How dismal science forecasts failed society

Economists should have been warning of the potential for over-reaction to the pandemic.

If economists’ response to COVID-19 is a guide to the future, you can expect a lot less freedom and a lot more “policy”. Picture: Getty

With unemployment almost back to where it was before the pandemic and relatively few COVID-19 deaths in our wake, it’s easy to be triumphalist about our response to the coronavirus.

But state and federal government debts have increased by more, as a share of gross domestic product, than any other major developed nation since restrictions began a year ago.

In October 2019 Australia’s public debt was on track to fall a little, to the equivalent of 41 per cent of GDP, by 2021.

On the International Monetary Fund’s latest figures, government debt will be the equivalent of 75 per cent of GDP this year, a difference of around $680bn — enough to build the National Broadband Network, for instance, about 12 times over. Other social and economic costs will emerge in years to come.

A year on, it’s fair to ask whether we overreacted — spent too much, locked down too heavily — and, if so, why.

Economists, who analyse incentives and the costs of alternative courses of action, should have been well placed to warn of the potential for over-reaction and to estimate the costs of restrictions as the year unfolded.

With a few honourable exceptions, most didn’t.

Economists failed society badly during the pandemic, providing unqualified support for unprecedented government interventions that had, and still have, limited evidence to support them, however popular they might have been.

They typically denied a trade-off between health and socio-economic outcomes, which only encouraged politicians and health bureaucrats to try to minimise deaths from COVID-19 whatever the cost (although at no or little cost to themselves).

They fuelled simplistic “money over lives” arguments that played well on social media but ignored the fact governments have long allocated health spending and made safety regulations by weighing up benefits against costs.

Economists should have been highlighting the costs of lockdowns, travel restrictions and school closures. They should have been criticising naive epidemiological models that predicted massive death tolls on the ridiculous assumption that people would not alter their behaviour and make their own risk assessments.

Economics used to be a discipline built on freedom, the rationality and dignity of individuals, a healthy scepticism about the wisdom of government.

Ross Garnaut, one of the nation’s pre-eminent economists, characterised the typical response last month, speaking to Treasury secretary Steven Kennedy on a panel in Canberra.

“Experience showed there was no trade-off, the countries that did best dealing with pandemic ended up doing best economically … countries with less health impact did better economically,” he said, singling out Taiwan, South Korea, China, Japan, Vietnam, Thailand, New Zealand and Australia.

Professor Ross Garnaut: “Experience showed there was no trade-off.” Picture: Aaron Francis

Yet all these nations responded very differently, suggesting other factors might explain their relatively low death tolls, such as their location or geography. Taiwan never locked down, while Japan barely tested anyone for COVID-19 relative to Australia and New Zealand.

Similarly, in Europe and the US, where deaths tolls were much higher overall, nations and states responded differently, yet trajectories of COVID-19 cases and deaths have been similar.

If powerful evidence lockdowns worked existed, governments would be singing it from the rooftops. Moreover, international evidence linking the severity of government restrictions with COVID cases and deaths, even a year on, is extremely weak.

“Countries that did best all took knowledge seriously, and those that didn’t did very badly,” Garnaut added, reflecting the prevailing hubris among his colleagues.

Do the German and French governments take science less seriously than the Victorian Department of Health? Or are likelier explanations for their worse economic outcomes the length and severity of their restrictions, the degree of fear among the population, and the misfortune of being in a part of the world that ended up with a lot of SARS-CoV-2 before most were aware of it?

Kennedy’s analysis of how a respiratory pandemic would affect Australia, published 2006, was that the number of deaths — “40,000 or 130,000” — was immaterial to economic outcomes. “Confidence effects are likely to be large and immediate and overshadow all other factors,” he wrote.

Australia’s government departments are teeming with economists, yet they have not published a single cost-benefit analysis at any stage of the crisis.

Where economists outside government did attempt them, they typically made absurd assumptions about the prospective number of deaths and their value to justify the restrictions.

In May last year, for example, by which time it was clear COVID-19 was far less lethal than first feared, two economics professors, Bruce Preston and Richard Holden, claimed the costs of national lockdown were “outweighed by its $1 trillion benefit”. To reach such a startling figure, they assumed 90 per cent of Australians would become infected with COVID-19 without the lockdowns and 225,000 to them would die.

In other words Australia would have had around half the number of deaths as the US, which has 13 times our population, or would have incurred 50 per cent more deaths India has, a nation of 1.3 billion people.

The silliness didn’t end there.

It was then claimed that each of these lost lives was worth $4.9m, a concept governments often use when deciding how to allocate health and safety spending. They made no adjustment for the fact victims of COVID-19 were typically over 80 and often severely ill. As one official told me recently, “my 90-year-old dad would pay me to die”.

The only public agency I could find that produced a rigorous cost-benefit analysis was the New Zealand Productivity Commission, which in May last year assessed the benefits and costs of the NZ government’s decision to extend that country’s stage four lockdown, based on the information available at the time.

It concluded that extending would cost about $NZ750m and save around 30 very elderly lives, even making generous assumptions about the efficacy of lockdowns. It’s a pity Australia’s own commission, far better resourced, didn’t weigh up Australian measures.

It should not have been even in question, for economists at least, whether governments overreacted. All the directions of the major players were pointed towards significant over-reaction. The media is always prone to sensationalize and fear monger, politicians are naturally eager to appear “tough”, and voters are understandably scared and misinformed. The bureaucracy meanwhile was insulated from — cynically, even benefited from — the impacts of decisions to lockdown.

At the end of the one hour Garnaut panel session of self-congratulation and fawning, one brave woman asked the professor about “the huge debt from paying so many people to be out of work and problems with education for our kids, the long-term effects on things we don’t know about, and the loss of liberty through increased police powers”.

These weren’t the only losses of liberty in modern times, he responded. “We’ll have to manage a trillion-dollar debt … we’ll have to manage other consequences (and) work really hard on better policies,” he said.

If economists’ response to COVID-19 is a guide to the future, you can expect a lot less freedom and a lot more “policy”, which should at least be good for the employment of economists.