Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday, 23 November 2020

Politicians and experts: austerity, Brexit and the pandemic


I’ll be talking about fiscal policy during and after the pandemic at a Resolution Foundation/MMF event in a week’s time:

I have written quite a few posts on the relationship between policy and expertise, and between expertise and the media. The better ones are in my book, but they were all written before the COVID pandemic. How does the relationship between experts on the one hand and politicians and the media on the other that we saw with economists over austerity and Brexit play out with medics and the pandemic?

All three cases are different from each other. Although the evidence set out in my book suggests that the majority of academic economists opposed austerity (a majority that got larger as time went on), this plurality had no impact on either the media or the politicians pushing austerity. A few well known academics who supported austerity got a lot of publicity, but this was because they supported a policy pushed by politicians and the media, and not because they were influential in driving the policy. An obvious example in the UK was Ken Rogoff, who supported protecting public investment from any cuts while the government did much economic harm by cutting public investment.

The most notable feature of austerity was the almost total disregard by the media of the views of the majority of academics. As Alan Winters in his analysis of experts and Brexit points out, it was David Henderson who said in his Reith Lectures of 1985 “There is no doubt that the policies of governments … are influenced by economic ideas. But … these have not necessarily been the ideas of economists”. This applies with equal force to the media. The media appeared to apply the logic of the household to governments, so that the necessity of paying back debt as soon as possible became common sense, even though saying this would be a fail for any first year economics undergraduate. For that reason I called it mediamacro.

The power of media narratives should never be underestimated, as the Labour party has experienced many times to its cost. Austerity was just another example. It was a particularly devastating example, because in this case the media’s common sense did terrible harm to the economy, and the media was ignoring what it should have regarded as a key source of knowledge, academic macroeconomics. Needless to say, media organisations have never examined their own mistakes in this regard.

Brexit was different in two respects. First, what was a plurality over austerity was an almost total consensus on Brexit. Making trade more difficult, which almost any form of Brexit did, would cause considerable harm to the economy. The second difference compared to austerity was that the broadcast media had less of any common sense to appeal to, and so they played the ‘two sides’ game. On the one hand was the overwhelming consensus of academics, together with all the major economics institutions, and on the other was a handful of pro-Brexit economists the most noticeable of whom was Patrick Minford. (A few media outlets, and particularly the Financial Times, did follow the academic consensus.)

In defence of the broadcast media, this ‘two sided debate’ format is their default on most issues, and it doesn’t normally matter what the expert consensus is (which is typically not mentioned). However as we saw with austerity, there are exceptions. Whereas the exceptions should be based on the expert consensus, they instead seem to be based on common sense narratives. As with austerity, the media has never examined its own mistakes in relation to Brexit. As the referendum was very tight, the actions of the broadcast media in treating the overwhelming consensus of academic economists as just one opinion could well have influenced the result.

This trivialising of expert opinion is not inevitable. Strong pressure from academic bodies can yield results. The obvious example is climate change. When broadcasters began to increasingly ‘two-side’ the climate change issue, academics and others protested, and the BBC trust acknowledged that on this issue the expert consensus had to be followed. Not all BBC programmes have subsequently respected the Trust’s findings, but nevertheless you will generally see broadcasters treating the need to reduce man made climate change as a fact, and not as a controversial opinion.

The obvious difference between austerity or Brexit and climate change is that the former involves economists and the latter involves scientists. Actually the difference in methodology between climate change scientists and economists is not that great: both attempt to predict in a highly stochastic environment, and neither can easily conduct experiments. There are differences in public perception, of course. Besides the insight of Henderson noted above, there are various myths about economics that are part of the public debate. But the most relevant difference in my view is the absence of institutional pressure on the media from economists that matched the pressure over climate change.

Another academic discipline that has similarities to economics is medicine, and more specifically public health and epidemiology. The story of COVID-19 initially appeared to be more optimistic than austerity and Brexit. In many European countries, including the UK, governments took scientific advice, although in the UK with a short delay that probably cost tens of thousands of lives. But as Alan Winters notes, that optimism has been short lived. In most countries in Europe, including the UK, the second wave has been far worse because politicians ignored the expert advice.

The rationale they have given for ignoring the medical experts has been to balance health with the economy. The irony is that once again most economists I have seen who have studied this issue have agreed with me that there is no meaningful trade-off between the economy and health beyond the very short term. Once again academic economists are ignored, this time where lives are directly at stake.

The media have faithfully echoed the excuses for ignoring the expert advice, seemingly ignorant of the fact that they have little basis. From what I have seen they have given air time to experts and particularly politicians pushing the ‘lockdowns do not work’ nonsense, as if this is just another opinion. I suspect once again this is because it is ‘common sense’ that there is a health/economy trade-off, because most people do not think in dynamic terms. I have not seen government politicians questioned in interviews for not following expert advice in a similar manner to the way Labour politicians were questioned for doubting Osborne’s austerity.

