Anti-lockdown arguments

For any policy of the measure of the magnitude of an economic lockdown, there are legitimate debates to be had. All policies have benefits and costs both to the individual and society. The “cure is worse than the disease” appeals to an ethical argument against lockdown contrasting the negatives for the economy and civil liberties with public health benefits. Even if some restrictions have been agreed to, there needs to be an evaluation of the extent, form and duration of the measures.

It is rare in modern political discourse to find this type of debate on the key central issues. Far more common are extreme views which are set in opposition to each other. From observing the debates on Brexit and Climate change, the mainstream media likes to have “balance” in their debates (for example impartiality is part of BBC charters). This creates the impression that debate is evenly balanced, with equal numbers of experts and valid arguments on both sides, and that there is no common ground for agreement or of understanding of differences.

Outside mainstream media, we are free to consume news largely by choice seeking out news which confirms our prejudices. Many of us want to find good news that the virus is not so bad, and we can end the lockdown. When we search on the internet, we can find what we are looking for.

I have noted a small number of people releasing videos and interviews explaining why the virus is not dangerous which are widely watched and repeated. The vast majority of expert opinion which are in line with the view that the virus is dangerous is not so popular. If you want to go “viral”, have a piece which says it is safe to end the lockdown.

Tips for making a popular video

  1. Find an expert.
    It does not matter if the person is retired and not actually in the relevant field. They should have the title Dr or Professor.
  2. Use data selectively.
    Find outliers, small samples and anything that can be used to support the hypothesis.
  3. Rubbish or ignore most data and research.
    Misrepresent mainstream expert opinion and then explain why this theory is bogus. Make it personal and include ad hominem attacks or hint at a conspiracy which all the experts are in on.
  4. Change the debate.
    When one argument is no longer tenable due to mounting evidence find a new argument to support the same view.

Here are some common arguments around Covid:

  • The virus is not very dangerous
  • Don’t trust modelling
  • Liberties matter more than unproven measures
  • The virus will go away by itself
  • Lockdown doesn’t work
  • There will not be a second wave

An example

Below is a summary of all the articles written by Dr John Lee in the Spectator, who as of today the author of the most popular article in this small yet highly influential conservative magazine. This is not a fringe blog, but a publication read by reasonable and well-informed people and he is their main columnist on this topic. I didn’t want to take an extreme example, but instead show how the mainstream argument against lockdown has developed.

He is a perfect pseudo-expert as a retired pathologist and starts every article with an appeal to his “expert” status e.g. “After a career as a scientist and clinical academic”. Later he does admit that he is not a virologist, but a cellular pathologist who spent his career in a lab looking at the cells from biopsies.

Articles

Mar 28th How deadly is the virus? It is still far from Clear
Official Death count 1,161

The death rate may be “in the range associated with infections like flu”. In addition, death rates may be overstated as doctors are claiming it as the cause of death when it often is not. A better method is excess deaths but “we have yet to see any statistical evidence for excess deaths, in any part of the world”.

Mar 29th How to understand ‘Covid Deaths’
Official Death count 1,455

Covid-19 deaths “are a substantial over-estimate” because people die “with the virus, not due to the virus”. He says we should wait for excess deaths data as “the severity of the epidemic would be indicated by how many extra deaths (above normal) there were overall.”

He suggests that the actual number of excess deaths may be only 340 and therefore that the infection mortality rate maybe only 0.13%

Note: This argument is never made again, no mention of excess deaths once it is known they are much higher or any updated estimates of the mortality rate. He moves on to find other reasons to argue against lockdown.


Apr 12th Where is the vigorous debate?

Official Death count 12,285

I find this article hard to summarise. I think he is just saying do not trust modelling. Apparently, we should do something else to base policy on. He does not mention what. I do not think he is saying gut-feel and so I think he is suggesting we should do nothing at all until we are sure. Over 12 thousand deaths to date are not seen as enough information on which to act and predictions of the future are uncertain and so we should not act on them.

