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It is science, not lockdowns, that will save the world

It is science, not lockdowns, that will save the world

The various new vaccines announced over the past two weeks give real hope of a return to normal life.

Of course, many practical questions remain. How will these vaccines be delivered? Do they stop the transmission or simply the symptoms of the virus? Exactly how effective will they be outside a controlled trial environment?

But despite these legitimate queries, the scientific community has made massive progress in a very short space of time, and should be celebrated.

The good news makes a very welcome change to the dreary and damaging pessimism offered by the epidemiologists.

Still, scarcely a day goes by without SAGE boffins popping up in the media pronouncing that the lockdown is not strict enough, it should have been brought in earlier, more will be needed when this one has ended. Even in the wake of the news of the Moderna vaccine, Public Health England’s Dr Susan Hopkins was warning that, when the official four-week lockdown ends on 2 December, the previous “Tier” system should be strengthened. That makes the prospect of households being able to mix indoors and businesses being permitted to reopen look far from likely.

As I have written before, if the only tool you have is a hammer, everything looks like a nail.  And the only tool the epidemiologists seem to have is lockdown.

Many of them do not seem to grasp that epidemics can ultimately be contained only by either behavioural change or by scientific innovation — and preferably a combination of the two.

Two admittedly somewhat extreme examples illustrate the importance of each. We used to throw the contents of our bedpans into the street from the bedroom windows, spreading all manner of disease. The change in our behaviour did indeed save lives.

But we also need scientific advancement to progress. David Ricardo, the greatest British economist of the nineteenth century and an immensely wealthy man, died at the age of 51 from an ear infection which would now be routinely cured in a few days.

The sharp contrast between restrictions which the epidemiologists want us to endure and the bright life which scientific innovation brings extends far beyond the current crisis.

It is at the heart of the debates over climate change, for example — or, more precisely, over what our response should be.

Climate change could indeed be stalled by reducing living standards to those of, say, Ricardo’s time, some 200 years ago. The Industrial Revolution was then half a century or so old. By then, people had just enough to eat in order to keep them alive and do some work. The famines which characterised all previous human history had been vanquished in western Europe. But life was pretty grim.

It was science and innovation that improved life beyond measure and that now enables us to enjoy modern living standards. That same innovation can also be harnessed to combat climate change.

Innovation need not be on the grand breakthrough scale of the Covid vaccines. A series of modest scientific advances can have a lot of impact.

For example, until recently Australia, despite its wonderful sunny climate, had very few solar panels. The reason was that energy from coal and gas was much cheaper. Now that the panels have gradually become much more efficient, the reverse is true. As a result, there is a massive boom in installation by households. Companies are building gigantic farms of panels in the deserts.

Hair shirts imposed by blinkered academics and those with a central planning mentality will not work. Ingenuity and innovation permit permanent solutions to many of the problems we face.

As published in City AM Wednesday 18th November 2020
Image: Vaccine by Bicanski on Pixnio
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And this week’s winner for the Stupid Scientist award is…

And this week’s winner for the Stupid Scientist award is…

Scepticism about the advice given by government scientists about Covid-19 is rising sharply.

In areas like Bolton infections are high. Interviews with the locals reveal that so, too, is disbelief in the veracity of the statements made by members of SAGE, the government science advisory group.

The scientists, rational beings themselves, may ascribe this to the inability of the general population to process information.

Yet it is their own pronouncements which have fostered scepticism. Scepticism in turn brings reluctance to follow advice, even when it is good.

Which brings us to the winner of this week’s Stupid Scientist award. It is a close-run thing, but step forward Nicola Steedman, Scotland’s deputy chief medical officer.

Students at universities in the Glasgow region are effectively being held under house arrest in their halls of residence. According to this particular Nicola, it is for their own good.  The students are apparently at serious risk of dying from coronavirus.

If we turn to the data to see how many people under 30 have died from Covid in Scotland since the pandemic began, the number is in fact zero.

Given this, why should any credence be given to anything which Ms Steedman now says?  There have been zero deaths amongst student-age groups, yet she appears to believe that they are at serious risk of death.

Runners up for the award are the well-known duo of Chris Whitty, chief UK medical officer, and Patrick Vallance, chief scientist. They pronounced there could be 50,000 cases of Covid a day by mid-October. If cases doubled every week, they would reach this level.

This projection has attracted widespread criticism. New cases have indeed risen in countries like France, Italy and even Germany, but at a rate which is much slower than doubling every week.

