Saturday, April 11, 2020

Who You Gonna Call? An Economist

If you had questions about the conditions of the local restaurant market, you wouldn't ask a chef or a restaurant manager.
If you had questions about the OPEC oil cartel or how it's actions affect the U.S. fracking industry, you wouldn't ask a petroleum engineer.
If you had questions about the affect charter schools have on education outcomes, you wouldn't ask a teacher.
If you had questions about the pricing and payment of medical services, you wouldn't ask a doctor.
If you had questions about fractional reserve banking, you wouldn't ask a banker.

Well, you might ask these people, and they might have brilliant, insightful answers. But if they did, it would be because they were using the tools and skills of economics. You might be better off just asking an economist--especially one with expertise in the specific area of interest.

Drs. Fauci and Birx are very important experts in immunology. Their understanding of infectious disease and their roles in the current crisis are keys to us conquering SARS-COV-2. But asking them when we should open society back up and revive the economy from the self-induced coma is likely asking them to speak outside their depth. I am not saying they are incapable of performing the necessary trade-off analysis, but if they are, it is because they will be employing economics not epidemiology.

Just as we did not prepare properly for a pandemic, just as we did not heed the warning signs as this one approached, just as we did not do the relevant cost-benefit analysis as decisions were hastily made and virally accelerated, I fear we are not willing to reasonably and scientifically consider, plan, and execute the return to normal life.

Reversing the lockdowns and shelter-in-place commandments should require us to consider the following at a deep level:

Benefit of reduced infection going forward minus Cost of change in way of life

What would we like to know includes:
  1. R0 - the rate of infection now and going forward (both the average and the distribution of typical people and super-spreaders); Robin Hanson's analysis shows the need for an even deeper level of thought. 
  2. How did R0 changed over time both as a result of human action and public policy as well as naturally?
  3. How many people were infected and when?
  4. How did the various policies impact viral transmission, viral impact (did putting asymptomatic infected people, mostly kids, in intense contact with at-risk people, mostly elderly, cause dangerously strong infections--dose makes the poison?), other health results, etc.?
  5. How did the various policies impact our way of life? Just how damaging were the policies and how damaging was the virus?
  6. What would we do different? How many lives on net did the actions taken save? How much was overall well being benefited by the actions taken? 
  7. How would we do it differently in the future?
At this point we don't really know enough to depict the overall tradeoffs and how the equation above would plot in the graph below.


The x-axis runs from maximum virus eradication (all resources thrown at fighting the virus, which is well beyond even the extreme measures we have taken so far) to not changing our lives one bit other than perhaps dealing with infections as they arise including hospitalizations and death. The y-axis is overall societal well being. In the middle is the point of well being that is equal to a world where there was no SARS-COV-2.

Is the trade-off function like one of the solid-line parabolas? Don't get too hung up on the lines I've drawn other than to notice that one is at times above the other. And of course choices we make could allow us to jump from one trade-off frontier to another. But notice the other two stylized functions. Perhaps the virus is so dominant that any effort short of total effort to counter it was a net loser for societal well being (as depicted in the red-dashed line). This is possible but highly unlikely. Yet this in the extreme is the position implied by many in the populace as well as some in power. Alternatively, the virus could be an unfortunate circumstance but not one that at any level deserves us changing our way of life (as depicted in the green-dashed line). This is also possible but highly unlikely. Yet this in the extreme is the position implied by those who might be labeled virus deniers.

We would expect, however, that some type of parabolic function if not one with multiple peaks would properly depict the real world tradeoffs. The devil is in the details, and which function and how we might transform the function to improve our lot is the many-trillion-dollar question. I would like to see it asked more strongly and widely, and I would especially like to see it asked of economists. 

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