Why did politicians initially say they were following the science of how to deal with the pandemic, while the same politicians ignored economists on Brexit? It is not because medicine is a science and economics is not. As I have argued elsewhere, the two disciplines have many structural similarities. Henderson’s point about prior beliefs is undoubtedly one reason: not many non-medics thought about pandemics before there was one. For politicians another reason is ideology. With austerity and Brexit it was ideologically convenient, and perhaps even necessary, for its proponents to discount expertise. Initially there appeared to be little ideology involved with controlling a pandemic, beyond libertarian instincts.

One reason attitudes to medical experts changed among government politicians between the first and second wave was the emergence of ideology dressed up as science: the Barrington Declaration and all that, and the influence that has had on many Conservative MPs. Once again, it became in the interests of those politicians to ignore expertise, just as they did with Brexit. The correlation with pro-Brexit and anti-lockdown views is no accident. The lesson is simply not to elect politicians who can so easily cast aside expertise.

Unfortunately that is less likely to happen as long as the media fails to tell viewers what the consensus among experts is. I have made this point before, but I think the lesson of climate change is instructive. The media are not going to change what they do, particularly when some feel their existence may depend on keeping certain politicians happy. What changed the media’s approach to climate change, at least in principle, was pressure from science itself. The reason academic economics gets ignored is that academic economists don’t organise to apply pressure.

I have seen so many accounts of why economics was ignored over Brexit that blame themselves: things should have been presented more clearly, economists should have been more open about uncertainties, and so on. All have some truth, but none will make any difference as long as the media treats the consensus among academic economists as just another opinion. For the media to do otherwise requires the strongest pressure from groups who represent academic economists. At the very least, we need institutions representing economists telling the media what the consensus view (if any) is on particular economic issues. [1]

I suspect that some medics will be beginning to ask similar questions about the pandemic: why did politicians ignore consensus advice, why did anti-lockdown politicians get so much airtime and so on. The answers I suspect are similar to those I have just given for economics. Medics have one big advantage over economists: the bodies that represent them are used to applying public pressure. They should apply that pressure on the media if they want to avoid expert views about the safety of COVID-19 vaccines to be treated as just one opinion to set beside the opinion of anti-vaxxers.

[1] When I make this point I often get comments along the lines that I’m trying to impose conformity, and the public should be told about mavericks opinions because (very occasionally) they turn out to be right. I’m doing neither of those things. What is missing from the media is any sense of what the expert consensus is, and for politicians who depart from the consensus being interrogated on why they think they know better than the expert consensus.

Monday, 16 November 2020

How the electoral system in the US, and to a lesser extent the UK, is biased towards social conservatism.


The UK is often torn between following the US or following Europe. We share a language with the US, and a lot of popular culture. But we also share a voting system that ensures the political right has a heavy built in advantage. The United States may be too far down that road to change, but in the UK there is still hope if only the current opposition leadership see sense.

Once we get over the relief that Donald Trump is no longer President, comes the realisation of just how bad the US election results really were for Democrats. Trump was a Republican, and the Republican party backed him almost without exception. Even in the current ludicrous situation where Trump is refusing to concede, many senior Republican politicians continue to back him.

It should come as no surprise that Republicans have an ambiguous relationship to democracy. Republicans see nothing wrong in distorting district borders to give themselves better election results in terms of seats than their polling numbers deserve. Gerrymandering is endemic, and it gives the Republicans an inbuilt advantage in one half of Congress, the House of Representatives. They also habitually make it hard for democrat voters (particularly black voters) to vote: the long lines we see during US elections are there for a reason.

Recently Republican senator Mike Lee said “Democracy isn’t the objective; liberty, peace, and prospefity [sic] are. We want the human condition to flourish. Rank democracy can thwart that.” This view is not unusual among Republican politicians, it is just that most are not so foolish as to say it out loud.

But Trump’s attempt to cling to power is not the problem. The problem is that the Republican party won seats in the House, and is likely to retain its majority in the Senate. Why the Democrats did so badly in both of these contests is something that will be analysed by others at length later. But I suspect what few outside the US understand is just how difficult it is for the Democrats to win big in the Senate.

As Shaun Lawson explains in an excellent piece, the Senate is constructed such that each state has two senators, whatever its population. To take the most extreme example, Wyoming with a population of 563,626 gets the same representation in the Senate as California with a population of 37,253,956. Now if political support was evenly distributed among big and small states alike this would not be an issue . However it is not: Wyoming has two Republican senators and California has two Democratic senators. The Senate structure influences the Electoral College used to choose a President.

The basic problem with the Senate is that it gives rural and small town states much more political clout than their population warrants. With political polarisation increasingly between liberals and social conservatives (the culture war), and with liberals concentrated in the big dynamic cities and conservatives in the rest of the country, anything that gives the latter an advantage relative to their number is a political problem.

The example of the US senate is far more extreme than anything in the UK, but that does not mean that the problem does not exist here. We saw that very clearly with Brexit, which is essentially a culture war issue. The referendum of course involved the whole population, and we all know the result of that. But if a general election had been held on just that issue, it is estimated that Leave would have won a landslide: 406 Leave | 242 Remain.

We can do a similar calculation for the 2019 election. If you add up the vote totals of parties supporting a second referendum, it was just more than 50%, but of course the Conservatives won a landslide and Brexit went ahead. That partly reflects the fact that the second referendum vote was more divided among different parties than the Brexit vote, but it also reflects the way the social liberal/conservative divide is split among parliamentary seats.

