I stand with Gigi

I woke up this morning to see twitter in absolute meltdown. An evil, rabid, Trumpkinaut, neo-liberal, has appeared on ABC television and dared to suggest there might be trade-offs in economics. There I had been watching re-runs of Survivor instead of Q&A.

Just kidding – I’d never watch Q&A.

Anyway – it turns out that UNSW academic Gigi Foster was to blame for the meltdown. I have disagreed with Gigi Foster’s research work in past so was somewhat surprised that she may have said anything remotely sensible.

Sorry Gigi.

I was wrong.

You were awesome.

Let’s go to the transcript:

GIGI FOSTER: I don’t think that anybody is saying we should abandon the old people. I fact, I think that that’s been one of the most consistent messages that we’ve seen from responses around the world, and I even said it on my radio program a few weeks ago – we should be quarantining the older people to the extent we can – voluntarily, of course. You don’t force anybody in our society to do something, ideally, but…

So, if somebody wants to hug their grandchild, fine. But people in nursing homes who can be quarantined, yes, we should protect them. That doesn’t mean that, you know, we shouldn’t be thinking as well about other human welfare costs. And I reject the idea that it’s lives versus the economy. It’s lives versus lives. The economy is about lives. It’s about protection of lives and human welfare and livelihood.

GIGI FOSTER: What frustrates me about this is when people talk about the economic costs of the lockdown, they often don’t think in detail in terms of counting lives, as we do with the epidemiological models, for example. So, has anyone here actually thought about how would you get a measure of the traded lives? When we lock an economy down, what are we sacrificing in terms of lives?

Economists have tried to do that, and we try to do it in currencies like the value of a statistical life, or the quality-adjusted life year, or the wellbeing year. And those quantities enable you to think about lives on one side versus lives on the other. And, I mean, if you do that kind of calculus, you realise very quickly that even with a very, very extreme epidemic in Australia, we are still potentially better off not having an economic lockdown in the first place, because of the incredible effects that you see not just in a short-run way, but in many, many years to come.

SALLY McMANUS: How can you say that? How can you say that? Like, we’re avoiding what’s happened in the UK, what’s happening in the US. The idea of having our ICUs overrun, our healthcare workers dying as well, is just the most horrible thought.

GIGI FOSTER: It’s horrible. It’s horrible either way. The coronavirus has made the world awful. I mean, there’s absolutely no doubt about that. But in order to have a proper discussion about trade-offs, you need to think in terms of lives that you’re giving up. And I know it’s invisible lives and it’s difficult to imagine that when we aggregate, for example, all of the health effects, all of the mental health effects, all of the effects of people right now who have illnesses other than COVID-19…

GIGI FOSTER: Well, I think it’s much too early to be able to tell for sure what the full economic impact is going to be of what we have done to ourselves, because this is not going to be a V-shaped recovery. Recoveries don’t come in V-shapes. We have destroyed network links. We have, you know, severed our overseas trading links in a lot of cases, in many industries.

Now, some of these JobKeeper program-type payments and programs will allow us to retain some of those links so that the employers and employees don’t have to reform, but that process of reforming and getting the economy geared up again, that takes a lot of time. So, we’re not going to see the full economic impacts for at least a year or more.

SALLY McMANUS: But we’ve got time. We don’t have what could have been 10,000 lives. Like, that’s the difference.

GIGI FOSTER: Again, have you done the calculus on the other side of the equation?

SALLY McMANUS: But are you talking about lost opportunity, or are you…?

GIGI FOSTER: I’m talking about lost lives. I’m talking about quality-adjusted life years which is the normal currency that people use when they’re making decisions in developed countries about how much to spend on saving people’s lives, because we always have to allocate resources. We don’t like to think about this, but it happens all the time, every day, in a health ministry in a developed country.

There has to be a choice about how to allocate your scarce resources. How much towards cancer research, how much towards, you know, this, that and the other – different disability and illness that can affect people all throughout their lives. And when those decisions are made, when the Pharmaceutical Benefits Scheme decides what drugs to take on, it’s using QALYs.

Gigi Foster was invited onto the show to provide an economic perspective. As far as I can see that is exactly what she did. Now we can argue whether or not the economic perspective is good or bad, valuable or not. But what she did is economics.

Unlike the authors and signatories to a bizarre open letter that got published yesterday.

Some might expect economists, of all people, to endorse this calculus.

But as economists we categorically reject these views, and we believe they do not represent the majority of our profession.

