COVID-19, the economics teacher

COVID-19 is both a virus and a teacher. The virus bit, you know about. The teaching angle is the subject of this post.

We earn a living only by serving somebody else. Everyone in a market economy has a boss, from Company directors to the newly hired casual in the basement, from the small business owner to the freelancer. To do their job, they must organise inputs in some way to deliver outputs to the satisfaction of the end user. COVID-19 restrictions have disrupted those inputs, the production process and sales, drastically so in some cases. It makes not a jot of difference to the principle at stake whether you are the CEO of the world’s largest corporation, or just starting out in the basement on a casual contract. All that varies is the complexity of the process to be restored.

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I am their leader; I must follow them

In an episode of Yes, Minister, Jim Hacker, in a discussion of a serious political issue says to Sir Humphrey that "It is the people's will. I am their leader; I must follow them."

There are signs all around the world of Jim Hacker right now among political leaders fumbling for a way out of this COVID-19 mess. They are looking for guidance from the people.

The severe lockdown restrictions imposed in most, but not all, countries to contain the spread of COVID-19 were a response made in large part through political fear. No political leader wants to be accused of doing nothing. The decision tree is asymmetric - do nothing and if things turn out to be really bad, you are shamed into the political wilderness. Do nothing and things turn out not very bad at all, you are criticised as being reckless and lucky. Whereas, take action and things turn out bad, you are justified. Take action and things are not bad, you claim that your actions saved your country. 

So severe lockdown measures were imposed, in the main. Now, a month or so into the lockdowns, it is readily apparent that the initial predictions of hundreds of thousands of deaths in each country, and millions in the more populous, were wildly wrong. Those predictions were used as the basis for scaring people into accepting the lockdowns. Now the bind tightens - continue the lockdown or ease? Continuing the lockdown is decimating economies. Easing the restrictions risks a second wave of virus infections. 

Governments are clearly unsure what to do. The messages coming out are mixed and incoherent. In some cases, we hear that the shutdown will continue for at least 6 months. In other cases, we hear the governments are working on plans for phasing out restrictions in the next few weeks. There are obviously some individuals in government who have begun worrying that the cure is worse than the disease. They are flying kites signalling possible future courses of action to see which ones get shot down by public opinion. 

The asymmetric decision tree that got the political leaders into the shutdown mode is now showing its asymmetry again, but this time they can't win. They can take one of two courses of action: ease or maintain the shutdown. The outcomes will be either continued reduction in infections as the virus disappears or a second wave of exponential growth and rapid rise in deaths. Now, whichever course of action is followed, the government cannot win - they will be either pilloried or criticised as reckless and lucky, depending on the outcome.

It is little wonder that they are behaving like Jim Hacker and looking for their people to lead him out of this mess.

COVID-19 update

The total number of people that die in any one year across the whole world is currently around 56 million. Of those, around 28 million were over age 70.

The current total number of deaths due to COVID-19 is 56,000 globally. Of those, the proportion aged over 70 appears to be very high, at least 80% based on what scant data is available.

The global workforce is almost entirely aged less than 70 years. Thus COVID-19 has killed around 11,200 people of potential workforce age. In any typical year, the number of deaths globally of potential workers is 28 m. Thus the increase in workforce deaths, so far, is 0.04%.


Every day is like Sunday

“Every day is like Sunday. Every day is silent and gray.” So sang Morrissey  in the 1980s. He was envisaging nuclear winter but in doing so comparing it to the typical Sunday of the times. Sundays were different then. Shops were closed and churches were open. Even fuel filling stations were mostly closed. The streets were quiet, families had a cooked lunch together at home and grandparents may have been visited in the afternoon.

Melbourne seems to have returned to the Sundays of old, but with some differences. The churches are no longer permitted to admit worshipers. Visiting grandparents is discouraged by the arbiters of assumed state power. The police force is harassing couples on the beach* trying to enjoy the last sunshine of the late summer. Citizens are bullied into a state of hibernation, jobs forcibly removed from many yet they cannot go hunting for new work.

The panic displayed by political leaders stems from two fundamental causes. The first is that over time, people have allowed governments ever increasing powers over our daily lives. The fear of being seen to be doing nothing has replaced the fear of doing something damaging in the mind of the politician. The mainstream media and social media has encouraged this shift. The second cause is a fundamental error in making predictions about the outcome of an exponential growth process. The predictions are wrong, badly so. The error stems from the inability to model the behavioural changes that people make in the face of risk. The risk of infection from social contact with an infected person is not constant over time. It reduces. This is because people change their behaviour. Those models that attempt to show how one infected person infects 2.5 others who each infect another 2.5 persons and pretty soon the whole country is infected and the deaths will be in their millions are wrong. Yet it seems public policy is conducted based on such fears.

There is another side to this pandemic not receiving sufficient attention and that is the fatality rate. Firstly, it is being expressed as a case fatality rate, not infection fatality rate. Case rates are always going to be much higher, yet infection fatality rates are what matters to the population. Second, the rates should be broken down by age band. This data appears to be hidden by authorities, but what is available shows that the mortality rates are heavily skewed to the elderly. Why should an economy be sledgehammered when the workforce is no more badly affected than any other flu season? Thirdly, and perhaps most importantly, the key point is not the number of deaths from COVID19 itself, but the net increase in deaths from all causes. In other words, are deaths being labelled as COVID19 deaths rather than heart disease, pneumonia, respiratory failure, stroke, etc. By the time that people get to their elderly years, they usually have a number of underlying medical conditions. Which one is it that should be recorded as the cause of death? It seems that practices are differing in different countries. Germany, it is reported, is not counting a death where there is a number of underlying issues, including COVID19, as caused by COVID19. Italy counts every death where COVID19 is present as a COVID19 cause. When all is said and done, what matters is the total deaths (per time period) compared to the typical number of deaths split by age and gender. If the totals are not changing, then COVID19 is a relabelling exercise. Despite the wholly unsatisfactory analysis of the data, our way of life, civil liberties, economic wellbeing have been damaged immensely. It surprises me that more people are not complaining in the streets. Civil unrest will emerge eventually if these draconian restrictions are not removed.

Update: Reported in the Sydney Morning Herald: “Anyone in NSW who leaves their house without a “reasonable excuse” could spend up to six months in prison and face an $11,000 fine under an emergency ministerial directive gazetted overnight.” The politicians are out of control and seriously risking public disorder.


Attentive readers will note that On the Beach was a movie made in Melbourne in the 1950s about nuclear apocalypse. I’m on a roll, here.