Socially liberal votes are concentrated in the cities. Seats outside the cities have many social liberals as well, but they are typically outnumbered by social conservatives. However you will find very few social conservatives in big city seats. That means that even if social liberals are in a small majority in the population as a whole, they are outnumbered in terms of seats. When it comes to culture war issues, the First Past The Post (FPTP) UK constituency system for general elections represents accidental gerrymandering favouring social conservatives.

An illustration of this is to compare the 2017 and 2019 elections. In 2017 both main parties backed Brexit and the Remain movement hardly existed, so Labour could focus on a relatively popular economic programme and do relatively well. In contrast, the 2019 election was mainly about Brexit, and the seat totals (once you allow for other parties) was not very different from those implied by the 2016 referendum result. 2019 also reflects the difficulty Labour had in focusing on economic issues given a slanted media.

If you think this is just about Brexit, or that Cummings’ departure means that Johnson will reveal his true social liberal self, think again. The Conservatives were using immigration as a weapon against Blair under William “foreign land” Hague, and will continue to try and capture socially conservative voters after Cummings' exit, because it works at winning elections.

One solution is for Labour to try and do what it did in 2017, and effectively match the Conservatives on the key culture war issues. However, that creates two related problems. The first is that Labour’s current base is very socially liberal. The second is that other socially liberal parties exist. The danger is that we see a repeat of what happened in the period before the 2019 election, where voters defecting over Labour’s socially conservative stance leads to lost votes whatever choice it makes. I'm not saying that Labour cannot succeed doing this, but it is hard and divisive. 

Both this problem, and the problem of the socially liberal vote being split among parties, can be overcome by elections determined by some form of proportional representation (PR).

A traditional argument for the UK’s existing first past the post system, and the constitutional system in the US, is that it keeps out political extremes as both major parties strive to capture the centre ground. This has been completely refuted by events over the last decade. It appears, in fact, that both systems allow governments that are politically extreme to capture power.

While there seems little chance that the US will change its system, there is more hope in the UK. It requires a Labour government to be elected that is committed to some form of PR. It has to be a commitment before they gain power, because once elected every Labour government believes it can now become the natural party of government. One advantage of a prior commitment to PR is that it makes cooperation between Labour and other socially liberal parties easier during the election.

There is considerable support for electoral reform within the Labour party. Unfortunately any Labour leadership that thinks it can win power is also a leadership that prefers to remain in power rather than becoming part of a coalition that any subsequent PR election is more likely to bring. While we can appeal to statistics to show the dominance of Conservative governments, political leadership is naturally focused on its own short term.

Monday, 9 November 2020

COVID, the US election and media balance


I want to start with my last post. It contrasted a minority of countries that were good, were not too bad and the majority that were terrible at handling the pandemic. What surprised me was how willing people were to believe that each of the good countries had some special attribute that explained their superior performance, rather than accept the more obvious explanation that they had more practice at handling pandemics, or just had better governance. These countries that have handled the pandemic well knew that you needed a good TTI operation, you needed to keep case numbers low, you needed strong border control and in most cases that if you lose control of case numbers you lock down quickly and hard.

The UK has failed on all these counts. The experts learnt not to underestimate the virus after the first wave. They recommended a short lockdown in the early stages of the second wave. This is just the kind of thing that the good countries in my classification from last week would do. Johnson (or was it Sunak’s with a veto?) rejected their advice, using the spurious grounds that he was balancing health against the economy. You are balancing nothing when you leave R>1. Johnson and Sunak were wrong and we now have to have a month long lockdown, at least.

One of the consequences of this failure to deal with a second wave is that people get restive about lockdowns. Almost no one likes a lockdown, and restrictions on social life together with constant precautions against the virus get to people. They certainly have begun to get to me. Yet despite this, in the UK most people still support the current lockdown, even among 18-24 year olds. But there are also signs of lockdown fatigue: while a YouGov poll gave only 3% who didn’t support lockdown in the Spring, that figure has risen to 23%.

One important factor behind this growing antagonism to lockdowns is the anti-lockdown crusade that I talked about in an earlier post. The vocal political minority that do not want lockdowns at all are implicitly prepared to see hundreds of people die, and their health services overwhelmed. They talk about protecting the vulnerable but these claims fall to dust on examination.

Some members of the anti-lockdown crusade may really believe they have a better way to save lives, but for most the motivation is different. There is a lot of talk of libertarian ideology, or right-libertarianism, and I’m sure some of the Tory MPs who voted against their government last week see their opposition to lockdown that way. But increasingly this looks like liberty for some, and the opposite for others: doctors and nurses who will have to treat COVID cases in overcrowded hospitals, the vulnerable (however defined) whose liberty is indefinitely postponed, and those who die for the short term liberty of others.

Among the population, there is no doubt that among the minority that oppose lockdowns there are some who are simply selfish. Something along the lines of ‘why should we not be able to do the things we enjoy doing for a year or more of our lives when we know it is unlikely that the virus will kill me’. In addition there are risk takers, who somehow think that they will avoid the fate of others.