We believe a callous indifference to life is morally objectionable, and that it would be a mistake to expect a premature loosening of restrictions to be beneficial to the economy and jobs, given the rapid rate of contagion.

It is wishful thinking to believe we face a choice between a buoyant economy without social distancing and a deep recession with social distancing.

In a world with COVID-19, there are no good choices.

In the very first instance that is a false dichotomy. Nobody is suggesting the only choice is between death for the vulnerable or complete lockdown. But that doesn’t worry me too much; this is problematic:

We believe a callous indifference to life is morally objectionable

Cost-benefit analysis is not a callous indifference to life.

Then in the text of the open letter itself:

Some commentators have expressed the view there is a trade-off between the public health and economic aspects of the crisis. We, as economists, believe this is a false distinction.

The notion that there are not and cannot be trade-offs in economics is antithetical to what the discipline of economics is all about.

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278 Responses to I stand with Gigi

  1. harrys on the boat

    but in a few years time it would be refemenered(?) like a blip.

    FMD. A blip. Un-fucking-believable.

    This charade will end as soon as there’s mass defaulting on debt and the banks collapse. But then its far too late.

  2. Alex Davidson

    BorisG
    #3423165, posted on April 22, 2020 at 12:35 am

    Also I can’t see how 3-4 months on government subsidy can ruin your livelihood.

    Someone should explain to Boris that the government has no money of its own – it obtains it all by force from those who create wealth. So living for “3-4 months on government subsidy” is in reality living for “3-4 months off other people’s money”, which is not only immoral, but also reduces the overall wealth in society, and with it, our living standards. All to prolong a relatively small number of lives when compared against the number of lives lost through all causes each day.

    Among those other causes of death is motor vehicle accidents – situations where in most cases the intention is not to harm others, but to get from A to B. Resultant deaths are inadvertent, just as deaths due to the spread of pathogens such as coronavirus are mostly inadvertent and part of the social nature of humans.

    If it’s good enough to massively disrupt economic activity for the latter, then why not for the former? Why don’t we let our lords and masters ban the use of motor vehicles except for what they deem “essential activities”? After all, wouldn’t it “save lives”?

    The whole thing is a massive, harmful government intervention that is set to cause a great deal of harm to a great many people. Worst still, those responsible are likely to escape scot-free.

  3. My sister has lost all her income, she is a real estate agent, she supports lockdowns,
    My cousin is a bus driver for the elderly. He lost his job. He supports lockdowns.
    Tennis coach at my local club lost his job. He supports lockdowns.
    My best friend lost his IT job a few months ago. He has no chance to find one now, he supports the lockdowns.

    I’ll be frank.

    They have a mild form of Stockholm Syndrome.

  4. Rossini

    I’ll be frank
    They have a mild form of Stockholm Syndrome.
    Now they are all living of other peoples money!
    Smart!

  5. Breaking (totally predictable) news: COVID-19 harmless to almost everybody …

    Is this like how chloroquine was supposed to be the miracle cure? Yeah nah, that has now been debunked.

    These small studies using cheap tests with high amounts of false positives are proof of nothing.

  6. A serological survey of 3,000 participants is a good starting point.

    There is plenty of research before and after this fake crisis about research into off label treatments of various coronaviruses.

    You are just spreading more misinformation monty because Orange Man Bad.

  7. Pete of Freo

    “…We believe a callous indifference to life is morally objectionable..” Laugh-out-loud! So it’s these economists who have been banned from maintaining silent vigil adjacent to abortion factories? All of this po-faced blathering about the value of life is meaningless in a country that allows, indeed trumpets as a women’s right, the wholesale slaughter of innocents. The Chink Flu hasn’t killed anywhere near the the number of persons killed in the abortuaries and the old persons homes.

  8. Aynsley Kellow

    It seems to me that the 100+ distinguished economists have rather overlooked the issue of opportunity costs, established by Fredéric Bastiat c1850. The opportunity cost of the response to COVID-19 includes not just general costs elsewhere in the economy, which might lead to suicides and stress-related disorders, but the lost opportunity in diagnostic and other medical procedures (including things like endoscopies) that, until the ban was lifted, inevitably resulted in lower earlier detections of more serious illnesses that might have been remedied. (This cost was pointed out to me by a GP).

    Both the 100+ economists, and governments, seem to have overlooked Bastiat’s point about the seen and the unseen, as he pointed out in his parable of the broken window thus:

    ‘But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

    ‘It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.’

  9. Very well said Aynsley.

    Basistat should be required reading in B Ec and PPE (political potty training) courses.

