Wednesday 15 April 2020 9:08 am

Coronavirus: Economists have a role to play in recovery

Lockdowns are starting to be eased in Europe.  Austria, Denmark, Italy and Spain are all moving back towards normality.  At some point during May, the UK will follow.

We can reflect on what the government has got right and wrong so far in the opening phase of the pandemic.

This is emphatically not to apportion blame.  The government was suddenly confronted with a crisis without parallel in living memory.  Mistakes were bound to be made. The key question is how rapidly the appropriate lessons were drawn.

East Asian countries responded to the crisis far better than the UK and Europe.  But they had the opportunity to learn from the earlier SARS virus, which did not spread to the West.

Government departments did try and prepare by “game playing” a pandemic.  Exercise Cygnus in late 2014, for example, seems to have formed the basis for the initial response to the real thing.

But no matter how much governments attempt to develop strategies in advance, in the words of the great Prussian general of the 19th century, von Moltke, “no plan survives initial contact with the enemy”.

At first, the policy was to let the virus spread so that the population could develop so-called herd immunity.  This was a serious mistake. Even the most basic epidemiological model would predict a huge spike in cases with a virus such as Covid.

The government learned rapidly.  A voluntary lockdown was proposed, to which many people responded.  

The actions of a minority prompted the introduction of a legal basis for the lockdown.  This was completely correct. We can already see sharp falls in reported new cases in countries such as Italy which introduced lockdown before us.

Another notable success has been what we could term the propaganda strategy.  The slogan “Stay home, protect the NHS, save lives” is brilliant. It has been so effective at changing behaviour that some may be reluctant to leave lockdown even when it is lifted legally.

The government still seems to rely heavily on a single team for its epidemiological modelling.  They have not learned that this is not a science with the precision of physics. Different teams have quite different views.  

Even the projections of the same team can change rapidly. For example, The Institute for Health Metrics and Evaluation is a prestigious American academic outfit.  Just over a week ago, they predicted 66,000 deaths in the UK. This is now revised down to 37,000. Were it not blasphemous, we might speculate that their next forecast might be one of negative deaths, with thousands rising from the grave.

Further, epidemiologists focus on the disease in question, how it might evolve, how to contain it, to the exclusion of everything else.

Economics brings a wider perspective.  The common perception is that the subject is about macro – the big things like GDP and unemployment.

But the main focus of economics is on individuals, how they take decisions, and how these decisions can be influenced.  Economists have a key role to play in any exit strategy.

Paul Ormerod is an economist at Volterra Partners LLP, a Visiting Professor in the Department of Computer Science at UCL, and author of Against the Grain: Insights of an Economic Contrarian, published by the IEA in conjunction with City A.M.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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