Both selfishness and risk-taking is emboldened by those who question the wisdom of lockdowns when cases are increasing out of control. Politicians and the press attacking lockdowns give selfishness and risk taking an excuse they need for their behaviour. They also provide an excuse for those who want to ignore lockdown restrictions. This is why the media should be very careful not to suggest that scientific and public health opinion is evenly divided on the wisdom of lockdowns, because it is not. There are clear parallels with climate change. Unfortunately our media is ruled by political balance, which nowadays all too often means balancing the truth with lies.

This is not the only reason why people may oppose lockdowns. An imperfect safety net for individuals who are adversely affected by lockdowns can give a much more compelling reason why people might turn against the whole idea. If you see a lockdown destroying your business, running down your savings, losing your job or even making you or your children go hungry you have a strong motivation for arguing strongly against it. It is difficult to call this being selfish.

The safety net is far from complete in the UK. The Chancellor has stubbornly refused to increase statutory sick pay for those who have been advised to isolate themselves. But in terms of safety nets the UK is far better than the US. I have seen a few remarks along the lines that without COVID Trump would have easily won the US election. I’m not sure that is right for two reasons.

The most obvious is that without COVID Biden would not have made COVID central to his campaign, and would instead have focused on other issues where Trump is weak. However a second reason is that Trump may be getting strong support from those that don’t want their businesses to close, who don’t want to be thrown out of work and don’t want to rely on an uncertain stimulus cheque.

We can see that to some extent in the national election exit polls. When asked about the issue that mattered most to people voting for each side, three issues stood out for Biden voters: racial inequality, the pandemic and health care. For Trump voters it was the economy followed by crime and safety. The contrast between racial equality for Biden voters and crime and safety for Trump voters is pure culture war. Social liberals rejoice over the black lives matter movement, while social conservatives see it as a threat.

The more interesting contrast is between the pandemic and the economy. The economy, normally near the top of most lists of voter concerns, comes fifth out of five for Biden voters. The pandemic has taken its place, and rightly so because the economy is not going to fully recover while the pandemic rages unchecked. In contrast among Trump voters the economy completely dominates the pandemic as a top issue, perhaps because measures to deal with the pandemic are seen as a threat to their livelihoods. [1]

While the broadcast media, at least in the UK, plays “both sides” games with the pandemic, contrasting the expert consensus with the anti-lockdown crusade as if each has an equal claim to truth, the mainstream US broadcast media stopped playing these games with Trump’s claims about voter fraud. It was impressive to watch CNN fill in the gaps between new votes coming in telling viewers why all votes should be counted, and Trump’s claims had no basis. (Yes, I know I had better things to do.)

These big media organisations (excluding Fox) were fortunate that Trump telegraphed what he planned to do well in advance, so they had time to work out their response together. When it came their response was emphatic, to the extent that most stopped broadcasting Trump’s speech when he started making these claims, telling viewers that such claims had no basis in fact. It is quite something to stop broadcasting a sitting President when he starts telling lies, although by then they knew he was not going to be President for much longer.

That is something to build on. Why not be equally emphatic about voter suppression, widely practiced in the US and coming to the UK. What is the essential difference between claims of widespread voter fraud and climate change denial? What is the difference between claims of voter fraud and claims that lockdowns don’t work and are unnecessary when cases are increasing? How can the BBC justify not following this example? Once media organisations start recognising that balance does not apply when one side is lying, why not stop balancing truth with lies more often?

[1] (added 10/11/20) Another example of how lockdowns can be unpopular comes from the Czech Republic, where it is widely believed that a lockdown was postponed until after senate and regional elections had taken place.  

Monday, 2 November 2020

How governments in the West failed to learn


You would think, after so many countries were taken by surprise by a pandemic caused by a new virus in the Spring of this year, these countries would resolve to never let it happen again. They would be mad, knowing what they now know, to let cases explode in a similar manner to they did earlier this year. In what we call the West we like to think we have reasonably rational governments that listen to expert advice on matters of life and death.

Well at least some of us thought that. I am prepared to make an exception of the UK and US. The UK is run by fantasists who thought we would hold all the cards in any negotiations with the EU and there would be sunlit uplands. These are the kind of people who would be quite happy to ignore experts. Some of them are even busy right now promoting a kind of death cult. The US is run by someone who only thinks of himself. I could make an exception in both these cases.

Now look at this chart.

These are new COVID cases each day per million people. Cases in most of the countries shown here began rising seriously in September. (Both the US and Spain were already high.) Yet only now, nearly two months later, are some countries beginning to repeat the lockdowns that were so effective at getting cases down in the Spring. Two months of doing nothing or doing very little. Two months of keeping restaurants open where the virus was free to spread. Two months of doing too little, too late.

I don’t know enough about each of these countries, but I’d hazard a guess that epidemiologists and public health experts in all of these cases are in despair at the lack of action shown by their politicians. What were the politicians thinking? That it would all go away, Donald Trump style. Or more likely that they were balancing health concerns against the economy. That was why I wrote this post.

