analysis by Charles Porter

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