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Incentives are a better way to tackle Covid-19 than blanket lockdowns

Incentives are a better way to tackle Covid-19 than blanket lockdowns

A great deal of government policy during the Covid crisis has involved regulation. Given a choice, economists usually prefer to use incentives. Altering the relative costs and benefits of an action is a well-established way to alter behaviour.

Perhaps the government has been listening. A big stick will now be waved at people who fail to self-isolate when they ought to: breaking this regulation can be punished by a fine of up to £10,000.

The size of the penalty seems large enough to deter people from going out and about when they should be staying at home. The case in favour of the policy seems open and shut.

However, the fine alters another incentive in the test and trace regime. The bigger the fine for breaking the rules, the less likely it is that people will supply the correct contact information in the first place.

Which of these two incentives will predominate is a purely empirical matter and one which is hard to predict in advance. Both undoubtedly exist, and the impact on the test and trace system remains to be seen. But it may just blow the scheme out of the water.

We do not know the source of the proposal within the machinery of government.  SAGE, the scientific group which has been advising the government during the pandemic, has no economists as members. But there are well over 1,000 economists working directly for the Government Economic Service. Have none of them made this obvious point to ministers about the different incentives?

On a more positive note, vulnerable groups have responded well to incentives created by the information which has emerged about the virus. No less than 89 per cent of all Covid deaths occur in the over 65 age groups. Even more pertinently, those with pre-existing medical conditions account for 95 per cent of all Covid mortalities.

There is a strong overlap between these two groups. Many of these individuals have altered their behaviour dramatically. They are shielding.  As a result, total deaths remain low given the number of infections.

German has experienced less than a quarter of the number of deaths as the UK. Its case fatality rate – the percentage who die once they catch the disease – among the elderly is the same as in the UK. The Germans have simply been much more effective at preventing the elderly from catching it in the first place.

An absolutely crucial part of any strategy is to try and keep the virus out of care homes. It is not possible for the very elderly in care homes to change their behaviour. Their environment is decided for them.

Care homes already have the incentive of reputational risk to avoid the virus spreading. But it must be worth reinforcing this with a public policy of substantial monetary incentives for those homes which are able to remain virus-free.

Whatever the incentive structure might be, a more subtle and targeted approach is needed than that of blanket lockdowns.  These simply generate huge social and economic costs, with little in the way of overall health benefits.

As published in City AM Wednesday 23rd September 2020
Image:  Self Isolating sign by Tim Dennell via Flickr   CC BY-NC 2.0
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Coronavirus fatality rates are way down – why has the government not taken this on board?

Coronavirus fatality rates are way down – why has the government not taken this on board?

King Canute has had a bad press. The monarch sat on the beach on his throne with the deliberate intention of demonstrating to his courtiers that he could not stop the waves from coming in.

But in popular thinking, he is the deranged king who believed he could control the sea.

In this spirit, step forward two modern Queen Canutes, Nicola Sturgeon and Jacinda Ardern of New Zealand. Both appear to think they can eliminate Covid-19.

Our own Matt Hancock is showing dangerous signs of succumbing to this syndrome.

On a more sober note, it is certainly true that new cases are rising not just in the UK but across Europe – except in Sweden.

But there are major differences between this wave of infections and that experienced in March and April.

The key question is not really how many people might get Covid-19. It is how many might die as a result. In the jargon, this is the case fatality rate (CFR), the probability of dying from the disease if you catch it.

As ever, the Oxford Centre for Evidence Based Medicine is a font of wisdom.

A month ago, the Oxford researchers showed that in the UK the CFR had fallen from six per cent in the summer to just 1.5 per cent.

This could of course be due in whole or in part to the fact that the majority of infections are now in the young, who are at essentially no risk at all themselves.

But the Oxford group showed last week that something even more important is going on. They analysed data from Germany, which is more detailed and specific in terms of ages than in the UK. The results are striking.

