There are four plausible recovery trajectories: V-shaped (involving a rapid rebound); U-shaped (a similar but slower return to normality); W-shaped (involving cycles of smaller recoveries in fits and starts); and the worst one, an L-shaped dynamic where the economy takes a very long time to recover, if it ever does fully. The important question to ask, though, is not what will happen, but what can we do to navigate and shape what does?

John Maynard Keynes, the most important economist of the past century, argued it is the role of government to replace the private sector if the demand for goods and services wanes. From a Keynesian perspective, two policy areas are most important when the economy sputters: government spending and the lending and interest rate policies pursued by the reserve bank.

The Reserve Bank of New Zealand has started an unprecedented and aggressive programme of lower interest rates and relaxation of borrowing constraints (for example, for home loans), and a lending (or so-called quantitative easing) programme. These monetary measures are welcome, but are unlikely to be sufficient to kick-start an economy incapacitated by the fear of the epidemic and a policy of elimination of the virus.

Treasury has also responded forcefully, and implemented an unparalleled programme of spending, including substantial wage support for affected businesses and individuals, investment in various sectors, firms, and programmes, and spending on infrastructure. Keynes would have approved the package—although he might have preferred an even larger one.

Not unlike the other ‘lucky country’ across the Tasman, New Zealand started this annus horribilis in almost the ideal shape to weather the crisis. The New Zealand Government’s debt burden, our burden to bear as taxpayers, was one of the lowest for any high-income country at around 30 percent of gross domestic product (GDP), when the average for other high-income countries was more than 110 percent, and even Australia’s was 45 percent. Even after the ambitious spending programme the Government has implemented, our debt burden will still be much lower than in any other similar country.

At mid-year, the unemployment rate in New Zealand was around 4 percent, which does not yet point to concern and is significantly lower than in most other countries. However, our biggest export sector—tourism—is gone, and many people are still being supported by the government wage and income support programmes, so this should not be a cause for complacency.

We can afford to heed Keynes’s advice to spend lavishly to prevent our economy from sliding further down a rabbit hole of decreased incomes, defaults, and bankruptcies. When we do so, it is better to establish first what our priorities for the recovery from this crisis should be, and to build back better.

Four criteria should guide our priorities. We want to build an economy better able to face future challenges, and especially a better health system that can cope with the emergence of new diseases and new risks. We want to make sure our recovery is fast, as any delay entails the loss of valuable know-how, connections, and networks.

We want to make sure our recovery is inclusive. Not only should it not leave anyone behind, we should strive to use this opportunity to make our society fairer, rather than continue with our past slide towards more inequality. And we want to rebuild our economy so it can continue providing for us for many years to come. For that last goal, we also need to think about our future generations, and make sure the environment we hand over to them is better than the one we have now.

In short, we need an economy, and a society, that is safer, fairer, and full of future opportunity, and we need to get there as quickly as we can. Some food for thought about COVID-19 and our day job as we reach for that eggplant in the supermarket …

Professor Jinjarak is a professor of Economics and Professor Noy is the Chair in the Economics of Disasters and Climate Change in the Wellington School of Business and Government.

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