One of the dividing lines in public opinion for dealing with COVID is whether we should be prioritising individual freedom or collective welfare.
Surely economics has proved that individual free choices lead to the best outcome for society through the operation of the free market?
This is often how it is taught, and I meet a lot of people who believe this oversimplification is true. It is true that mathematically under rather extreme and unrealistic assumptions then such an outcome is “Pareto Optimal”. Whether this abstract result is important or relevant I can leave to another post; what matters here is that one of these assumptions is not true – no externalities.
What is an externality?
One way of thinking about an externality is when your individual choice has an impact on someone else.
The classic example of a negative externality is pollution e.g. a mining company maximises its profits by not caring about the waste it creates, dumps it in a local river killing thousands of local children. Or similarly, as an individual it may make sense to catch as many fish as possible even though if everyone were to do the same, overfishing would lead to the destruction of the fishing grounds.
In economics terms, existence of an externality leads to “market failure” i.e. the operation of a free market, with individuals making best choices for them as individuals, but this leads to a poor collective outcome.
Public health issues, such as a pandemic, are another example of a negative externality. If we all made individual choices based upon personal risk of dying, then many would not have entered such a restrictive lockdown. Many people would have chosen to spend time with dying relatives for a very small personal risk. The reason we have a strict lockdown is that it is not individually rational, but it is collectively rational. The risk of young people going to parties is not primarily to themselves, it is that through spreading the virus many other more vulnerable people will die.
How do we get people to act for the common good?
I will explain the 3 main methods and why the current situation with Cummings matters so much:
- Enforcement
- Appealing to common good
- Relying on individual judgement
- Enforcement
An example of this is drink-driving. As an individual, you may be happy to drive a little drunk but via the law, you are not allowed to because you pose risk to others and they have not consented to the risk to their lives.
In COVID, some countries have had strict lockdowns with clear guidance and strong enforcement. In the UK, some people maintain this was also the case with clear rules. The situation with Cummings shows that it was possible to drive a coach and horses through the rules and that worse this approach was endorsed by the PM and Cabinet.
- Appealing to the common good
The most recent UK government approach has been for Matt Hancock to talk about our “civic duty”. I strongly agree with this principle, but the Cummings affair and his press conference have severely undermined it. Whatever justifications for his actions that were given, the most important thing to note is that he replied as an individual. Whenever he was asked about the common good, he refused to engage in the question. He only wished to discuss his choices as they affected him and his immediate family, not about the people he encountered while infectious.
- Relying on individual judgement
Without explicit rules, we are left with individual judgement and “common sense”, the defence that Cummings made for himself and which the UK government has endorsed. Given subjectivity and differences in interpretation, this gives rise to the “free-rider” problem which is the best outcome for an individual is that everyone else abides by the rules while you do not. You get all the benefits of everyone else being strict while you can do what you want.
Cummings made it clear that he was happy to be a free-rider in this case. He wrote the rules that others must stay home and likely understood it was very important, but he also knew that as an individual he wanted to visit his parents and take his wife for a nice day trip.
Once it is known that free-riders exist and in fact that are being selectively encouraged, then others will take the same path. People are willing to make sacrifices for the common good but not to be taken for mugs.
Conclusion
The ideological preferences of Boris Johnson and Dominic Cummings should not be surprising. Individual freedoms, especially their own are of prime importance. When it comes to an issue of public health this has an outcome which is better for some, but far worse collectively and particularly bad for those most vulnerable and disadvantaged in our society.
Applied Macro 