Economic Affairs on COVID19

In the new issue of Economic Affairs there is a section on Coronavirus. Besides an article by Nicola Rossi and me on the Italian predicament (we are not very optimistic), it includes articles by Steve Davies, Julian Jessop (on the costs and benefits of the UK lockdown), and Brian Williamson. For a social science scholarly journal, to publish papers on the matter is quite a challenge, as the pandemic is unfolding before our very eyes. But it is a challenge worth taking on, particularly for those of us of a classical liberal persuasion, whose views are regularly questioned as impracticable in times of such an emergency or, even worse, as somewhat “responsible” for it, due to our support and defense of globalization.

In his essay, Steve Davies does an admirable job in highlighting the exceptionality of COVID9 vis-à-vis the previous 20 pandemics which happened in the modern era and helped in shaping the modern state. An epidemic is a complex biological phenomenon and governments and health authorities operate with limited visibility and limited knowledge, though our world is faster in producing and spreading information than it ever was. This in part explains a response to COVID19 that, though not equally effective everywhere, is certainly extraordinary by historical standards:

In 1918–19 local controls,often sweeping, were imposed, but there were nothing like the national responses seen in 2020. Policies of lockdown initially and testing, tracing and isolating (TTI) subsequently may smother the smouldering phase and prevent a second wave or third phase this time, holding the line until a vaccine is developed. (Countries that were able to put a programme of TTI in place early on, such as South Korea, have avoided the need for a strict lockdown.)

In his article, Steve emphasizes risks specifically related with globalization and economic interconnection, including our dependence on long and complex supply chains that are fantastic at delivering goods in normal times but can be jeopardized by non-pharmaceutical measures to contain the pandemic. My – perhaps wishful – thinking is that adaptation may prove to be faster and swifter than we think. Insofar as politics is concerned, this is Davies’s forecast:

It seems likely that the coronavirus pandemic will therefore lead to a reassessment of the extent, power, and functions of government. In some areas this will result in a growth or extension of powers but in others there will likely be a pulling back or withdrawal as public administration is found to be lacking or self-defeating. A lot of regulations, particularly ones to do with medicines and drugs but also things such as occupational licensure (in the United States in particular) are likely to be cut back or abolished. In contrast, surveillance powers are probably going to become more extensive. One likely change is in the area of health services: in most countries (East Asian ones and Germany are the big exceptions) these have come to be dominated by hospitals and therapeutic medicine at the expense of health maintenance and public health (….) This has been revealed as brittle and highly vulnerable to shocks such as a major epidemic (in 2020 it was panic about the pressure on hospital systems that led to the decision to impose a lockdown, in most cases). One area where there will be much debate is over the relative performance and effectiveness of decentralised and localised systems as compared to centralised or national ones: this is actually an area where the evidence can support both sides, with the correct answer differing according to local circumstances.

I am not so sure about the last point. Healthcare systems are an awfully complex matter that seldom enter the political debate and when it does, it does so in a rather surreal manner, with politicians oversimplifying and never quite dealing with the real issues. When it comes to Italy, I am amazed at how little discussion we had about how to mend the hospital network. Sure, ICU beds were provided for in the emergency and the role of GPs vis-à-vis treatment in hospital was discussed. But that was pretty much it. In some sense, this is a good thing. The jury is still out when it comes to understanding what did and what did not work in the pandemic: decisions taken in a rush, based upon the limited evidence we could draw on for the first phase of the pandemic, may be mistaken. When it comes to centralization vs decentralization, I suspect our assumptions are so ingrained that our reading of the evidence will depend on them rather than the other way around. Generally speaking, I see little evidence to support those who push for more centralization – for instance in public procurement. But my bias certainly inclines in the other direction.

Brian Williamson’s essay is another fascinating piece of writing. He suggests that a “‘Coasean’ social contract could be forged to protect older people and other at-risk groups coupled with freedom from lockdown for everyone else. The social contract could involve a period of support and extra payments to older age groups to commit to home quarantine, but with the possibility of opting out”. He maintains that we should have “an age-specific policy response to COVID-19” but that should involve incentives and not mandates “given large variations in individual trade-offs and private information about such trade-offs”. The hypothesis of an age-targeted response was ruled out in a country like Italy I think because it was at the same time politically expensive (with an aging population, how do you tell the bulk of your prospective voters that you are selectively reducing their liberty vis-à-vis their children’?) and very difficult to organize in a meaningful way (what do we do with nursing homes? How do we transform them?). Williamson’s is an interesting intellectual exercise on the matter.