The real issue is the dog that did not bark. Not so much what they actually say, but what they do not say.

In France and Spain, for example, during September the number of new daily cases exceeded the previous peak levels reached in April. In France, the daily total reached 16,000 last Friday, double the highest level of April.

Surely the cemeteries and crematoria should be full to bursting?

But they are not.

In France, new cases have exceeded the April maximum since the beginning of September.  At the end of the month, deaths are only one tenth of their April peak level.

In Spain, deaths reached a quarter of the April peak for a couple of days and are now falling sharply.

In Italy, daily deaths remain in very low single figures.

In the UK, too, deaths have risen but are very low compared to the total number of new cases.

The whole thrust of the messaging from pro-lockdown public sector scientists and bureaucrats is negative. Some may think this is because of the incentives they face. The bigger the threat the virus apparently presents, the more their importance and influence grows.

In my view, this is unduly cynical. But it is a cynicism which seems to be prevailing amongst the people of Bolton and other afflicted areas.

As published in City AM Wednesday 30th September 2020
Image:  Chris Witty and Patrick Vallance by Number 10 via Flickr  CC BY-NC 2.0
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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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To pay for this crisis, the government must keep in mind Ricardian equivalence

To pay for this crisis, the government must keep in mind Ricardian equivalence

John Maynard Keynes could certainly craft a neat phrase.

In the Second World War, he wrote in his pamphlet How to Pay for the War: “It is only in a free community that the task of government is complicated by the cause of social justice.”

The impact of the coronavirus pandemic is similar to a war. Governments have to spend more on some stuff (bombers or ventilators) and restrict access to resources for other activities (in WW2, petrol was rationed, now sports events restricted).

In the current crisis, many otherwise viable companies will go to the wall as demand for their products and services drop. Already, the airlines are clamouring for a huge bailout.

Rishi Sunak’s loan scheme is a very good start, but it does not go far enough.

Looming over all of this: how should all the extra spending, extending even further than the loan scheme, be paid for?

Another great British economist, David Ricardo, was also fascinated by the question of how to pay for a major war. In his case, it was the Napoleonic wars in the early nineteenth century.

The government could either raise taxes or issue bonds to cover the increase in spending.

Ricardo argued that the effect on the economy would be the same regardless of which method was used. If increased government spending was financed by taxation, total demand in the economy would be unaffected. Military spending would rise, but private spending would fall.

According to Ricardo, the issue of government bonds would also have no effect. The bonds give rise to a stream of interest payments in the future and at some stage have to be repaid. So taxes in the future would be higher. A rational agent would anticipate these higher taxes. They would increase savings now in order to be able to meet them.

This concept, known as Ricardian equivalence, is hotly contested in macroeconomics even today. If it is true, so-called Keynesian policies for more public spending and bigger deficits simply do not work.

In the financial crisis of the late 2000s, the public sector deficit rose. Both the household and the corporate sector increased their savings, rather than running them down to maintain spending levels. So Ricardian equivalence is not as far-fetched as it may seem.

Traditionally, wars have mainly been paid for by the government issuing debt. In the Napoleonic wars, Bank of England data shows that government debt as a percentage of GDP rose from 100 to 150. In the First World War, it went from 20 to 110, and in the Second, from 130 to 250.

A similar massive rise now might simply be offset by an increase in private sector savings. Demand would fall even further than it is doing.

Sunak’s proposal is to make loans to any business that wants them, large or small. But the repayment period needs to be longer, say 10 years. The company could pay these back as and when it chose. Otherwise, the outstanding loans would be converted into equity in the company.

The loans would therefore either be repaid or backed by an asset. The principles of sound finance would be maintained, and businesses would survive.

As published in City AM Wednesday 18th March 2020
Image: Rishi Sunak via Flickr is licensed for use CC By-ND 2.0
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It’s fanciful to think China’s economy will overtake the US’s anytime soon

It’s fanciful to think China’s economy will overtake the US’s anytime soon

Possibly the single most important of the tensions stoked up by President Trump is the rivalry between the United States and China. Economic strength will be the ultimate determinant of this struggle for the position of Top Nation.

Comparisons of the size of economies, particularly ones at very different levels of income per head, are fraught with difficulties. Taking a deep breath, annual output in China is currently around $10 trillion a year, compared to $17 trillion in America.

Over the past 30 years, the US has grown at an annual average rate, after allowing for inflation, of 2.4 per cent, and China by 9.3 per cent. If we project these rates forward, the Chinese economy will be as big as the American by 2024. By 2037, it will be more than twice the size.

