In London, the Covid virus is disappearing rapidly. Hospital trusts are increasingly reporting days with no new cases at all.
During the crisis, there has been a proliferation of home-made signs in rural locations telling city dwellers, with varying degrees of politeness, to turn back and go home. Will we now see messages at junctions with the M25 saying “Yokels, keep out!”?
There is one thing which areas such as Cornwall have been very happy to let in. This is of course the huge subsidies which the regions receive from taxpayers in London and the South East.
This is nowhere more so than Scotland.
Scottish regulations prevent you from travelling more than five miles from home. So English people are effectively banned from entering Scotland. But our money continues to flow across the border.
It is not just that Scotland receives its fair share of the fiscal surplus generated by London. It gets extra special amounts under the so-called Barnett formula, devised by the Labour government of the 1970s in a vain attempt to hold the SNP at bay.
The Covid crisis has ruthlessly exposed the emptiness of the nationalist case for independence.
Before the crisis, the Scottish government ran what was by some margin the largest fiscal deficit in the whole of Europe. Figures produced by the Government Expenditure and Revenue for Scotland showed the nation running a public sector deficit of 7 per cent of GDP.
In the 2014 referendum on Scottish independence, the SNP assumed that much of the gap could be filled by oil revenues. An average oil price of $120 a barrel was assumed, a figure which attracted disbelief at the time. Between 2015 and 2019 the actual average was less than half of this, at $57 a barrel.
During the recent crisis, the price has of course fallen still further, and it is hard to see it getting back even to $60 in a sustained way.
But the overwhelming question is: how would an independent Scotland have paid for the Covid crisis?
UK government borrowing in the month of April was easily the highest on record, at £62 billion. The Bank of England both issued debt and intensified the amounts spent on quantitative easing. So far, the market continue to have confidence, even though the Bank has, in crude terms, been printing large amounts of money.
How would Scotland have met the massive increase in its already large fiscal deficit?
If the country were in the Euro, the European Central Bank would not allow it to print money. If it kept the pound, the same would apply to the Bank of England.
In the financial crisis, as banks such as the Royal Bank of Scotland collapsed, it was the English taxpayer who rescued Scotland.
As Marx said, history repeats itself first as tragedy then as farce. It is a tragedy that once again we have to bail Scotland out. It is a farce that we are not allowed into the country while we do this. Time to call it a day on subsidies for Scotland.
As published in City AM Wednesday 27th May 2020
Image: Scottish Independence via Pixabay
In the mid-19th century, Japan was an impoverished feudal backwater. A fleet of American warships totally humiliated their navy, and compelled Japan to sign a highly disadvantageous treaty.
Within a matter of just a few years, the Japanese completely transformed their system of government and industrialised very rapidly.
This is just one of many historical examples of how crises give rise to both destruction and opportunity.
Crises expose systems which have outlived their vitality. At the same time, they create the potential for much more effective and innovative ways of doing things.
The Covid crisis has revealed the failings of the health bureaucracy in the UK in ways which have become all too familiar. Judging by recent press reports, the Prime Minister has them in his sights.
In education, too, the antics of some of the teachers’ unions suggest they are more interested in shielding the more mediocre and outright useless members of the profession from having to work than they are in the welfare of children. Indeed, the teachers who have worked so splendidly through the lockdown are effectively being cold shouldered by their union leaders.
Education is a sector where enterprising teachers have brought in important innovations during the crisis, from primary schools through to universities.
Some of the world’s leading universities had developed free massive on-line open courses (MOOCs) well before the current crisis. For example, a Google search of “free on-lines courses Harvard” comes up with around 100.
The first three, out of interest, are Introduction to Game Development, Web Programming with Python and Java and Mobile App Development, all oriented to developing skills for the 21st century economy. Anyone can access these Harvard courses for free.
In the UK, many student loans will never be repaid in full. They constitute a substantial addition to public sector debt.
It must be possible to shorten many university courses to two years rather than three by making use of material made available for free by top universities. This would make a big difference to the level of student debt.
Going even further, students themselves could make huge savings if more of them stayed at home for the entire length of their courses. The Open University has shown for decades how this is possible.
Universities themselves could set entrance exams for acceptance onto a particular course and give guidance on which online material to follow.