Apr 19th Do face masks work?
Official Death count 18,492

He does not see “a watertight case for compelling people to wear masks in public”.
I think this is a decent summary gets to the heart of his belief that people should not be compelled to change behaviour even in a public health crisis.

Apr 30th Could lockdown have side-effects no-one has considered?
Official Death count 26,771

He argues that herd immunity is a better approach and that if we did this then the virus might mutate and become less deadly. However, he acknowledges that “most studies so far suggest this virus is not mutating in any way that meaningfully changes its nature” but he spends some time discussing a study of 11 patients in China which he thinks suggests it is possible.

May 8th 10 reasons to end lockdown now
Official Death count 32,285

Lots of different arguments rubbishing modelling. Apparently “we don’t know if lockdown is working” implying there may be some other reason that countries with lockdowns see a peak in infections about a week later and a peak in deaths a week or so after that.

May 27th What the Cummings saga tells us about lockdown
Official Death count 37,542

Apparently, we now know that “as epidemics go it’s not that bad”. Later he explains that it is nowhere near as bad as The Black Death. Two days after Cummings’ news conference, he supports him as having made a personal risk assessment and that we should all be allowed to make our own choices. He tells readers that Cummings’ behaviour had no risk, despite us knowing by then of his return to work after knowing his wife had symptoms, the potential for stopping on the way on a 5-hour drive with a sick wife and 4-year-old son, their trip (without masks) to hospital, and of course a day trip for a nice walk around Barnard Castle.

May 28th The way Covid deaths are being counted is a national scandal
Official Death count 37,919

He notes technical issues with autopsy classification of deaths and thus concludes that “we have no idea how many lives have really been lost to the disease”. He ignores his posts from March when he said we should use excess death data, perhaps because this gives a death count 50% higher than the official count.

June 6th Science, doubt and the ‘second wave’ of Covid
Official Death count 40,548

He claims that he has retained an open mind, while the mainstream has rushed to judgement. He claims that the evidence in favour of lockdown being effective is not strong and so we should not expect to have a second wave as we exit ours.

I have tried to fairly summarize his arguments, but I am sure it is clear that I think they are poor, each time one becomes untenable he moves on to another one.

I think that his underlying rationale is that civil liberties and individual choice are more important than public health when dealing with a disease which is so much less dangerous than the Black Death. But rather than argue this point he writes at length generating misleading pseudo-science.

I think it is possible to make honest and coherent arguments against lockdown and I will explore some in the next piece

The 2020 recession

To think about the possible path of the economy from here, I think it is helpful to look at components of the economy and consider how COVID and the response to it have affected them. It may be disappointing to some readers as I’m not looking to give definitive forecasts, but as I explained in my earlier post on economic forecasting, I think this is not a useful thing to do here.


Impact on workers and consumers

Income shock

It is striking and initially surprising that the fall in incomes has been limited so far. Given the various schemes in Europe, such as the UK Furlough, people’s incomes have been at least temporarily protected. In the US largely lower-paid workers have been laid off and many are currently on enhanced unemployment benefits, getting more than they were getting from their previous jobs.

Shock to spending

Although incomes have been protected by governments, this has not supported spending which has fallen sharply and, as a result, there has been an unprecedented rise in the savings rate.

Short term outlook

Given that shops are reopening in the US and will reopen in a few weeks in the UK, to the extent that spending had fallen because people could not leave their homes and no shops were open, we will see an increase in spending. The negative risk here is that savings rates have risen not from a lack of opportunity to spend, but from an increased level of caution or a genuine change in lifestyle with limited socialising. Both of these may well persist, and spending will not come close to returning to pre-crisis levels in the short term.

There is a large negative risk on the income side as well. Various income support schemes are due to be phased out over the summer, this will likely lead to rising unemployment as firms do not take furloughed staff back into their workforce. In the US, the phasing out of the enhanced unemployment benefit in early summer will directly impact the tens of millions of people who currently depend on it.