  10. Pyrmonter

    Late to this, but Doomlord – when did you embrace the idea that the state could undertake utilitarian calculations well?

    Gigi is consistent – she thinks the state can improve peoples’ lives most of the time. I don’t, but would make exceptions for the control of contagious disease (it raising all sorts of first year ‘external cost’ and ‘non-excludable, non rival benefit’ issues’). Elsewhere, I have taken you to scorn such calculations.

  11. Pyrmonter

    @ Judith Sloan, variously up thread – YES.

    The common complaint about mandatory ‘social distancing’, pub closure etc, overlooks that it is serving to co-ordinate voluntary action. It is plausible that the shutdown is _minimising_ the total loss of economic activity, by facilitating elimination and thereby getting us back to some sort of normalcy in the second half of the year; where letting rip would see slightly higher economic activity now, but greater reductions due to voluntary avoidance behaviour later in the year.

  12. Aynsley Kellow

    Thanks LS. This is a classic case of policy-makers ignoring the unseen.

  13. Clam Chowdah

    Some long term Cats have disgraced themselves in this thread with their responses to Judith Sloan. Absolutely vile and disgraceful.

  14. Sinclair Davidson

    Pyrmonter – I have entertained myself and gotten several publications over the course of my career rubbishing the efforts by government to calculate many things.

    There are, at least, two things at play here. The analysis that needs to be undertaken to answer an important question, and the ability of government to undertake that analysis. Gigi Foster set out a methodological point – what is the question that needs to be answered and how it might be answered.

    As far as I’m aware, no government has undertaken that analysis. Not even badly. It just hasn’t been done.

    Sure Gigi Foster has abstracted from all sorts of issues – appropriate discount rates, the dollar value of a life, and all sorts of dodgy assumptions that would need to be made. She knows that. I know that. You know that. The 100+ economists who signed that open letter should know that too.

    I’m also fairly certain that not one of the 100+ economists who signed that open letter have done the analysis either. Now it could even be the case that their conclusion is correct (I doubt it) – but that is their non-economic opinion only.

  15. Infidel Tiger King

    Some long term Cats have disgraced themselves in this thread with their responses to Judith Sloan. Absolutely vile and disgraceful.

    Yes I did and I apologise.

    In my limited defence it was such a shock to see her carrying on like Reverend Lovejoy’s wife, i didn’t quite know how to react.

    My apologies.

  16. Pete of Freo

    “To even the score and the sacrifice made by the youth, no one over 55 can argue against massive taxation of their personal wealth.
    You owe us.
    You’re welcome.”
    ITK you are just a narky, entitled cunt. I’m over 55, still working, paid taxes since I was 15, never been on the susso, paid back my HECS, been in private health insurance since I was 16, never defaulted on a loan, and yes, I’m expecting to have my Super stolen by the State to to keep arse-hole fucks like you in the mood to vote for entitlements down the line. Fucking hell, you are an object lesson in projection. Grow up cockhead!

  17. Pyrmonter

    Sinc

    For my part, I’ve tried to grapple with it. In March, I mulled over writing a long essay, but didn’t think I quite had enough of it together to conclude strongly. But, it strikes me that the key issues are:

    (a) there is a collective good, the ‘non-infectious population’. It could arise either by eradicating the virus; or by the development of herd immunity, such that the active, infectious population approaches nil. The existence of that population exhibits the usual problems of collective good provision, especially where you need co-operation and there can’t be one provider. In the case of eradication, it requires co-operation, of sorts, in adhering to ‘social distancing’ rigorously, at the possible cost to those who are young, and with the ever-present threat, pending either eradication, of outbreaks among the ‘vulnerable’. (That population could be re-cast as a ‘collective bad’ in the form of an unidentified body of infectious parties imposing cost on others without any recourse, but I don’t think that changes the analysis).

    (b) in the absence of that non-infectious population (presence of the infectious pool), you will see a lot of costly private ‘defensive’ behaviour. It is hard, to the point of impossibility, to segregate the ‘vulnerable’ from the ‘invulnerable’. Then there are mistakes of categorisation: some of the ‘invulnerable’ will turn out to be vulnerable (involving lots of direct healthcare provision, probably some permanent injury, and sometimes death) and a lot of us sit in the middle: we either have normally mild health problems (asthma, in my case; overweightness, unfitness etc among others) that can make us vulnerable; or we are mistaken about our health status (for most middle aged people, worrying about your health is a bit of a luxury; it is rational not to be too obsessed) and will mistakenly think themselves invulnerable. The vulnerable will avoid social contact (econcomic activity) except in quite low risk settings until the good is achieved/bad is eliminated.