Enterprising further education colleges have already put large amounts of teaching material online. Some courses, such as hairdressing, cannot be done completely online.
Even so, this is a way in which the weaker institutions and teachers could literally be driven out of business. FE students in principle need no longer be confined to what is on offer, in terms of both scope and quality, in or near their home town.
The ideas above are not in any way a fully worked out blueprint.
But the potential is surely there to deliver education at all levels much more effectively and more efficiently at considerable savings to the public finances.
As published in City AM Wednesday 20th May 2020
Len McCluskey, the leader of the trade union Unite, probably did as much as anybody to ensure Boris Johnson’s massive electoral victory last December.
A fervent supporter of Jeremy Corbyn, his grip on the Labour Party machine compelled Labour to fight the election with its most unpopular and inept leader in history.
McCluskey is up to his old tricks, this time with the support of other, usually more staid unions such as Unison and the GMB.
Their threat is to tell their members not to return to work unless there is a massive boost to spending on health and safety enforcement.
The various railway unions are making demands, much to the chagrin of London’s Mayor, Sadiq Khan. The teachers’ unions are itching to instruct their members not to go back to work.
In all of this, the unions are behaving exactly like the villain of the economic textbooks – the good old-fashioned profit maximising firm.
In this case, the “profit” which the unions are trying to maximise is the pay and conditions of their members.
For all the rhetoric of their leaders about social justice and world peace, this is the main reason why people join trade unions.
Union leaders believe that the government’s desire to gradually move Britain back to work has given them a strong bargaining chip.
Just like the most ruthless capitalist, they are acting rationally by seeking to maximise the benefits accruing to their members.
Or are they?
For those who remember the 1970s, there is more than just a touch of nostalgia about the current situation. Then, as now, trade unions leaders attempted to hold the country to ransom. In one infamous example, the railway workers turned down an offer of a 27.5 per cent pay increase on the grounds that it was inadequate.
But the eventual outcome was not the triumph of the unions, but their literal annihilation in much of the private sector under Mrs Thatcher. Only 13 per cent of workers in the private sector now belong to a union, compared to over 50 per cent in the public sector.
The economic textbooks themselves make a clear distinction between short-term and long-term profit maximisation. It is usually not sensible to try and exploit every short-term advantage.
Whenever the lockdown finally ends, the government will be faced with a massive gap between what it spends, and what is raised by taxation.
There is already strong pressure from within the Treasury to reduce and even eliminate this deficit. Big savings on public spending or increases in taxes are the only options.
Whatever the opinion polls may say now about the demands of the unions, it is most unlikely that the current privileged position of those in the public sector will survive for long. They have remained on full pay, not furloughed or made redundant, even when they have not been required to work.
With high unemployment and squeezes on pay and living standards in the private sector, sympathy for those cocooned from the rigours of the market economy is unlikely to last.
As published in City AM Wednesday 13th May 2020
As the government plans the timetable for getting Britain back to work, opinion polls continue to show strong support for the lockdown.
An Opinium poll at the weekend is typical. Unsurprisingly, given the overwhelming scientific evidence on dangers associated with large gatherings, a massive 84 per cent of respondents thought stadiums should not be reopened on 8 May.
We might, incidentally, usefully recall that on 14 March Sir Patrick Vallance, the government’s chief scientific advisor, stated that shutting down mass events would not have a big effect on reducing the spread of the virus. Had he never been to one himself?
At the onset of the pandemic, it was entirely rational for people to support a lockdown.
The early figures from China suggested the death rate might be in the range of 3 to 5 per cent of those who caught the virus. Television screens were filled with horrifying images of the North Italian health system being overwhelmed.
On the basis of the available information, people acted as rational economic agents. Social distancing took off, offices closed, transport use dropped, all before the compulsory lockdown came in on 23 March.
Much more information is now available. For example, well over 90 per cent of deaths from Covid-19 in hospitals are of people with at least one underlying medical condition.
For someone in reasonable health, the chances of dying from the virus are very low indeed. At least 40 million people – probably nearer 50 million – in the UK fit into this category. There have been just over 1,000 deaths of such people. Do the arithmetic.