There is one country stuck at the bottom of the chart above, Japan, which I’ll come to shortly. But first how about some countries in Europe who I always think of as having relatively rational governments: Germany (because it is run by a scientist) and the Scandivian countries.

My hypothesis is correct. Compare the left hand scales of the two charts. These countries would all be stuck at the bottom of the previous chart. However for Denmark, Germany and Sweden the pattern is similar, if at a much lower level of cases. Only Norway and Finland have avoided exponential growth during this period. The media should stop looking at Sweden, and look at Finland instead.

Japan is stuck very happily at the bottom of this chart too. But it is not alone. Here are some countries in what we sometimes call the Far East.

I’ve kept the best of the Scandivian countries, Finland, there for comparison, and started the chart at the beginning or July rather than September. We can see that Australia, and to a much lesser extent Japan, had a flare-up in July and August, but both countries managed to bring it back under control very quickly. South Korea had a smaller flare-up at the end of August but it’s very effective test, trace and isolate (TTI) infrastructure helping bring it quickly under control. To all intents and purposes New Zealand, Australia, Thailand, Taiwan, Vietnam and China have completely suppressed the virus.

There are three overriding lessons. The first is the importance of an effective TTI infrastructure that has the capacity to scale up quickly [1]. The second is that if you start seeing a rapid rise in cases, and your TTI system is beginning to fail, you need to lock down rapidly and hard. Both lessons should have been learnt in Western countries, but were not. One reason may be a third lesson, which is the importance of a clear and shared understanding that the goal is virus suppression. Deaths from the virus are not something to be tolerated as long as they are at a low level, or balanced against the needs of the economy, but something that needs to be reduced to the lowest number possible, and kept there.

We can say, correctly, that unlike the countries in the last chart we in the West are not used to dealing with pandemics as serious as COVID-19. But that is a reasonable excuse for the first wave in the Spring (although not for countries like the UK that lagged behind others), but not for this second wave. Whichever way you look at it, the second COVID wave represents a serious failure of government in most countries.

[1] A weak link for many countries is isolation. Some of the countries above have COVID hotels where those with the virus are isolated. The reason is simply to ensure infected people do not infect others. Many in the West find such an idea intolerable, but Australia only isolates in this way if you have travelled from overseas, so it may not be a necessary requirement for suppression.

Monday, 26 October 2020

Starve a kid to save a quid [1]


One of the myths perpetuated by mediamacro is that management of the public finances is all about controlling our debt by keeping deficits down. As with so much of mediamacro, this is something no academic macroeconomist would say. Econ 101 (first year undergraduate economics) tells you that the deficit should rise and fall with the economic cycle. In particular in major recessions deficits rise rather a lot, and that is exactly what they should do.

Econ101 also tells you that in a recession caused by collapsing demand, it makes sense to increase the size of an already large deficit through fiscal stimulus. It becomes absolutely necessary to do so when interest rates can no longer stimulate the economy because they are stuck at their lower bound. Fiscal stimulus is the way you get out of recession much quicker, and according to some models the only way to get out of recession.

Much the same applies to a national crisis. No one worries about rising debt in a war, and no one should worry about rising debt in a pandemic. Government debt and monetary financing are all about being able to spend big in emergencies without having to worry about running out of money. Worrying about debt and future generations is particularly inappropriate in the current circumstances, when new borrowing attracts a fixed interest rate that is below, and sometimes well below, the underlying rate of growth of the nominal economy. For more on all this see here.

In contrast mediamacro (macroeconomics as understood by much of the media) treats the economy as a household. The government is not like a household, and trying to treat it like a household causes huge damage. Mediamacro’s failure cannot be put down to the simplicity of their message. Here is an equally simple one that is much nearer the truth than mediamacro: worry about the deficit in booms but not recessions. [2]

George Osborne acted as if he didn’t understand that, and it would seem Rishi Sunak does not understand that either. And like Osborne, Sunak too is already causing a lot of damage by worrying about a deficit in a recession. Worse still for Sunak deficit obsession seems to have taken on a religious dimension. In his conference speech he said the government has a “sacred responsibility” to balance the books for future generations.

When the pandemic hit things seemed as if they might be different. Sunak followed other European countries in rolling out a generous furlough scheme (although some fell through its cracks). It is as if he has been regretting that policy ever since. [3]

Let’s look at some of the damage Sunak has already caused. At every opportunity, he encouraged Johnson to end aspects of the lockdown quickly, thereby ensuring that lockdown would finally end with a significant amount of COVID around. He then undertook a stimulus measure then would inevitably increase infection levels, just before a period when first returning schools and then universities were bound to put pressure on the test and trace regime. As we saw a second wave, he announced a support scheme that was less generous and far more limited than his original scheme. Since then he has had to backtrack somewhat (nothing to do with London going into Tier 2 of course), but many will have been made unemployed before his change of mind. He continues to refuse to increase statutory sick pay, even though this would help fight the pandemic. Perhaps worst of all, he encourages Johnson to think about balancing health and the economy (balancing SAGE with Sunak), when this just ensures the second wave will grow.

