One of the most important things economists can do in a pandemic is not forget what we know. We know that central planners don’t have enough information and insight about the lives and activities of 330 million people to plan those lives in a thoughtful way. We know the problems that emerge when you distribute something valuable by giving it away. We know that government officials face bad incentives. We know that externalities pose problems for the straightforward “leave it to the market” viewpoint, but that large government interventions create new problems. In the rush to make pandemic policy, too many of these lessons were cast aside.
This is the opening paragraph of David R. Henderson, “Economic Lessons from COVID-19,” Reason, June 2021.
Another excerpt:
By the end of the Cold War, most economists—even some socialists—were acknowledging that Mises and Hayek had won the debate: The Soviet planners had failed because they had embarked on a task that could not succeed.
But in the COVID-19 era, a lot of policy makers have let this lesson slip their minds. While few have advocated full-blown state socialism, many have forgotten the more general truth that officials don’t have enough information to make detailed plans about people’s lives.
Take Gavin Newsom, the first governor to impose a statewide lockdown. The California Democrat listed 16 infrastructure sectors deemed so essential that they would not have to lock down. Restaurants, hairdressers, gymnasiums, and schools, not being among them, were compelled to close. So were large swaths of the retail economy. But Newsom did not base these regulations on a sophisticated understanding of what is essential and what is not. He couldn’t. No one has that understanding, for the reasons Hayek laid out long ago. The list of essential industries came from an old script; it was not highly correlated with the relative value of various industries and was not closely based on risks of spread.
On the externality issue:
To the extent there is an externality, we should also remember a point made by Nobel-winning economist Ronald Coase: The person who suffers from pollution downwind from a factory would not suffer if he weren’t there. That observation has led economists in Coase’s tradition to the concept of “least-cost avoider.” Economists tend to focus on the efficient outcome, and the efficient outcome requires looking at who has the lower cost of reducing or eliminating the externality. When people live near an airport, for example, the cheaper solution might be to have airplanes produce less noise. But it might instead be for homeowners to install double-pane or triple-pane windows.
In this pandemic, governments have chosen to prevent a huge number of interactions among people who are at low risk of suffering from the disease. Given that the risk of death by COVID-19 for older people with comorbidities is orders of magnitude higher than the risk for the general population, the lower-cost solution would probably have been for the elderly to isolate themselves.
Read the whole thing.
READER COMMENTS
Jon Murphy
May 1 2021 at 3:10pm
Great piece. In particular, I love the optimistic tone of your conclusion.
David Henderson
May 1 2021 at 3:44pm
Thanks, Jon.
john hare
May 1 2021 at 7:45pm
I’m not sure how much my motivated reasoning and preconceived ideas affected my reading of the piece. I’m sitting here thinking in terms of grabbing politicians by the scruff and making them read it, aloud to their constituents.
Great article, I just wish it could be far more widely disseminated, and understood. Mainly by the voters that support the nonsense.
AMW
May 2 2021 at 1:11am
David, I asked this in an earlier post of yours, but don’t believe I received a response. In what way(s) would you encourage the vulnerable to isolate themselves beyond what occurred during the lockdowns? And wouldn’t you expect that isolating from the virus would become much more difficult if the rate of infection in the less vulnerable population increased dramatically?
Michael
May 3 2021 at 6:51am
None of the proponents of “protect the vulnerable” type strategies provide any explanations of what that would entail and how it would be is feasible. For example, how do you protect an elderly person who lives in a multigenerational household with one or more working (but not ‘vulnerable’) adults? That person’s greatest risk is that their working family get infected, and policies like the GBD explicitly advocate for more infection among working age adults.
Or consider a nursing home full of the vulnerable. That home cannot completely cut itself off from the outside world, so there is always a risk that the virus gets in somehow, most likely via infected staff, EMS personnel, or hospital. All it would take is one case of the virus getting across whatever protection exists to create a superspreader event within a facility. And, I suspect, the fidelity to whatever protective measures are put in place are going to vary by facility, region, and regional politics. If even the White House could not protect itself, why would far more poorly funded facilities be expected to fare better – especially in a background environment with greater rates of infection in the general population?
The other main problematic issue is that those opposed to ‘lockdowns’ are vague about the specific restrictions they support or oppose and vague about assessing the relative impact of government imposed restrictions (‘all restaurants and hair salons are closed by government order’ or ‘required to operate at reduced capacity by government order’) and individual, private decisions (people choosing not to dine out or get their hair cut). A mix of both of these gets lumped together under ‘lockdowns’ and some of those who advocate against lockdowns also advocate against people making their own decisions to stop enaging in activities that are riskier due to the virus. The GBD, for example, urges ‘non-vulnerable’ people not to change their behavior beyond hand washing (it is rich for people who criticize government emphasis on ineffective measures to themselves advocate an ineffective measure).
The other issue is that 80% of those who have died are age 65 and above. But that means 20% are younger. Assuming the most effective strategies to protect the vulnerable will be age based, even if they are effective we are still talking about considerably more than 100,000 deaths. More than we have seen to date, because the same protective measures for those younger than 65 will not be in place.