In the 60 to 79 age group, in the March and April period the CFR was nine per cent. By July and August this had fallen to just two per cent.

In the very vulnerable group of the over 80s, in March and April the CFR was a frightening 29 per cent. By July and August this was down to 11 per cent.

So deaths remain very low not just because it is mainly the young now catching Covid-19 or because the elderly are shielding. Both of these are true.

More fundamentally, fatality rates amongst those who actually have the virus have fallen sharply. Treatment has improved. Social distancing means less strong doses are being caught. Whatever the reason, CFR is down.

Government advisors and health care professionals appear not to have taken this on board. They speak and act as if a second wave will be as lethal as the first.

Some might think they are as mad as the King Canute of popular legend. It is more likely that they are simply suffering from confirmation bias.

This is the tendency to search for, interpret, and recall information in a way that confirms or supports one’s prior beliefs or values.

They have long thought that a second wave would be devastating. The emerging evidence should not be allowed to get in the way of this. Their irrational behaviour is costing us all dearly.

As published in City AM Wednesday 9th September 2020
Image:  Covid Testing by via GiiPe via Wikimedia
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On coronavirus, governments have been the most irrational of us all

On coronavirus, governments have been the most irrational of us all

Decisions, whether by individuals, companies or governments, are often made with imperfect and incomplete information.

This is so obvious as to hardly seem worth stating. But for well over a century economic theory assumed that decisions were made with complete information. Economists knew full well that this was not always the case. The problem was that building a formal model without this assumption was a formidable task.

It was solved in the late 1960s by the American economist George Akerlof. His paper, the enigmatically titled “Market for Lemons”, won him the Nobel Prize. The article is probably the most cited in the entire history of economics.

The coronavirus crisis provides an almost textbook example of how different amounts and quality of information affect the decisions which are made.

In March, initial data from China suggested the death rate was between three and four per cent, a real pandemic. The chaos in the health system in northern Italy was a prominent feature in the media.

Little wonder that, against Boris Johnson’s libertarian instincts, a compulsory lockdown was introduced. Little wonder that people reacted with fear to the virus.

Six months later, whilst there is still much to discover about Covid, far more is now known.

It is well established that almost everyone who has died had some serious pre-existing health condition. Perhaps even more importantly, virtually no-one under the age of 40, or even 50, has died.

Many people have reacted to this information in an entirely rational way.

Those who perceive themselves as being either elderly or having a health problem continue to shield. The young see they are at essentially no risk at all and start to behave as they did before the virus appeared.

In Scotland, for example, it seems that around half the new infections are in mere whippersnappers under the age of 25. More generally across the UK, although the reported number of new cases is rising, hospital admissions remain very low because new infections are concentrated amongst the young.

These behavioural responses have arisen entirely spontaneously as the quality and quantity of information has improved. Many have weighed the costs and benefits in the light of this information and have made rational decisions.

The idea that people would change their behaviour during a pandemic was of course almost entirely absent from the mathematical models used by epidemiologists. It is this which led to absurd predictions both of half a million deaths in the UK in the first place and of fears of a second wave with even more deaths.

Some individuals who are at little risk remain paralysed by fear. They are still relying on outdated information and so behave in non-rational ways.

But it is governments which right now are the least rational of all. Nicola Sturgeon wants to eradicate Covid when even New Zealand, a country which can seal its borders, could not.

And governments persist in incurring the costs of lockdown, when people have shown that they are capable of behaving in sensible and rational ways without government interference.

As published in City AM Wednesday 9th September 2020
Image: Closed Due to Covid-19 Sign by via Pixabay
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Sweden shows us whether lockdown was worth the economic cost

Sweden shows us whether lockdown was worth the economic cost

Did Sweden get it right in its response to Covid? There is increasing interest in this question.

Contrary to widespread belief, the Swedes did introduce a few legally enforceable restrictions on behaviour. For example, public gatherings of more than 50 people were forbidden in March. Private ones were exempt from the ban.

