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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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Great expectations: The Darwinian wars of economic and epidemiological forecasting

Great expectations: The Darwinian wars of economic and epidemiological forecasting

A key concept in modern economics is, to use the jargon term, rational expectations.

The idea has dominated orthodox macroeconomics over the past 30 years. Not all economists have been persuaded of its merits by any means, but nevertheless, its influence has extended far beyond academia, into finance ministries and central banks around the world.

The basic idea is simple, even though the maths of the macroeconomic models which use rational expectations can rapidly become hair-raising.

When forming a view about the future, an individual chooses the model which best describes how the economy works. It is then simply a matter of running the model and using the values which it outputs as your expectations.

An obvious criticism seems to be that economic forecasts are very often wrong, but this is easily handled by the rational expectations enthusiasts. Each individual forecast in a sequence of months or years can be wrong. The key thing is that the errors over time cancel out. On average over time, the forecasts are correct.

The idea is not as absurd as it may appear to the layperson. For example, the Federal Reserve Bank of Philadelphia has published the Survey of Professional Forecasters since 1968.

This does what it describes on the label. It takes a wide range of forecasts by academic, commercial, financial and governmental bodies. Information on the average forecast for, say, GDP growth one year ahead is published, as well as details of the spread around the average.

Remarkably — and exactly in line with rational expectations — comparing the predictions with the actual growth over many years, the errors do indeed balance out. Spectacular errors have been made for individual years, but the over and under-predictions cancel out over time.

A more telling attack is that economists themselves do not seem to agree on what constitutes the correct model of the macroeconomy. Different groups have different models.

The standard defence is that the best model will eventually prove its superiority and will drive the others out of existence. But the problem here is that this has just not happened.

The concept of rational expectations can be applied directly to the predictions of the epidemiological models. These purport to describe how a virus spreads. So to form a view about the future, make a set of assumptions about the key inputs, and use the forecasts generated by the model.

It should be much easier in epidemiology for the best model to eliminate its competitors than it is in economics. Economics has a wide range of variables to predict, such as inflation, GDP, unemployment, public borrowing, interest rates. The focus of epidemic predictions is much narrower and their models are in general mathematically simpler than those of economics.

The Covid pandemic set up a competition between epidemiological modelling groups of fierce Darwinian intensity. The efforts of many years of academic debate have been concentrated into a handful of months.

But no group seems to have admitted yet that its model is not up to scratch — and huge differences in forecasts persist.

As published in City AM Wednesday 29th July 2020
Image: Opposites via Pxfuel
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The costs of lockdown could far outweigh the benefits

The costs of lockdown could far outweigh the benefits

Radical leaders such as Jacinda Ardern in New Zealand and Nicola Sturgeon in Scotland have gained plaudits through their relentless focus on eliminating Covid-19.

But this comes at an obvious economic cost. Tourism is some 15 per cent of New Zealand’s GDP, and major destinations such as Queenstown in the Southern Alps have been devastated. Here in the UK north of the border, Scottish businesses are increasingly frantic about the economic damage done by the rigorous lockdown.

Health experts and epidemiologists have not helped. They have remained firmly enclosed in their own silos of expertise, unable or unwilling to see the broader picture.

But good policy is not made in a vacuum. A key concept in economics is that of trade-offs.

An obvious health related example is road accidents. As a society, we trade off the 1,800 deaths and 250,000 injuries a year in road accidents against the benefits of using vehicles.

Trade-offs between alternatives have always been central to our economic policy and political debate. Lockdown is no different to any other policy. It has both benefits and costs.

The benefits of lockdown were never in doubt: the policy was intended to save lives. But there is now increasing awareness of the potential economic costs. Ironically, some of those most shrill in favour of lockdown are now crying out for jobs to be saved.

David Miles, an Imperial College economist and former member of the Monetary Policy Committee, along with two medical specialists published last week a valuable assessment of the overall costs and benefits of lockdown.

