Slightly updated from its being published at the Mandarin.
The catastrophe of Victoria’s resurgence of COVID is a lesson in non-linearity. This reminds me of Paul Romer’s recent comments to the effect that, since economists have foisted cost/benefit analysis on others as a one size fits all means for thinking through decisions, they might try to focus some of it on their own contribution. As he puts it:
There is a clear logic to cost-benefit analysis that is obvious to economists when they impose it on others. Like it or not, this same logic still applies when we are the subjects. Among its implications:
- Intentions do not count.
- You can’t justify a collection of activities by cherry-picking a few that are beneficial.
- Nor can one count wins and loses and declare victory if there are more wins. A few instances of massive harm can outweigh many contributions that yield small benefits. The only meaningful way to calculate net benefit is to put dollar values on all the successes and all the failures, then do the math.
- Finally, no one gets a free pass by claiming that estimates of costs and benefits are uncertain. Remember, we economists were the ones who told everyone that we could improve the analysis of health and safety regulations by putting a dollar value on a lost life. If an uncertain value for a life is revealing, so too is an uncertain estimate on the cost from a careless approach to financial or an intellectual movement that provided cover for large firms that want to stop enforcement of antitrust law.
If economists turned this unforgiving lens on themselves what would they find?
As Romer points out, asking such questions leads to Andy Haldane’s work which puts the total global cost of the GFC at between $50 and $200 trillion. Based on this, Romer concludes that economists did more economic harm than good, even despite the large benefits their reform brought, the two examples he cites being:
- Better counter-cyclical monetary and fiscal policy now relative to the 1930s; and
- The adoption by many developing countries of policies that supported both the market and international trade.
Meanwhile, in Victoria, everything was going along swimmingly when employees of contracted out security services in charge of hotel quarantine for travellers returning from overseas thought it would be good to have sex with those they were guarding or so we are told – the details haven’t been made clear. Who would have thought that contracted out services for such an important task wouldn’t be up to snuff? Perhaps the same sort of people who look for additional things to contract out before building some plausible means for understanding what they’re doing.
And so, within a few weeks, we have record daily infections and much deeper community spread than previously. One factoid I’ve seen bandied about is that Victoria’s lockdown is costing around $1 billion per day. So it makes the idea of skimping on the hotel quarantine (saving money or simplifying requirements) look pretty stupid. Complacent even – and I’m reliably informed by our medical officials that now isn’t the time for complacency.
This has brought the focus back onto the question to which I’ve drawn attention from the get-go – that between suppression and eradication. If eradication is possible, we should be prepared to pay a high premium for it, precisely because we can now see the difference in cost between nearly eradicating the virus and fully eradicating it and keeping it eradicated. This was always the case, but the first time around I watched one press conference after another in which officials and politicians following their advice simply assert that eradication was unrealistic while we – ahem – eradicated the virus.
Nearly eradicating it, or rather eradicating it and then bungling keeping it eradicated looks like being pretty much the most expensive option of all. And yet as we eradicated it, everyone couldn’t wait to ease the restrictions. They were reassuring us of simple – dare I say fairly linear – trade-offs between our health and our economy. I’d have been more conservative perhaps easing up a week later than we actually did. But eradication was successful. But our bungling, once we’d eradicated the virus now, sees us incurring all those costs again. Will we do it again after we do it this time around? That seems to be the plan.
The PM is again dichotomising the economy and health. Naturally, if there are trade-offs we should try to consider them carefully. But if there are non-linearities, those trade-offs are probably illusory, particularly considering fat-tailed risks of catastrophe – of us bungling again.
It’s arguable that because of the incompetence of the Victorian effort, it may no longer be cost-effective for Victoria – and perhaps therefore for Australia. But with the question of eradication finally properly on the agenda, the official epidemiological establishment, all having moved up one since the ascension of the first of our muddleheaded medicos – Chief Medical Officer Brendan Murphy – into the Health Secretaryship. Now newly-minted Deputy Chief Medical Officer Nick Coatsworth is taking up the cudgels against eradication and explaining his proposed alternative – ‘aggressive suppression’.
But because the exponential growth of the virus generates non-linearities in spades, guess what the goal of ‘aggressive suppression’ is? It’s eradication. Always and everywhere. So it’s unclear how it’s different in practice in any specific situation. The only difference between the two strategies that I can divine is the optimism with which one hopes to join up places in which eradication has been achieved and then keep them all clean of the virus.
Given this, why all this angst about eradication? It’s hard to say, but throughout this process, the authorities have continually assured us that eradication was unrealistic – just as they assured us that wearing masks was silly. So perhaps they’re just saving face. Certainly they clung to it as New Zealand’s official medical advisors changed their advice when they realised the differences between coronavirus and the flu on which all the standard advice had been predicated. They clung to their abhorrence of eradication as New Zealand eradicated the virus – and as we did!
Coatsworth now tells us that eradication can produce complacency by diminishing “community engagement with widespread testing” and leading to “a downsizing of the enhanced public health response”. But the public health response should be eased and transformed as eradication is achieved. That was the official advice last time and we’d do again as we should. We can scale back lockdowns and testing and re-focus our efforts on vigilance at the border and secondary defences in case border controls are unsuccessful. Are they growing complacent of this in New Zealand?
In all this, I’m afraid I see a deeper pattern. As I’ve complained for over five years now, the RBA has been setting the cash rate as the muddleheaded medicos have been advising on masks. In hindsight the RBA was obviously wrong not to cut rates more aggressively. But anyone can be wrong in hindsight. My criticism has always been that they made their case not with careful argument – perhaps supported by some back-of-the-envelope models to help clarify and communicate that thinking – but with back-of-the-pants hunches which were then defended with whatever data and arguments came to hand.
In this spirit, Coatsworth tells us that “The WHO has recently confirmed its view that elimination and eradication are unrealistic goals”. Really? Is it unrealistic for New Zealand? Forgive me, but all I can think of is that this would be the same WHO that told us not to bother with masks.
Oh, and masks with which we might have spared our economy hundreds of billions in costs if we’d adopted them from the get-go as the Czech Republic did, will be compulsory for all Victorians from Wednesday night.