Then we have Marcus Rashford’s appeal to continue free school meals in the holiday period to stop some children going underfed as parts of the economy collapse. What was provided during the summer following Rashford’s first appeal is apparently no longer necessary, even though the pandemic is now at least as bad as it was in the summer. The decision to ignore Rashford’s appeal was terrible in so many ways, including politically. Putting Conservative MPs into the limelight to reveal all their prejudices about the poor is never a good idea.

It is a very human instinct to protect those who are most vulnerable in a crisis. Yet many Conservative MPs talk about parental responsibility and feckless parents, as if extending free meals to school holidays would significantly encourage such behaviour. Instead such arguments reveal that these MPs would see no problem in getting rid of free school meals completely. The truth is that Conservative governments have installed a benefit system that fails to provide some of its recipients enough to live on, and those failures become more acute in a crisis. That these failures are pervasive even outside a crisis is clear from the huge growth in food banks.

Why is this failure built into universal credit and our welfare system more generally? In part it reflects governments responding to stories of irresponsible parents with large families that regularly appear in the Tory tabloids. But it also reflects George Osborne’s obsession with the deficit. He cut universal credit supposedly in an effort to balance the books, while at the same time cutting various taxes. (For a good discussion of the impact of policy measures on the distribution of income since 2010, see here - HT Jonathan Portes.) Using concern about the deficit to make the poor poorer was pure deceit on his part, deceit mediamacro were happy to go along with.

The tax giveaways under Osborne tell us why he used to obsess about the deficit. It isn’t that he really believed cutting the deficit in bad times is a good idea. If Osborne was really so concerned about the deficit why did he cut taxes so often? Sunak seems to be following a similar path, showing no attempt to exert some control over the government wasting money on a defunct centralised and privatised test and trace system, or trying to stop the government overpaying for PPE.

This suggests that Sunak, like Osborne, only pretends to misunderstand the nature of government debt. I used to say this deficit deceit was really a pretext to reduce the size of the state, but I think we need to be more precise in the current climate. Many Conservative MPs today seem quite happy about the state paying too much money out to corporations who have previously or will subsequently give Conservative politicians seats on the board, and/or have given the party financial support. What they fear is government money going to the wrong people, people who are not their friends, donors or the very rich, and who are unlikely to vote for them.

[1] Title credit

[2] For MMT devotees. You say governments should focus on how much resources are used and not the deficit. But that is only true if interest rates are unable to control inflation in booms or you prefer to use fiscal policy to control booms. As most people think interest rate policy is both effective at dealing with booms and should be used, then controlling the deficit in booms is important to prevent deficit bias. Try imagining most people are right, and think outside your MMT box.

[3] Stephen Bush suggests this change of mind is because Sunak now thinks the cavalry, in the form of a vaccine, will no longer arrive. However the alternative to a vaccine is not permanent lockdown, but reducing cases to near zero and keeping them there using an effective test and trace system. The problem here is in getting the government to admit that their world beating test and trace system is a failure.

Postscript (27/10/2020). I could have added so much more examples of inappropriate penny pinching going on right bow. Adding VAT on PPE equipment for example, or reducing the number of laptops schools get to help children. All this is penny pinching. Extending free school meals to cover the half term break costs about half a day's worth of Eat out to Help out. 

Monday, 19 October 2020

Why do some find the economics/health trade-off so hard to get? Because it’s like the Phillips curve.

The distinction between the short run and long run traditional Phillips curve (not the New Keynesian variety) is so ingrained in economists that it seems obvious to us. We sometimes forget that it took many years for policymakers to understand it. I think something similar is happening with the economics/health trade-off in this pandemic.

There is undoubtedly a short term trade-off between imposing greater restrictions (in extremis, lockdowns) to improve health outcomes (a good) and the negative effect that has on the economy (a bad). In much the same way as there is generally a short term trade off between expanding the economy to reduce unemployment (a good) and getting higher inflation (a bad). But in both cases that is not the end of the story.

The problem highlighted by the traditional Phillips curve model is that this extra inflation just grows over time. What may be an optimal trade-off between lower unemployment and higher inflation today will tomorrow become sub-optimal, because inflation feeds on itself and will rise again. The theory of the vertical long run Phillips curve is that there is only one level of unemployment that keeps inflation steady. Anything less than that will lead to steadily rising inflation. (Please don’t bombard me with comments about the validity of the Phillips curve, because I’m only interested in the theory here as I think it tells us something about how we are failing to deal with coronavirus.)

The trade-off between health and the economy works the same way in a pandemic. Boris Johnson got advice from SAGE about what was required to bring the virus under control, but he also knew that this advice would damage the economy. The way he put it at a news conference is that he was trying to balance the good (less infections) with the bad (hit to the economy) by doing less than SAGE asked.

Unfortunately, even if that trade-off made sense at the time, if R>1 (as it now is) the number of infections will grow over time. So a balancing act that makes sense today makes no sense tomorrow. The analogy with the Phillips curve is that there is only one level of economic restrictions which will get R=1, and that is much more restrictive than what might seem optimal in the short run if you ignore the dynamics.