    (c) the private defensive behaviour is likely to be ‘economically damaging’ – participation in the usual trucking and bartering will be reduced, compared to pre-Covid-19 potential. That will lead to both a fall in labour supply; sometimes default on labour supply agreements (with costly enforcement processes); and a fall in the demand for products, most especially those delivered in large groups, or requiring close contact – so, the activities that have been closed down by fiat anyway. While that fall in demand wouldn’t always have resulted in closure of those businesses, it would have been likely to reduce their scale of operation, and for however long it took to achieve the ‘non-infectious population’.

    (d) without some sort of co-ordinating mechanism, private behaviour is unlikely to yield sufficient ‘herd’ behaviour as to allow a rapid development of a non-infections population. It would presumably happened with time, as those who perceived the risks to themselves as low (mostly the under 30s) carried on, contracted infection, and (mostly) recovered.

    (e) by shuttering some businesses and coercing everyone into defensive behaviour, the duration of the period between start and end point can be shortened. That will mean we re-start sport and food selfies sooner, although at the cost of pressing ‘pause’ on activity for some time (I had thought a few weeks; that seems to be turning into months, something which does cause me concern – the longer the disruption, the greater the number of business units and employment relationships I think are lost).

    (f) it follows that coercive action could be more desirable, as incurring costs ‘up front’, over a shorter period, with co-ordination, and getting over them faster than leaving things to private action.

    Note that this has said little about the direct health and healthcare costs. There is also no mention of prices or markets. We are dealing with economic behaviours, but not behaviours directly relating to exchange. To my way of thinking, this is still ‘economics’, though I realise others will differ on that. But it is fundamentally a behavioural co-ordination problem: the same sort of thing that firms solve in production; and that churches and voluntary groups solve for in community life.

    My impression is that at the start (second week of March) this thing went from being the territory of public health busybodies, who usually spend their time lecturing us about the supposed dangers of vaping (and whose time might have been better spent testing preparedness) to a ‘mainstream’ issue. It happened mostly when the burden of disease exploded in Italy. We then saw 3 weeks or so of random ramping up of restrictions – often belatedly. The people involved were, at best, generalists, if they had any relevant skill. In most western countries, there has been no comparable health scare since the late 1960s (Hong Kong Flu) and probably nothing on this scale since the early 20C scares about polio; post war concerns about TB; or the great 1918/19 Flu. Most people needed to learn how to adjust; work out what their points of contact were. For governments, the task was all the more complex: they don’t get price information about this sort of thing, it is a matter of organisation memory, or occasionally training. Most of them worked it out from scratch.

    With perfect hindsight, we should have imposed strict, policed quarantine of the sort being applied to all overseas arrivals now to everyone arriving from the US, Canada, Europe and SE Asia, as well as the cruise ships from early March. It is a sign of learning that these measures came in, albeit slowly and, now, we could say late. Among those measures that now seem obvious would have been control of the passengers coming from the Ruby Princess. But that information was not available in late February; or, at least, not available to those who needed it to make decisions. That is not a surprise: information is neither costless to produce or access: anyone steeped in cold war discussions of comparative economics should have remembered that. It’s the point of Mises and Hayek (and, I think, only from secondary reading, Kirzner). There was a lot of uncertainty about this virus – in fact, there still is, though a bit less.

    Turning to the essay: it seems that the idea of a ‘practically disease free’ population is within reach: active infections in the various data series have fallen from over 5,000 to around 2,000, and seem to be falling at a rate of between 50 to 100 per day. Supposing that first new infections are virtually eliminated, we will be ‘practically’ free (have all cases under quarantine, so that we could go about fairly freely) within a few weeks.

    While those few weeks will probably cost us some businesses that might now re-start, the potential benefit of getting to the point where ‘defensive behaviours’ are modest: say, the continued prohibition on large sporting/cultural events, together with personal distancing in public, but providing for the substantial resumption of ‘life as normal’ – the re-opening of most food/personal service businesses; bricks and mortar retail; free interstate movement, domestic tourism and aviation etc must be substantial. We could get back to life, more or less as it was, less free international travel. Even international travel might be possible with effective at border testing and quarantine.

    If the alternative is re-starting those businesses now, but with a higher likelihood of ‘spot fires’ that call down again the whole ‘lock down’, I wonder whether we will have achieved much, and whether the public will acquiesce in future ‘lock-downs’ as willingly as they have to date. Leaving aside a certain strain of hair-shirtedness, the degree of social cohesion has been more remarkable for what we’ve seen than the exceptions. I’m not sure that we could expect the same if we seek to eliminate ‘second’ and ‘third’ waves.

