Economists are often accused of having science envy. Their models produce imprecise predictions and their forecasts are regularly poor.
During the 2008 financial crisis it became clear that many of these criticisms were valid. Economic models failed to capture important properties of complex financial systems in ways evolutionary biologists and epidemiologists found staggeringly naive. The main working tools in financial markets relied on hyper-rationality when their designers and regulators should instead have been reading more sociology and anthropology.
The lesson was learnt the hard way with systemic failure. Now, thanks to people such as Andy Haldane, the chief economist of the Bank of England who has spearheaded lesson-learning from other disciplines over the past decade, we can hope that those in charge are better prepared.
The same cannot be said about Britain’s response to the coronavirus. Some scientists close to power have clearly not been reading their economics. They have made mistakes over handling data, forecasts and communication. When UK prime minister Boris Johnson and Patrick Vallance, the chief scientific officer, proclaim “we will do the right thing at the right time”, decent macroeconomists hold their heads in their hands. There is no polite way of putting it. The statement is nonsense.
As with economic data, daily coronavirus caseload figures are out of date when they arrive and are inaccurate guides to the progression of the disease. With such profound uncertainty, there is no way anyone can be confident about setting policy with precision, even if the best behavioural scientists could say for sure how the public would react. Of course, they cannot do that either.
This is the basic insight from the macroeconomic debates in the 1960s over fiscal fine tuning. At the start of that decade, economists believed a nudge on taxation here or public spending there could ensure a perfect balance between unemployment and inflation. By the end of the decade almost no economists believed it, whether they were of a Keynesian or monetarist bent. Economics can tell you that efforts to fine tune the progression of coronavirus will fail.
The UK government has also failed to heed a second lesson from basic economics on time consistency. In daily life, everyone knows that promising to give up smoking tomorrow lacks credibility because delay is preferable to action. An economist would say the original pledge is “not time consistent”. Examine the government’s original mitigation strategy in this light. Believing that its models and data could predict perfectly the spread of the disease, it decided to optimise the number of deaths. Having more early on and fewer later, the government believed, would create herd immunity and prevent a second wave.
Almost every other country adopted a “suppression” strategy, so the UK policy would inevitably have led to many more deaths in the first wave. Killing your population faster than France, Italy, Germany and South Korea might be the right strategy, but it was not politically sustainable. The policy was not time consistent and decent economists could, and did, predict it would fail.
These policy choices have had consequences. To the rest of the world, the UK has looked arrogant and incompetent, a toxic mix. Sterling is suffering a steep fall as a result. The U-turns have shorn ministers and their scientific advisers of credibility. If people do not believe the prime minister will be able to do what he says and achieve results, public confidence will be lost at the most important time.
Britain’s government desperately needs the advice of its economists. Ministers and officials must stop claiming they are in precise control of the path of the virus and making promises they have no chance of delivering. And they must learn these lessons quickly.
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