It is interesting to note that from employment surveys in the US, a large majority of people laid off believe their job loss is temporary. Current behaviours are based on an expectation of going back to the old job and the old life. To the extent this is not true, we will see a big change in their spending behaviour and confidence. Recent caution on spending may have been entirely rational amid an uncertain economic future, and people may retrench even further once they realise their income will be falling.

Do we have a huge amount of pent-up demand or a cautious population?

My guess is that we will see a rebound in spending in Q3, but the risk is that it is far less than economists are currently predicting. The unknowns in consumer behaviour and the large forces in opposing directions from income swings and the saving rate make the picture very unclear but the data as we end lockdown will be critical and I will be watching it closely.

For workers and consumers – long term effects

The effect of recessions is generally that labour markets take a long time to recover. The deeper and longer the recession, the longer the recovery. There is a serious, long-term risk of scarring with a permanent shift in employment in some sectors with some workers never returning to the workplace in the same way.

There is good evidence that maintaining a connection for employees to their old jobs makes it far more likely that they get their old job back, hence the sense in ‘furlough’ like schemes. It is also true that the longer lockdown lasts, the more likely we are to have a permanent break in employment so there is a strong economic rationale to end things sooner. However, it is also true that millions may not be able to re-join their old sector. A broad array of services industries, especially tourism and hospitality, may take a long time to ever employ the same numbers of people again. We have seen from previous recessions that this transition of the labour force is very difficult and takes many years if at all. Coal miners in the UK did not seamlessly find alternative employment in the 1980s.


Impact on business

Revenue shock

Many businesses have seen a severe revenue shock, in fact seeing revenue goes to zero. Hopefully, much of this will be temporary but it seems at least some of this reduction will be permanent. Optimists will note that part of this is a sector shift, a rotation away from in-person services towards tech. The share of online purchases has risen enormously, driving shares in firms like Amazon ever higher. But while Amazon is getting a larger slice, the overall size of the pie is shrinking.

Expenses

As we move to reopen business, many are noting additional expenses in making workplaces safe. Social distancing requires more space and physical separation can reduce productivity. Even Amazon announced that it may report a loss in Q2 despite higher revenues because it will cost so much to make their warehouses safer for employees.

When will we know?

Companies announce earnings with a lag, so it will not be until September to get a first look. Many firms are saying they will not be giving guidance on their earnings due to the difficulty of forecasting in such an environment. It is possible that it may be a long time before equity markets are forced to deal with the reality of the impact of a recession on corporate earnings.

What about Second round effects?

These are hard to identify in advance, but in crises are often far larger than the initial catalyst. The Great Recession was triggered by trouble in low quality mortgage bonds. Fed Chair Bernanke was clear at the time that the size of these bonds was very small compared to the US economy and so would not form a significant risk. He was completely wrong because he failed to understand the link between these bonds and the rest of the financial system. The bursting of the late 90’s Dot Com bubble and the fall in confidence after 9/11 were important economic drivers, but by late 2002 it was clear it was the balance sheet vulnerability of the US corporate sector that was the real problem.

I do not want to predict what the second-round effects of this crisis will be but they could be very important. For example, a blow to retailers is also a blow to their landlords. A blow to owners of commercial real estate is also a blow to those who lent them the money, including the banking sector. All balance sheets look good during a bull market and can look very much worse in a recession.

Impact on government

Governments around the world have responded rapidly with enormous fiscal and monetary stimulus. After the sluggish response in 2008, policymakers know the playbook to avoid a repeat of that credit crunch and are doing a good job of providing unlimited credit to support banks and corporates. If that were the main crisis we were facing then we could be confident.

Unfortunately, this crisis is not (yet) at heart a credit or financial crisis. The blow is to real economic activity and thus is about incomes and revenue, zero rates and unlimited credit do not do much to help. If you are running a business that has large fixed overheads and no prospect of sufficient revenue to cover it, taking on more debt is not going to help you.