The analogy can be pushed further. If you keep on trying to get unemployment below its natural rate (the rate at which inflation is steady), inflation will keep rising. After a time it is no good just stabilising inflation, because its level is much too high. Equally we now need a period of R<1 to get the number of cases down, and that means a period when economic restrictions are greater than the level that would keep R=1. The longer government puts this off, the longer and deeper any lockdown will be, and therefore the bigger the hit to the economy will eventually be.

This is why the government’s attempts to balance what SAGE suggests with the impact on the economy are not only misguided, but positively bad for the economy. Even when policymakers are convinced to impose sufficient restrictions to get R=1, because it took too long getting there infections and therefore deaths are much too high, so we will need some kind of strict lockdown to get back to something tolerable. In short, delays in getting R=1 mean a lockdown becomes inevitable, and in a lockdown with high infection numbers the economy really suffers

If analogies with the Phillips curve are not meaningful for you, just think of what the government is doing as ignoring the dynamics. Balancing the economy with health in the short run is futile, because it ignores the dynamic problem that infections will increase. Having modest economic restrictions now keep R>1, so the problem gets worse, hospitals become overwhelmed and governments are forced to do much more harm to the economy later on. The only exception is if they follow the anti-lockdown crusade, which means letting hundreds of thousands of people die. It is the equivalent, using our Phillips curve analogy, to generating hyperinflation. 

Policymakers in many countries, not just the UK, have failed to grasp the nature of this dynamic problem. In the first wave they typically imposed the harshest of lockdowns to be sure of getting R well below one. They gradually relaxed lockdown, achieving in the summer a position where R was close to one. After that three kinds of mistakes occurred.

The first was the one described above. In the UK, for example, even with cases beginning to rise in August, policymakers tried to encourage people to mix in restaurants and stop working at home. (Of course they came under intense pressure from sectors that had been closed down to relax prematurely.) The second mistake is more speculative. As time goes on, people relax and forget what they are supposed to do and what they are not supposed to do. To use the Phillips curve analogy, in both cases the natural rate begins to rise.

But by far the biggest mistake was the third. Everyone wanted schools to restart in September, and the government thought universities should restart in October. Those are two large increases in social mixing, which mean that to keep R at one some further restrictions were required. In terms of the Phillips curve there was an upward shift in the natural rate. Policymakers failed to understand that, and so the second wave began. Looking at it this way, the second wave was completely preventable if policymakers had recognised that shift and taken appropriate action, but instead they just crossed their fingers.

If we want schools and maybe universities to stay open, does that mean we have to keep pubs and restaurants permanently closed to avoid a repeat of what happened this Autumn? The evidence from countries like South Korea is not necessarily. A really good test, trace and isolate (TTI) infrastructure can exert strong downward pressure on R, and can handle the occasional spike before we need to resort to lockdown. Using the Phillips curve analogy, TTI puts downward pressure on the natural rate.

The biggest failure of this government and others over the summer was to be content with TTI operations that were unable to handle spikes. The failures of the UK’s centralised and privatised operation are well known, and have been described repeatedly in earlier posts. A good TTI system requires being able to get tests locally on demand and having the results back within 24 hours for around 80% or more of people. But it also requires people to isolate after being told they might have the virus, and the UK has put little effort into ensuring people are willing and able to do that. Indeed the Cummings episode did the opposite. 

The message of this post is that anyone who talks of balancing health against the economy in this pandemic is being very short-sighted. Unfortunately many politicians are naturally short-sighted, and are used to balancing pressures from different directions, which is why we have seen cases rise in many countries around the world. The irony is that taking firm action to suppress the virus to very low levels is popular, and as we have seen very recently will reward any politician with the foresight to think about health rather than the economy.  

Monday, 12 October 2020

The anti-lockdown crusade gains oxygen from this government's ineptitude


If anyone still doubts that Brexit was our Trump moment, look at some of the same characters (Tory MPs, newspapers, even voters) who supported Brexit getting behind what has become an anti-lockdown crusade. I use the word crusade deliberately. Rather than religion it is ideology that drives most anti-lockdown proponents. That ideology is libertarian, although to borrow a phrase from Chris Dillow on mask phobia, this libertarianism is just solipsistic narcissism. What the crusade isn't, for most of the anti-lockdown brigade, is evidence led.

That is not to say that some scientists may genuinely believe that lockdowns are never worthwhile. Science shouldn't be closed to heretical ideas, and there will always be scientists who put forward such ideas. Occasionally the heretical turns out to be true. So any defence of the need for lockdowns should be science based. Merely noting the correlation between Brexit and the anti-lockdown crusade, or the fact that an institute funded by the Koch brothers helped create the Barrington Declaration, is interesting politically but it is irrelevant to the science.

The alternative proposed in the Barrington Declaration is herd immunity plus protection for the vulnerable. As Mark Reynolds from Wired notes, there is no mention of test and trace, or mask wearing, in the Declaration. This is because the authors want everyone except the vulnerable to catch the virus as soon as possible.

On the vulnerable, everyone agrees that they should be protected, but the twist that herd immunity gives you is that if carers and others who meet the vulnerable are immune as a result of herd immunity they are not going to become infectious again and pass this on to the vulnerable. However the Declaration glosses over the rather critical problem in the interim before care workers have caught COVID. As I note below, without lockdowns it is likely to be at least 6 months before we reach herd immunity. 