Miles argues that we must normalise how we view Covid-19. Its costs and risks are comparable to other health problems, such as cancer, heart problems and diabetes, where governments have made resource decisions for decades.

The lockdown is a public health policy, and Miles and his colleagues value its impact using the standard tools developed by the National Institute for Health and Care Excellence to guide healthcare decisions in the UK public health system.

A key concept in this is QALYs — quality of life adjusted years. Essentially, the benefits of any policy in terms of QALYs are compared with its costs.

Economists have developed a broad consensus on the value of saving a single quality of life adjusted year. Macabre though it may seem, some metric like this is necessary in order to have any meaningful assessment of the costs and benefits of different decisions.

Miles’ conclusions are stark. The estimate of lives saved by lockdown in his analysis is deliberately chosen to be the one at the very top end of the range of such estimates. This way, his team cannot be said to be underestimating the benefits of lockdown.

Even so, in the authors’ own words: “we find that having extended the lockdown for as long as three months consistently generates costs that are greater — and often dramatically greater — than likely benefits”.

Gerard Lyons and I warned in early April that, while it was necessary to introduce lockdown, it needed to be relaxed rather swiftly because of the costs it would entail. The work of Miles and his colleagues confirms, in impressive detail, this view.

As published in City AM Wednesday 8th July 2020
Image: Playground by Jlbirman1 via Wikimedia CC BY-SA
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The government should have been working on multiple tracing apps all along

The government should have been working on multiple tracing apps all along

The NHS contract tracing app has been scrapped in favour of a system developed by Google and Apple.

Although health secretary Matt Hancock has been heavily criticised for this failure, the UK is by no means alone.

For example, Denmark, Germany and Italy each tried to build their own app, based on the same type of centralised system as was attempted in the UK. But they have already ditched their efforts and taken up the decentralised approach of Apple and Google.

Australia is widely perceived as having had a “good” Covid-19 crisis. But the same cannot be said of its tracing app. It seems to have had serious problems working with iPhones at all.  The Aussies, too, are now taking the Google/Apple approach.

The simple fact is that most technological innovations fail.

The government can be criticised legitimately for not appreciating this fundamental feature of new technology. But it is a more subtle critique than merely pointing to the failure itself.

Given the importance of the tracing app, it would have been perfectly reasonable for the government to have pursued parallel tracks. At the same time as trying to develop its own NHSX app, it could have been collaborating with Apple and Google too.

Critics might have tried to pan this as an example of waste. But there is rarely such a thing as wasteful competition.

Spending on two completely different approaches at the same time would have been a hedge against the uncertainties which are inherent in the development of new technology.  No matter how smart you are, or how much prior information you gather, you just do not know whether an innovation really will work.

The tech companies themselves protect against this uncertainty by holding far more cash than conventional economic theory regards as rational. At the start of the Covid crisis, Apple, Microsoft and Google’s parent company Alphabet between them held over $450bn in cash or marketable securities.

Pharmaceutical companies face a similar challenge  Most new drugs fail. They fail when they are still in the lab, and they fail once they go out for testing to get regulatory approval.

In America, for example, there are three phases to the test process, each more demanding than the last.

The time scales are long. Andrew Lo, an MIT polymath, and his colleagues published a paper last year in the journal Biostatistics. They gathered a sample of over 400,000 clinical trials carried out between 2000 and 2015. Even after all the initial development work in the lab was completed, the typical successful drug took 8.3 years to obtain approval.

This puts into perspective the current frantic efforts to develop treatments and vaccines for Covid-19.

The probability of obtaining regulatory approval varies widely across categories. But overall, when a candidate drug enters phase one trials, its chances of eventual success are less than 10 per cent.

The government should embrace the idea that money spent on technology or drugs which fail is not money wasted. Indeed, the real mistake is not to risk enough, to stake everything on a single project.

This is the true failure of NHSX.

As published in City AM Wednesday 24th June 2020
Image: Covid tracing app by Gerd Altmann via Pixabay
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