The support schemes we have seen have been very effective, such as ‘Furlough’. But they are also hugely expensive and with government debt and deficits at challenging levels even before this crisis, it is unclear how long they will be willing or able to continue with this level of support.

Longer term concerns

My focus above has been on the large short-term challenges and uncertainties we face. We can also note that the longer-term impact on how our economies are organised may be very significant. During the Great Depression, we saw a rise in economic nationalism and trade wars. The recent rhetoric out of the US has been strongly moving in that direction. If the downturn is severe and prolonged, we should not assume the structure of the global economy will be unchanged. Some will aim to reverse globalisation e.g. building a TMC factory in the US. Some will aim to rein in, break up and tax the tech global monopolies who will be seen as profiting while the world is suffering. Some will aim to restructure the economy to introduce universal income and more social ownership. Others will aim to further reduce regulation and taxes. Economic turmoil leads to political turmoil and it is far too early for me to speculate on how this may turn out.

Summary

I view the current economic consensus as being too particular and too narrow a path. It is one in which there is no second wave of infection, no further lockdown and no material change to our behaviours. We go back to working and spending in a very similar way to we did before with no second-round effects on economic life. Of course, I would like it to be the case, but given that so many other scenarios are less optimistic, I would say that as a forecast it is not a good central case.

What will happen?

I have laid out some of the key drivers and how things may unfold. I am certainly far more pessimistic than the average economic forecast, but all conclusions are tentative, and I will be watching the data over the next few weeks. The infection data of course as we see how the virus develops, and the economic data as we see how far consumers and workers return to their previous habits. The key is the extent to which we can have an economic recovery without a resurgence of the virus.

How to analyse the economic impact of COVID

In previous posts, we have explored how the current recession is going to be a very deep one, in fact the worst in modern history. It has an unprecedented cause which makes it even more difficult to examine because we have never experienced anything like it before.

Can we look at other natural disasters?

A common approach is to look at other natural disasters and projects that the current situation will follow the same pattern. For example, we could look at SARS, Hurricane Katrina, or a snowstorm in the NY area. The trouble with these is that none have come close in terms of global impact and extended timespan. I do not think that we can simply assume that because smaller natural disasters have gone away quickly then this will also do so.


What about 1918 Spanish flu?

From a medical and health perspective, Spanish flu was by far the closest example. However, the economic impact is likely to be very different. 1918, as World War I was coming to an end, was already a time of massive economic disruption and changes in human behaviour. Additionally, communication and the way news and information flowed around the world was very different from nowadays which meant awareness of the global pandemic was relatively poor. People were often only aware of the illness when it hit their hometown, often not knowing if a town a few miles away was suffering. This ignorance meant that behaviours did not change; terrible from a public health perspective but it meant the economy largely carried on as before.

Can’t we rely on market forces to self-correct the economy and we can go back to the way we were before?

Market forces are extraordinarily effective at managing modern capitalism. Over the past decade, we have seen huge shifts in the pattern of work with the rise of the internet and the importance of the smartphone. But whilst market forces do a good job of automatic evolution, they do not do such a good job when there is a rapid and significant shock change in the economy. In those cases, we do not seamlessly adapt.

How do we analyse it then?

If we cannot model it like a previous episode or assume it will go away soon, then I think we have to look in detail at the economic effects of the pandemic and how they might evolve. This is complex as it is both a supply and a demand shock, a shock to investment as well as large-scale government intervention. Some of these short-term effects will go away, but they can also have important long-term implications due to second round effects. Therefore we should not assume that all of the impacts are going to be short-lived and there are likely to be long term changes to how we all behave as workers and consumers.

In my next post, I will go through what I see as the major drivers of the economy and how they are affected by the pandemic.

Individual freedom vs the collective good

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:

  1. Enforcement
  2. Appealing to common good
  3. Relying on individual judgement
  1. 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.

  1. 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.

  1. 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.