But, overall, compared to other European countries, Sweden had effectively no lockdown.

At the start of the outbreak in March, the epidemiologists in the UK were quick off the mark with their dire predictions.

Professor Ferguson and the Imperial College team, in a highly influential paper of 16 March, argued that without any policy changes “we predict approximately 510,000 deaths in Great Britain”.

They also suggested that the peak of mortality would take place after approximately three months.

The peak of mortality was reached after just three weeks, not three months — on 8 April in fact.

A model based on the Imperial one was calibrated on Swedish data in April. The outcome was a prediction of some 80,000 deaths.

To date, the number of deaths in Sweden due to Covid is less than 6,000.

The estimates which emerge from standard models of epidemiology clearly cannot be relied upon.

With Rickard Nyman, a young Swedish computer scientist currently based at UCL, I have compared the trajectories of deaths in Sweden and the UK to provide an estimate of how many lives lockdown really did save.

The first death in Sweden was registered on 11 March. On that day, there were seven deaths in England and Wales (EW).  But our population is nearly seven times that of Sweden, so the death series in the two countries start at the same level, adjusting for population size.

The peak death rate was observed in Sweden on exactly the same day as in EW, 8 April.

Further, the paths followed between 11 March and 8 April are almost exactly the same.  For example, deaths reached half their eventual peak value on 1 April in EW and on 31 March in Sweden.

So lockdown had no impact on the build up to the peak.

There is no doubt, however, that the number of deaths fell more sharply here than in Sweden after the maximum level was reached.

Deaths had dropped in EW to half the 8 April peak by the end of April and to only a quarter of the peak by the middle of May. In contrast, in Sweden the “half peak” value was only seen on 12 May, and the quarter by the middle of June.

These differences in the trajectories of the death numbers after their peak in early April tell us how many lives were saved in the UK as a result of lockdown.

It is not 500,000. It is just 20,000, a tiny fraction of the Imperial figure.

So, yes, lockdown did save lives. But the massive economic and social costs, let alone the adverse effect of lockdown on people suffering from other illnesses such as cancer, can hardly be said to justify the saving.

Paul Ormerod
As published in City AM Wednesday 26th August 2020
Image: NHS Heroes by Jernej Furman via Flickr CC BY-SA 2.0
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Busting the myth of the selfless bureaucrat

Busting the myth of the selfless bureaucrat

There seems to be a fundamental problem with quangos. Hardly a day seems to go by without some new story of incompetence and mismanagement emerging.

Public Health England (PHE) is at least going to be put out of its misery by health secretary Matt Hancock, and replaced with a new agency specifically focused on pandemics.

An anonymous government minister is attributed as saying early in the crisis “we didn’t really know what PHE actually did, except from time to time they would put their head over the parapet and try and ban something like Coco Pops”.

PHE is by no means the first government body to have a slightly dubious record of effectiveness. The Highways Agency, set up by John Major’s government, was of such legendary uselessness that David Cameron renationalised it just before the 2015 election. It rose again as a “government owned company”, Highways England. As such, it has been responsible for the funereally slow works which install so-called smart motorways.

Network Rail, meanwhile, seems to have the Midas touch — for its contractors and consultants, that is, as it fails to complete Crossrail and the costs of HS2 soar out of control.

And the shambles at Ofqual over A-levels is beyond parody.

The simplest way from the outset would have been to accept, as a unique one-off event, the predicted grades of teachers. That is all that the quango need have done. The problem of who to admit would have been devolved to the universities, which are the bodies with the ultimate financial interest in these matters.

Now, the situation is even more complicated — places have already been assigned based on algorithm-assigned grades before the U-turn, and universities have mere days to work out how they will teach thousands of additional students, rather than months to work out a reasonable system.

In the case of each individual quango, there will be reasons as to why those specific problems occurred. But there are so many examples that there must be some more general principles at work.