That apart, their proposal for the vulnerable is identical to what the government should have been doing as part of its lockdown strategy. The other point they gloss over is that there is no neat dividing line between the vulnerable and non-vulnerable. The risk of death increases sharply with age, but it doesn’t start once you are retired. There is a significant risk from death if you are in your 50s and male, data from Spain suggests. Furthermore, we know very little about ‘long COVID’: those who are suffering from severe effects from COVID long after the virus has left.

The real dividing line between the Declaration and the public health consensus is herd immunity. Herd immunity is bound to result in a large number of deaths, because before herd immunity is reached more non-vulnerable will die and the risk to the vulnerable is bound to be higher (because they are more likely to come into contact with virus carriers). But the counterargument is that at least normal life will not be disrupted in the way it was during the lockdown.

The counterargument is simply wrong. As I have argued many times (e.g. here), it is not the lockdown that kills the economy but fear of catching the virus. As long as those who are not vulnerable think there is a real risk of death or serious complications from COVID-19, most will stay away from pubs, restaurants and other areas of social consumption of their own accord. Risk lovers and those who believe they are invulnerable will continue as normal, but there are not enough of them to make most social consumption businesses viable while the pandemic lasts.

The same point can be made about the impact on cancer cases and other areas of hospital care that the pandemic crowds out. This happens not because of lockdown, but because hospitals are full with COVID-19 cases, and when they are not because people fear catching the virus in hospitals. Herd immunity would make both problems worse.

A consequence of fear of catching the virus is that it takes much longer to achieve herd immunity than it would if most people ignored the pandemic. That in turn means that many social consumption firms will go out of business without government support. That leads to a second consequence, which is that the economy takes a big hit over at least six months, and without government support suffers some lasting damage on top of that.

So it is difficult to see how herd immunity with protection would bring any benefits, and it is certain that it would bring greater costs. It would be great for the selfish who are prepared to take risks for themselves and don’t care about others they may infect, but that minority is a key reason why lockdowns are necessary. For the crusaders all this doesn’t matter. Like smoking, climate change and Brexit, it is just too easy to get our (power without responsibility) media to run ‘two sides’ stories, and the work of the Declaration is done.

The reason herd immunity has made a comeback, after the short period in which the UK government flirted with it and killed thousands as a consequence, is the current mess the government has created. It has allowed a second wave to emerge, and has delayed an effective response. One reason for this delay is that Johnson and his circle share libertarian (think solipsistic narcissism) tendencies, and the other is that they find it hard to admit the mistakes they made over the summer.

The alternative to herd immunity that many more public health experts would sign up to is to use lockdown to reduce case numbers to virtually zero, and then have an effective test and trace system that can not only keep the numbers low but can also bring to an end any increase brought about by more social mixing. That last point is critical. If you wanted schools to go back in September and universities in October, you had to have a large amount of spare capacity in your test, trace and isolate infrastructure to deal with the increase in possible infections that will inevitably arise from both events. Students in particular require intensive testing. That means starting from a very low level of cases so there is less virus going around and the testing infrastructure has plenty of spare capacity.

Our ultra short-termist government did not have the patience to get case numbers right down in the late Spring. Johnson was too eager to give good news about lockdown relaxation and Sunak was too obsessed with the government's deficit (while ignoring the many millions handed out to friends and donors). The summer was the time to build up testing capacity and see if the centralised, private sector system could be made to work, but Dido Harding failed to anticipate higher demands and so did superforecaster Cummings. (A better option would have been to start building a new test and trace system that started with local public health teams, but I suspect that is a step too far for this government.) Instead of the summer being one of preparation, for our government it was about getting the economy back to normal. Their only mitigation is that other governments made the same mistake.

Once the test and trace system failed, another lockdown was inevitable, and should have happened immediately. It is no good prioritising cases with clear symptoms, when the number of asymptomatic cases is so large. The lesson from the past and around the world is to lockdown quickly and hard, so the government is doing the opposite. It will have to lockdown hard eventually, so why not during the second half of September or even earlier. Is this just incompetence, or the influence of the anti-lockdown crusade? To make one mistake that costs tens of thousands of lives is bad enough, but to repeat the same mistake just six months later should be unforgivable.

Postscript (13/10/20) 

We learnt yesterday that the government ignored SAGE advice three weeks ago for a much tougher lockdown. While the advice was not surprising given a runaway pandemic in large parts of the country, it does confirm that the government is now ignoring the science. Even Chris Whitty said at the press conference yesterday that he didn't think the government's measures go far enough to bring the pandemic in some parts of the country under control.

Which raises the question of why Prime Minister is ignoring his (and most other) scientists. Is it, as suggested above, the influence on him of the anti-lockdown crusade. Or is it the Chancellor who wants to spend as little money as he can get away with in the very short term. Both must surely know that a pandemic will set back the economy and the public finances far more than any measures proposed by SAGE. Whatever the reason, the government has shown that it alone is responsible for the many deaths and crippled economy that will surely follow from their inaction.