Of course, it is both a new risk, and there is a very sensible reluctance to want to avoid infecting the vulnerable. But, rationally, the information hardly warrants the strength of support for stringent lockdown.
We need to turn to behavioural economics to get an insight into current opinion. People acted rationally at the start of the crisis, but less so now.
A well-established phenomenon is that of “ambiguity aversion”. Even when risks exist, most people feel much more comfortable in situations where they feel they have a reasonable understanding of them than when they do not. They know you can be killed or injured driving, but they still do it.
Even during bad flu years, when tens of thousands of those in ill health die, there is no clamour for a lockdown.
People have learned about such events and there is little “ambiguity” around them. Healthy individuals know that their chances of catching it are low. And, whilst it is very unpleasant to get it, they are most unlikely to die.
A key task now for the government is to reduce these uncertainties around Covid.
It is a bit of a tricky one. It is not easy to give out the message that for most people the risk is very low, whilst at the same time not creating complacency.
Still, that is for the spin doctors and advertising gurus. Economics gives them insight on the challenge they face.
As published in City AM Wednesday 6th May 2020
Image by Deserted Marble Arch via Wikimedia CC BY-SA 3.0
The attention of policy makers has been focused on the science of how viruses either spread or are contained in social networks.
Just as crucial in the current circumstances is the spread of beliefs and behaviour. Will people continue to observe social distancing once the lockdown is eased, or will they revert to pre-lockdown patterns of behaviour?
For all their sophistication, epidemic models are a product of 20th century science. Understanding how patterns of behaviour evolve requires the 21st century science of network theory.
Much remains to be discovered in this innovative scientific field. But much is already known.
For example, a recent major study in the top journal Science established that fake news seems to have more novelty and attraction than real news. Fake news tweets typically show a much higher level of emotion in their overall content.
A piece of fake news is not certain to spread and be believed. Most stories just fade away. But fakes have a better chance than true of getting traction.
A recent example is the idea that coronavirus is spread by 5G technology. Fortunately, belief in this seems to have been contained to a relatively small group. But 5G phone masts continue to be attacked.
We now have much more evidence. Across the West, well over 90 per cent of deaths from the virus are of people with an underlying health condition. A fit 70 year old is at far less risk of death than a grossly obese 35 year old.
If a substantial proportion of the 9 million over 70s were to believe they were the target of Remainer Revenge, the police would be totally powerless in the face of widespread disobedience.
The police themselves understand this only too well. In essence, the phrase “policing by consent” means that the vast majority of people have to hold the belief that the police can be trusted to act reasonably.
Their fear is that this could easily crumble. One idea being floated is that family “bubbles” would be created for social mixing. The former Chief Constable of Greater Manchester made it clear over the weekend that the police would basically not want to be involved in its enforcement.
These are just a few examples of the importance of network science, a discipline which involves mathematicians, computer scientists and social scientists. This must become a key part of “the science” on which the government relies.
As published in City AM Wednesday 30th April 2020
Image by Omni Matryx from Pixabay
The praise for health workers dealing with Covid-19 is universal. From cleaners and porters to the most distinguished consultant, all have played their part.
But they are working in an administrative system almost Kafka-esque in its lunacy.
An early example was when NHS workers turned up to be tested at the huge PHE complex at Chessington. The staff were all there, with no-one to test. But the health workers were turned away. They did not have a letter of appointment.
I can echo this from my own experience. I had minor surgery to my hand at the start of last month.
Every single person I dealt with in the NHS was friendly and efficient. But the administrative process was grossly inefficient.
First, I had to see my GP to see if the operation should be done. Fair enough. He had to write a letter to the consultant saying so.
I received a letter from the hospital to see the consultant, who confirmed an operation was needed. I was sent another letter for a pre-operation check.
After this, a letter came with the date for the operation. I had told the hospital I would be in Australia all of February. It arrived mid-February.
Fortunately, my wife was following on the very next day and brought it. The letter told me to phone the hospital to confirm the date and also to sign and return yet another letter saying the same thing. There was an email address. I copied out the wording of the return letter, signed it and emailed it.
I phoned and explained I was in Australia. I had sent an email, would this do? No, I had to return the letter. Why? The woman was honest. She did not know, but that was the rule.