We can allow for some slowdown in China’s growth, to, say, 7 per cent a year, and a bit faster expansion in the US, to take account of the fact that the average over recent decades is influenced by the impact of the financial crisis. Even so, we soon reach a situation where the two are of comparable size.

But a paper in the latest issue of the world-class Journal of Economic Perspectives argues persuasively that the sustainable Chinese growth rate in the medium and longer term is much lower, in the range of 3 to 4 per cent a year.

Hongbin Li and colleagues, based both in Stanford and top universities in China, note that Chinese growth since the start of the economic reforms in 1978 has been the fastest that any large country has sustained for such a long period of time. But much of this is due to the rapid transition from a centrally planned to a market oriented economy. Forty years ago, virtually no-one operated in the private sector. Now, well over 80 per cent of workers do so. This shift obviously cannot be repeated.

 

Closely intermingled with this has been the massive move of population from the countryside to the cities – or more precisely, from low productivity agriculture to higher productivity urban economic activities. But the annual growth rate of rural-to-urban migration has fallen from over 11 per cent in the 15 years before 2000 to only 3 per cent since. And the authors argue that the growth of migration almost certainly will decline further given that “rural-based surveys are finding that less than 10 per cent of young able-bodied rural individuals are now living (and working on farms) in rural areas”.

Until 2011, the authors point out that China enjoyed what they call a “demographic dividend”. The age group of the working population was unusually high as a share of the population as a whole. But because of what the authors tactfully refer to as “the fall in fertility” since the early 1980s, this is now declining fast. The One Child Policy was mainly responsible, but higher incomes also reduce birth rates.

China remains a huge and growing economy. But projections that it will overtake the US within readers’ lifetimes seem fanciful.

Image: Chinese Lanterns by Suloke Mathal is licensed under CC by 2.0
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The NHS will never have enough cash: the English religion needs reformation

The NHS will never have enough cash: the English religion needs reformation

We British like traditions. A well-established one which comes round every year is the “winter crisis” in the NHS. Health provision is a political hot potato not just for this government, or indeed for any particular UK government, but for governments across the developed world.

One of the key assumptions made by economists about human behaviour is that there is no limit to the amount of things that people want. In the splendid jargon of economic theory, this is referred to as “non-satiation”.

But regardless of what name we give to the concept, health is an excellent practical example of it. When the NHS was founded in the late 1940s, many thought that the demands on its services would dwindle over time. As the new system gradually improved the health of the population, fewer would require the NHS.

 On the contrary, the demand for health provision has expanded across the West much faster than the overall economy has grown. As people get wealthier, they want more and more healthcare.

Nigel – now Lord – Lawson once pronounced that “the NHS is the closest thing the English people have now to a religion”. Certainly, any politician tampering with it too much risks his or her career. A striking illustration was provided in the General Election of 2001. The Labour government proposed closing the hospital in Kidderminster on the grounds that it was just very bad. This provoked fury, and a local doctor stood and won as an Independent, destroying the incumbent Labour rising star and holding on until 2010. A subsequent independent inquiry carried out for the NHS showed unequivocally that the hospital was even worse than had been initially thought.

An Institute of Economic Affairs monograph by Dr Kristian Niemietz shows how things could be run much better. The intriguing title summarises the contents: “Universal Healthcare without the NHS”. Niemietz begins with a simple point to debunk the popular view that the NHS is the envy of the world: its structure has never been copied anywhere outside the UK.

In fact, in international comparisons of health system outcomes, the NHS almost always ranks in the bottom third of developed world countries, sitting with places such as the Czech Republic and Slovenia. If the UK’s breast, prostate, lung and bowel cancer patients were treated as in Germany, 12,000 lives a year would be saved.

Most European countries use a social health insurance (SHI) system, in which even homeless people have health coverage. Essentially, these systems are based upon means-tested insurance. Niemietz regards each individual one as having its own particular flaws and irritations, but they routinely achieve much better outcomes for patients, while preserving the concept of universal access.

Their experience shows that, for example, charging for GP appointments does not damage health, and that ordinary people can be trusted to make sensible choices from a range of health insurance plans. The alternative to the NHS is not American, but European health care.

We are, quite rightly, steaming ahead with Brexit, but Europe still has valuable things to teach us in the case of health provision.

As published by CITY AM on Wednesday 25th January

Image: Accident & Emergency Sign by Lydia is licensed under CC by 2.0

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