As usual, economics can help. There is a long history of work around the concept of what has come to be known as “public choice” theory.  The American economist James Buchanan did more than anyone to establish it as a standard and wide-ranging tool of economics, and he was awarded the Nobel Prize for this as long ago as 1986.

Too often in public discourse, a contrast is made between self-interested companies and government bureaucrats working in a seemingly selfless way for the public interest.  Indeed, some of the bodies pilloried above were set up with the explicit aim of taking politics out of decision making in the relevant areas.

In essence, Buchanan believed that bureaucrats and politicians behave in the same self-interested way as everyone else. This does not mean that other motives are absent, but that rational self-interest is an important driver of behaviour.

We can see this clearly in the way the teaching unions have reacted to the Covid crisis.  Many teachers are dedicated and committed to their pupils. Equally, however, there is a significant minority who do not act in any way as selfless professionals. Their revealed preferences have been to draw full pay and do little to no work, regardless of the consequence for children.

Detaching public policy decisions from direct political control has been very fashionable for the past few decades. The performance of the UK’s quangos shows that it is high time for a change of mind.

Paul Ormerod
As published in City AM Wednesday 19th August 2020
Image: NHS Heroes by Bill Nicholls via Geograph  CC BY-SA 2.0
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The costs of lockdown can no longer be justified

The costs of lockdown can no longer be justified

In an otherwise depressing week, two pieces of very good news emerged from India.

In Mumbai, blood tests conducted by the city authorities on 6,936 randomly selected people found that some 40 per cent had coronavirus antibodies. Just 6,000 deaths have been reported so far in a city of 20 million.

A similar exercise in Delhi (population 29 million) found that around a quarter had had the virus. Only 3,300 deaths have been attributed to Covid-19.

Indian experts are clear about what these figures mean. Asymptomatic infections are a high proportion of the total. Further, the virus death rate is “very low”, to quote the Mumbai study.

These studies fit in with a mounting body of evidence that the virus is nowhere near as deadly as first thought. Even the cautious Centers for Disease Control and Prevention (CDC) in America has revised its estimate of the mortality rate down to 0.26 per cent — comparable to a bad influenza year.

Casting our minds back to the middle of March, the picture seemed completely different. Data from Wuhan suggested that the death rate was between three and four per cent. Our television screens were full of images of the health system in northern Italy being overwhelmed.

Given this particular set of information, it was perfectly understandable for the government to impose a lockdown. Behaviour was already changing rapidly in a spontaneous fashion as people voluntarily limited their social contact, but it would still have been very difficult at the time for the government not to take the action it did.

One of the most balanced set of commentaries throughout the whole crisis has been provided by Professor Carl Heneghan and his team at the Oxford University Centre for Evidence Based Medicine.

It was Heneghan, for example, who recently exposed the fact that Public Health England (PHE) did not let anyone recover from Covid-19 — at least not on paper. If you had recovered from the disease and were subsequently killed in a car crash, say, according to PHE data you died from the virus.

The Centre’s work shows that since the week of 14 June, total deaths in England and Wales have been running below their five-year average — despite an apparent upsurge in Covid cases.

Heneghan’s latest research even casts serious doubt on whether the true number of new cases has in fact risen.

On a technical point, the reported number of new cases follows a fairly shallow upward linear trend — not the exponential rise which would characterise a genuine second wave.

His key point, however, is that the number of tests has increased. Once this is taken into account, the rise in cases disappears completely. On the basis of personal knowledge, I can confirm that this seems to have happened in Rochdale in Greater Manchester. The Council installed walk-in test facilities in the town centre. Shortly afterwards, the number of reported new cases rose.

Covid-19 can be highly unpleasant and it retains the capacity to kill, so it is sensible to take precautions to avoid getting it. But the massive costs of lockdown — both economic and social — can no longer be justified.

As published in City AM Wednesday 5th August 2020
Image: Post Lockdown by Bastian Greshake Tzovaras  via Flickr  CC BY-SA 2.0
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