Even the strongest proponents of lockdowns, if they are honest, would have to admit that governments have gotten a tremendous amount wrong. At one time, some of that could be excused by the immediacy of a crisis involving a new pathogen. But those days have long since passed and governments were extremely slow to adjust guidance or shift from prohibiting activities towards making safer activities easier (eg, outdoor dining). My argument isn’t that governments got this right but rather than the damage is overstated and the benefits of alternative approaches (such as GBD’s focused protection) are also overstated. (Or, alternatively, not described in a way that would help to convince skeptics.)
Charley Hooper
May 3 2021 at 5:27pm
Here are some ideas of how to protect the vulnerable.
In nursing homes:
Don’t admit infected residents
Test the staff regularly
Minimize the amount that the staff moves between facilities
Minimize contact between residents
Minimize contact between residents and staff
Perhaps have staff stay on-site for longer periods of time
Test residents and quarantine those that are infected
Install better air filtration systems
In residential homes:
Minimize contact between housemates and vulnerable people
Have groceries delivered by friends or services
Limit shopping trips
Avoid social gatherings
Use Zoom and FaceTime for visits with relatives
Minimize visits from outsiders
Have outsiders take precautions (wear masks, etc.)
If still working, work from home
Thomas Lee Hutcheson
May 2 2021 at 6:34am
More important than not forgetting what we know would be using it to propose improvement in policy. Pointing out policy X is not optimal is not enough.
Jon Murphy
May 2 2021 at 9:06am
Your objection is irrelevant. The point is not that behavior is “optimal” (however defined). Indeed, following Alchian, I argue that optimization isn’t really even a reliable concept in econ to explain behavior; firms and people do not profit-maximize. They search.
The point David is making is that the policies taken are not even in the right direction. They’re not sub-optimal: they are actively harmful. They are failures. Whether or not there exists some other policy that moves in the right direction is irrelevant to the fact that the enacted policies ignore insights gleaned over the past century.
In short, your objection is like saying “sure, Flat-Earth is not optimal for understanding geography, but that is not enough to tell us anything!”
Thomas Lee Hutcheson
May 2 2021 at 7:01pm
Sorry the word “optimal” led to your misunderstanding me.
My objection is that just saying that “Lockdowns” are harmful does not imply what the policy should have been.
I think economists [Tabarrok and Romer are examples] could have helped design policies that would have mitigated the spread of disease while causing less reduction in the supply of goods and services (although I suspect there would still have been some role for regulating what firms and other venues would have to do to remain open to the public.)
Jon Murphy
May 3 2021 at 7:06am
No, I understood you perfectly. The fact no alternative is proposed is irrelevant.
Evan Sherman
May 3 2021 at 2:06pm
With respect, I do think this response exemplifies the rhetorical-failure-by-negation fallacy (formal name?): ‘This article, which is explicitly about subject A.1, does not cover adjacent and relevant subject A.2. A.2 is important. Therefore, the article falls short.’ Or, more broadly: ‘This article falls short because it did not address the subject matter that I think it should have addressed.’
Generally speaking, yes, participants in discourse (either individually or collectively via one’s faction) have the obligation to be comprehensive or else face accusations of misrepresentation by elision. That general duty to be comprehensive, furthermore, does include a duty to present a positive case, not merely critique the status quo. However, that general duty to comprehensiveness does not require any given specific article to be comprehensive. It’s fine for an article to just be about topic A.1, even if topic A.2 exists and is relevant.
Jens
May 5 2021 at 3:15am
If all alternatives mean failure, then failure is irrelevant.
Jens
May 5 2021 at 3:25am
“””
In short, your objection is like saying “sure, Flat-Earth is not optimal for understanding geography, but that is not enough to tell us anything!”
“””
That’s wrong. The objection is like saying: “For basic movement it doesn’t really make a difference if you believe in flat-earth or just ground stretching far and wide”.
Mark Brady
May 3 2021 at 12:40am
‘When people live near an airport, for example, the cheaper solution might be to have airplanes produce less noise. But it might instead be for homeowners to install double-pane or triple-pane windows.”
Perhaps, but who gets to pay for the new windows/
Thomas Lee Hutcheson
May 3 2021 at 5:56am
So, regulate the noise, (some sort of decibel-hour tax) but allow the airport to reduce the tax by paying to install noise-proof windows or buying the houses and reselling to people less affected by the noise.
robc
May 3 2021 at 8:41am
It depends how the property rights are defined. It could go either way, and it doesn’t matter, as it would be known in advance.
Of course, sometimes property rights are ill-defined. But that is a different issue.
I think usually the answer is obvious. To give a real world example, in Louisville there is a neighborhood called “Butchertown”. It has that name for a reason, even though there is only one pig slaughtering facility left. It has gone thru gentrification recently and some of the new residents complained about the smell, when the wind came from certain directions. My response is the obvious, “YOU BOUGHT IN A NEIGHBORHOOD CALLED BUTCHERTOWN, WTF DID YOU EXPECT?!?” In that case, the property right, even if ill-defined, is pretty obvious to me.
Jon Murphy
May 3 2021 at 12:02pm
To RobC’s point, the reduction will be paid for by whomever values the noise the most.
Comments are closed.