Oz Blog News Commentary

Why most economists continue to back lockdowns

July 12, 2021 - 13:25 -- Admin

That’s the headline for my latest piece in The Conversation, with Richard Holden. It’s reprinted over the fold.

With the prospect of a lengthy lockdown looming over Sydney, the idea of “living with the virus” has resurfaced

.  NSW Health minister Brad Hazzard has raised the prospect of abandoning the lockdown and accepting that “the virus has a life which will continue in the community”.

As with pandemic policy in general, much of the discussion of the Sydney outbreak has framed the problem as one pitting health against the economy.  In this framing, epidemiologists and public health experts are seen as the advocates of saving lives, while economists are seen as the advocates of saving money.  

In reality, however, the great majority of Australian economists support policies of suppression or elimination; that is, policies which keep case numbers close to zero, and are ramped up whenever an outbreak threatens. As with epidemiologists, that broad agreement encompasses a range of views about the appropriate response in any particular case. Some economists, and some epidemiologists, supported the NSW government decision to delay a lockdown, while others wanted earlier action. But only a minority in either group support the idea of ending restrictions and waiting for herd immunity to protect us.

Unfortunately, as we have already seen in the case of climate change, mass media thrive on conflict. It is more interesting to present a debate between a pro-lockdown public health expert and an anti-lockdown economist, than to present a nuanced discussion of the best way to suppress the virus, taking into account insights from a range of disciplines.

Why have economists endorsed the policy of suppression with more enthusiasm than, for example, political and business leaders?  First, because economists understand the concept of exponential growth, concepts from epidemiology such as the reproduction number (R) are immediately comprehensible. Once you understand how rapidly exponential processes can grow, the idea that ‘we shouldn’t shut down the state in response to a handful of cases’ can be seen for the nonsense it is.

A clear majority of economists surveyed by The Conversation in May 2020 (after the end of the national lockdown) supported strong social distancing measures to keep R below 1.  Most of those who disagreed felt that alternative measures could hold R below 1 at lower costs. Only a handful supported a “let ‘er rip” strategy

Second, economists understand counterfactuals, that is, the need to specify what would have happened under an alternative policy. It is easy to make the point that lockdowns are both economically costly and psychologically traumatic. But the counterfactual is not a situation where the economy is unaffected and everyone is happy.  Living in fear of the virus, and watching family and friends suffer and die from it is psychologically traumatic. As regards the economic costs, the steps people take to reduce their exposure to risk are themselves costly, as is the need to allocate medical resources to treating the sick.

Third, and most importantly, economists understand two things about trade-offs. First, there are always trade-offs within the space of policy choices.  Should we lock down at the first sign of an outbreak, and risk unnecessary costs, or wait until later, and risk a longer and harsher lockdown? Should we incur the costs of purpose-built quarantine facilities, or accept the greater risk of leakage from hotel quarantine?

But economists also understand that not all choices involve trade-offs. Sometimes one policy is unequivocally worse than another, on all relevant dimensions. While there are always trade-offs somewhere in policy space, it’s often the case that, of the live options, one dominates the other in all important dimensions.

And, as the game theory of the Prisoners’ Dilemma has shown, sometimes our institutions foreclose the adoption of the better outcome. Actions that are individually rational may be collectively disastrous.

This was clearly evident at the beginning of the pandemic. It was evident to most economists, in Australia and elsewhere that allowing the virus to spread uncontrolled would do more economic damage than a temporary lockdown, as well as causing thousands of avoidable deaths and tens of thousands of severe, and possibly long-lasting, illness.  On the central question of suppression versus herd immunity, there was no trade-off, as countries like Sweden found out.

Moreover, new institutions, like National Cabinet, were needed if we were to avoid the kinds of chaos seen in the US.  At least initially, National Cabinet produced a coherent response, notably absent in some other countries.

Finally, economists understand the complexities of risk and uncertainty. One implication is the benefit of diversification by “backing every horse in the race,” as opposed to “putting all your eggs in one basket” (pro tip: two baskets are not much better than one). The government’s vaccine policy relied heavily on a limited range of options (AstraZeneca, Moderna and UQ) all of which ran into problems.  If we had followed the logic of diversification, we would have had access to the Pfizer and Johnson & Johnson vaccines by now.

Another central finding is that risks can be misperceived. By focusing on the minuscule risk of blood clots from the AstraZeneca vaccine, rather than the much larger risk of an uncontrolled outbreak, the government and its advisors have left Australians vulnerable. The current lockdowns will do a lot to reduce vaccine hesitancy, but the government could, and should have done much more.

Economists don’t have all the answers. Dealing with the pandemic requires insights from a range of disciplines. But lazy stereotypes, pitting one profession against another, don’t help.

Richard Holden and John Quiggin are professors of economics at UNSW Sydney and the University of Queensland, respectively.