Throughout the pandemic, our politicians have been urged to “follow the science” or, more accurately, the advice provided by medical scientists. Other disciplines play only a bit part. There are Scientific Advisory Group for Emergencies (Sage) sub-groups assessing the impacts of Covid on the provision of social care, or minority ethnic groups, but what about the economy?
Indeed, it appears that economists are only asked to put a cost on policy decisions that have already been made, or come up with schemes to mitigate the impacts, rather than influence decisions in the first place. In my admittedly biased view, this is a mistake.
Any decent economist has a toolbox of concepts and skills that can be applied to the policy responses to a pandemic. This begins with communicating the case for state intervention.
For example, protection from a deadly virus is a classic example of what economists call a “public good”, where the total benefits, including social benefits, are larger than private firms can charge for. This could justify an additional subsidy to vaccine makers.
Similarly, spreading a virus can be seen as a negative “externality”, where people may have little incentive to behave in ways that avoid putting strangers at risk. This could also justify some forms of state intervention, such as the mandating of face coverings or vaccine passports.
Economists should also be good with data. I do not just mean here that they should be familiar with concepts such as reproduction rates, or exponential growth. Anybody numerate should be able to do that.
Instead, I mean that they should be good at interpreting and illustrating data in helpful ways. Some of the charts presented at Downing Street briefings have made me wince.
For instance, any competent economist should be able to draw a chart illustrating the lags between an increase in global commodity prices and the impact on headline inflation. It is not a huge leap to apply this to a rise in Covid case numbers and the impact on hospitalisations, or deaths.
Admittedly, the track record of economists in modelling and predicting the economy itself is what I shall charitably describe as “mixed”. However, few would have got away with the kind of forecast errors that we have seen from medical scientists throughout the pandemic.
Above all, economists understand the importance of trade-offs, which is the bread and butter of their subject. In the context of the pandemic this is often couched in terms of “health versus economy”, with medics assumed to prioritise the former and economists the latter. This is misleading, for two reasons.
First, health and economy cannot easily be separated. There is some trade-off between preventing premature deaths and protecting the economy. But if the virus is not controlled, people might choose to stay at home, and the economy would suffer anyway. Put another way, locking down harder and sooner may increase the hit to the economy in the short term, but reduce it in the long term, especially if it buys more time for other policies, such as the acceleration of a vaccine booster programme. The real trade-off may therefore be about what economists would think of as “intertemporal choices”.
Second, economic cost-benefit analysis usually involves putting a monetary value on factors that are not usually thought of in economic terms, such as health outcomes and wellbeing. This is not something with which everyone is comfortable, but economists often have to assess whether the health benefits of an intervention (such as a new treatment for the NHS) justify the financial costs.
This is simply about using limited resources in the most efficient way. If this makes you feel queasy, imagine it would cost the taxpayer £1bn to save just one life. Not many people would think this is a fair price to pay. But once you have accepted there is some cost which is too high, you have accepted the principle that life can have a monetary value.
Economists think about these issues all the time. Admittedly, the pandemic is especially challenging. Any intervention, or inaction, has a long list of potential costs as well as benefits. There is also a tendency to look only at those that are most visible and easiest to measure.
Policy-makers must therefore be aware of the “identifiable victim” problem, or putting too much weight on those most at risk from Covid, and not enough on the harms done to others by policy responses.
In this case, an assessment of the potential benefits of locking down the economy might start with the reduction in illnesses and deaths from Covid itself. But this list should also include the prevention of other deaths and harms (to young and old) if the NHS is overwhelmed with Covid patients, the reduction in other communicable diseases, such as flu, and the potential for a stronger economic recovery in the longer term from getting on top of Covid more quickly.
On the cost side, it is natural to think first of the collapse in economic activity, including business closures, job losses and lost income, and the impact on the public finances. But some interventions, such as strict rules on self-isolation, could also make it harder for an under-staffed NHS to treat people with any condition.
We also need to take account of other costs of Covid restrictions in terms of the impacts on mental health and wellbeing, harms to education and job opportunities, especially for the young, and the damage to civil liberties and confidence in government itself.
This is clearly far more difficult than just saying we should “follow the science”. The high degree of uncertainty means that even the most confident economist would accept these judgments have to be made by elected politicians.
Nonetheless, there were several independent attempts at a comprehensive cost-benefit analysis of Covid lockdowns last year, including studies led by Prof Richard Layard at the London School of Economics, and by Prof David Miles, published by the National Institute of Economic and Social Research.
These studies were controversial, but they did at least lay down some frameworks for thinking about the relative merits of different policy responses. I also think it fair to say that most economists would agree that the welfare costs of prolonged lockdowns – not just the economic damage but also other social harms – significantly outweigh the benefits.
This article was first published in the Sunday Telegraph on 26th December 2021