The minor operation was duly performed. The consultant saw me while I was waiting to leave. I would need to fix a follow up appointment. Could I do it now? Well, you have surely guessed: no, I would be sent a letter.
Almost all the mail people get these days is junk. Most serious communication is by email. But the 20th century technology of letters is deeply embedded in the NHS administrative system. At least they have moved on from semaphore.
It is only last year that Matt Hancock, the Health Secretary, had to instruct the NHS to stop purchasing fax machines. It was the largest single buyer of them in the entire world. Few people under 30 even know what they are.
The system appears unable even to provide accurate information on the daily number of deaths and new infections. The Centre for Evidence Based Medicine at Oxford goes through the records meticulously. Quite a number of deaths announced in mid-April actually happened in March. The Centre believes peak death rate was reached on 8 April.
It is no wonder that the task of providing a suitable amount of protective equipment seems insurmountable. The bureaucracies of both the NHS and PHE are not fit for purpose.
As published in City AM Wednesday 22nd April 2020
Image: NHS Hospital by Francis Tyers via Wikipedia is licensed for use CC BY-SA 3.0
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.
As published in City AM Wednesday 15th April 2020
Image: City of London by Ian Capper via Geograph is licensed for use CC BY-SA 2.0
The strategy of exiting from the lockdown is far too important to be left in the hands of health professionals.
The government’s advisors have played very valuable roles in helping to avert the sort of crisis which overwhelmed the health services in Northern Italy.
Many who were seriously ill with the virus died unnecessarily because of a lack of ventilators. People with other dangerous conditions died because resources were diverted to virus patients. Britain, from an admittedly standing start, has learnt from those mistakes.
But there is growing realisation of the huge costs being incurred economically. A consensus is emerging amongst economists that the British economy has shrunk by about 30 per cent. In money terms, this is a loss of over £2 billion a day.
The costs are not just monetary. Stories of increases in domestic abuse proliferate. Worries about general mental health are growing, with the former Governor of the Bank of England, Mervyn King, adding his voice to them last week.
From a purely health perspective, the lockdown might persist until there is no longer a risk of someone with the virus infecting anyone else and so ensuring that no one dies.
We could take a similar view with road traffic. We could save almost 2,000 lives a year and avoid some 25,000 serious injuries by abolishing motor vehicles.
As a society, we are willing to make the trade-off. We accept this level of death and injury in return for the benefits which road traffic creates.
Obviously, governments take measures to try and reduce these accidents. In the late 1960s there were nearly 8,000 deaths a year. But we are happy for cars and lorries to continue to trundle around.
The virus imposes health costs. It takes up resources. People die and some survivors have long term damage. Getting the economy back to speed brings large benefits.
This is why I devised with Gerard Lyons of Net Wealth, and chief economist to Boris Johnson when he has Mayor of London, a traffic light strategy for getting Britain back to business.
The epidemiologists warn that loosening the lockdown will lead to another large wave of cases.
If behaviour reverts to what it was before the crisis, they are correct.
But behaviour will change. How many people will shake hands as soon as the lockdown is lifted?
This means that the chances of a disastrous second wave in which the NHS is overwhelmed are very much lower than the epidemic models suggest.
We suggest that lockdown is followed by three phases, as in a traffic light, from red to amber to green. Then everyone is clear about the sense of direction. At each stage different economic activities and behaviours are allowed. It will also give hope.
In the red phase, for example, more shops could open such as hairdressers, with social distancing and face masks. In the amber, unlimited private car travel. Only in the green phase could mass gatherings such as football crowds be allowed.
Combining epidemiology with economics is the way to get Britain back to work.
As published in City AM Wednesday 8th April 2020
Image: Empty Streets via Flickr is licensed for use CC BY 2.0
How long should the lockdown last? Should it be tightened or relaxed? An abstract concept from both epidemiology and network theory can give a powerful insight into these highly practical problems.
This is the concept known as the “threshold”, sometimes called the critical point or the tipping point.
The basic idea is a very familiar one. Imagine you take a cube of ice out of the freezer. It will be ice regardless of whether the temperature is set at minus 10 or minus 2 degrees. Changing the starting temperature makes no difference.