  18. Pyrmonter

    Further comments:

    – the collective good could, I suppose, have some sort of exclusion system. But it would smack of wearing coloured labels. I for one wouldn’t be keen.

    – I referred to the letter as an ‘essay’. I meant the Holden/Hamilton letter.

    – I gather Gigi Foster copped a lot on Twitter. I didn’t read it yesterday and she may have deleted an account. I am surprised at the tone in which some chairs in Econ have addressed others. Chris Edmond at Melbourne has not acquitted himself well.

  19. Tel

    The common complaint about mandatory ‘social distancing’, pub closure etc, overlooks that it is serving to co-ordinate voluntary action.

    The old favourite … voluntary action at the barrel of a gun.

  20. Sinclair Davidson

    Pyrmonter – I’m 5000 words into thinking through these issues in a Coasian framework.

    So there are two externalities at work – a health externality and a behavioural response externality. They work in opposite directions. In order to justify government intervention you have to show that the externality persists in equilibrium. The government by intervening in the way it has is suppressing the health externality (or trying to) by driving up the behavioural externality costs and then socialising it. That is a Pigovian response not a Coasian response.

    I haven’t worked though the whole story – but my gut feel is that this isn’t about the health of the public, but the health of the public health system.

  21. Sinclair Davidson

    I don’t now if Gigi Foster had a twtter account. She took a lot of abuse yesterday. Some people in the economics profession behaved very badly. The mob overall were disgraceful but I was surprised at the abuse from people who know full well that reasonable people can disagree on what is actually a moot point.

  22. I haven’t worked though the whole story – but my gut feel is that this isn’t about the health of the public, but the health of the public health system.

    That is not an either/or proposition. Preventing the public health system from being swamped also prevents significant loss in the health levels of the public.

  23. Monty hospitals are empty. Cut the crap.

  24. Pyrmonter

    @ LS

    It turns out hospitals are empty. But they aren’t everywhere, and it wouldn’t have taken much for them to be a good deal more full. Very impressionistic, but I think we’ve got through the worst of this, if perhaps by the seat of our pants (plenty of things that could have been done sooner, in hindsight, to reduce the cost, including the cost of the shutdown/expediting departure from it).

    But here’s the rub: the world is uncertain. Generally speaking we develop institutions that deal pretty well with that uncertainty: we buy insurance, we save, we invest in diversified portfolios, we avoid making too many firm specific human capital investments, etc. Most of the time those uncertainties impact us privately and individually. Here you have the fairly exceptional phenomenon of a sudden appearance of a contagious disease, about which (at leat in February) we knew fairly little. That stuff happens. My thinking – and again, I am open to persuasion – is that this is one fo the few instances where sudden and direct intervention by the state tends to enhance our overall well-being by faciliating at lower cost the sort of co-operation we woudl probably get to voluntarily in the end. I can see problems with it – the obvious issues of ‘what, when, why and how’ jump out. But those same problems exist whether you use a de-centralised or a centralised decision-making approach.

  25. Pyrmonter

    @ Sinc

    I’m not sure which is the health and which the behavioural externality. Do you mean by behavioural externality what I have termed ‘defensive’ behaviours?

    In terms of equilibrium … my maths is now very weak. Intuitively, are you sure there is a stable trade-off? I wonder whether there is any level of unidentified infection above the trivial that doesn’t precipitate a lot (perhaps a disproportionate amount) of ‘defensive’ behaviour, if there is no other mechanism to co-ordinate it.

  26. Sinclair Davidson

    Preventing the public health system from being swamped also prevents significant loss in the health levels of the public.

    Maybe – at the health cost of a collapsed economy. Paul Frijters over at Club Troppo has a had a stab at that trade-off and it looks very ugly.

  27. Sinclair Davidson

    Pyrmonter – health externality results from individuals infecting others. Behavioural externality occurs when people modify their behaviour in response to the presence of a negative externality – so basically your defensive externality (probably a bit broader).

    I’m not doing math.

  28. Pyrmonter

    @ Sinc

    Elaborating further (apologies for the length) but … with private provsion – I wonder whether the decreasing likelihood of transmission as the number who voluntarily forebear to ‘socially interact’ reduces the pool of infection would lower the private costs of free-riding. And so mean that private provision is unlikely (for additional reasons of reduced expected private cost of the behaviour) to result in ‘efficient’ reduction of the health problem? (Or am I just tired?)

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