But as soon as the temperature is above zero, it starts to turn to water. A threshold has been passed. You put the water in a pan and heat it up. It stays as water until it gets to another threshold — boiling point — when it changes into steam.
Close to thresholds, small changes can make massive differences.
The maths of epidemic models tells us that as soon as the degree of social distancing is sufficiently high, the number of true new cases of any virus begins to drop immediately.
In other words, there is a threshold in terms of the amount of social distancing in a society. Below this critical level, more distancing has little impact on the spread of the virus. Above it, being more rigorous and having more restrictions yield diminishing returns.
The essential thing is to get above the threshold.
Last week, a group at Sydney University published a study which modelled the spread of Covid-19 across all 24m inhabitants of Australia, linking epidemiological models with detailed census data. In terms of social distancing, they found a powerful threshold effect.
Suppose zero represents the usual world in which there is no social distancing at all. At the other end of the scale, 100 is absolute and total lockdown — something that not even the Chinese police state could enforce.
The Sydney team argued that the threshold for coronavirus was around 70. Moving, say, from 40 to 60 did very little to check the virus; moving from 80 to 90 controlled the spread a bit better. But the key thing was to get above 70.
In the UK, we seem to be well above the threshold. Before social distancing measures came in, epidemiologists were predicting at least 250,000 deaths in the UK from the virus. The various experts are properly cautious, but there is now every hope that the eventual toll will be 25,000 or fewer.
What does this mean in practice? Anyone who is now working from home and follows government guidelines has probably on average increased his or her social distancing from zero to at least 90. A minority of people still have to work, but even then their social interactions have been curbed substantially. Overall, as a society we seem to be well above the threshold at which social distancing works.
There is therefore no need to hand more powers to police forces, some of whom are already seeking to emulate the Stasi. Mid to late April will be the time for fewer, not more, restrictions.
As published in City AM Wednesday 1st April 2020
Image: Social Distancing by GoToVan via Wikipedia is licensed for use CC BY 2.0
The current crisis dominates everything, from trade to everyday life. But, within a relatively short space of time, it will pass. What next? What will be the “new normal” after coronavirus?
A key policy aim across the west for many decades since the Second World War was to reduce barriers to international trade. But it seems likely that the crisis will reverse this longstanding trend. There were already signs of it slowing down.
President Trump is trading accusations with China on who is to blame for the coronavirus pandemic. Of course, this mood can swing.
But an important new phrase in US government circles is “decoupling”. American supply chains have become increasingly dependent on China in the past 20 years or so. The talk is of breaking this dependence, probably by using new trade barriers.
Within the EU, national governments have reasserted domestic sovereignty in a dramatic way. The authority of the European Commission has been reduced, and it will not be easy to restore it.
The instinct of economists is to recoil in horror whenever they are confronted with the idea of barriers to trade. These are regarded as being unequivocally a Bad Thing. But their own discipline shows that matters are not necessarily so clear-cut.
Over 60 years ago, the theoretical journal the Review of Economic Studies — then as now a desired outlet for academic economists — published a paper entitled “The general theory of second best”.
Richard Lipsey, one of the authors, went on to write a best-selling textbook. The other, sadly dead now, was Kelvin Lancaster. He was a highly original thinker who in the opinion of many should have been given the Nobel Prize.
The paper is set in the highly abstract context of what economists call general equilibrium. Everyone behaves exactly in accord with economic theory. Supply and demand balance in every market, so there is no unemployment, for example. It represents the theoretical ideal of the efficient allocation of resources.
If there were only one barrier to such a perfect state of affairs, getting rid of it would lead to a better outcome. Lipsey and Lancaster asked the simple question: if there were more than one, what can we say if just one of these is eliminated?
Their answer was quite devastating — so much so that economists who encounter this famous article as students look it firmly in the eye and then try and forget it.
They showed that there was no theoretical presumption that the economy would be more efficient if an imperfection were removed but others still remained.
In the real world, there are of course many deviations from this abstract, perfect world. This means that there is no presumption in economic theory that bringing in some restrictions on trade will make things worse. It is an empirical and not a theoretical issue.
Just like the UK leaving the EU, what really matters is the domestic response to changes in the external environment. A bit more protectionism across the globe could stimulate a new wave of innovation in the west, as we look to rely on ourselves rather than China.