This was published 2 years ago
Opinion
Critics keep telling me to stay in my lane, but here’s why economists should weigh in on COVID
Steven Hamilton
EconomistIf I had a dollar for every time I’ve been told during the pandemic to stay in my lane, I might have enough to buy a pack of RATs. If only I could find one.
Last Monday, Professor Richard Holden and I warned of the emerging crisis facing NSW Health, in contrast to more sanguine advice from medical experts. This drove some in the public health establishment into conniptions, with one member claiming we’d fail a basic public health course at Sydney uni. Today, hospitalisations far exceed the Delta peak and still have a ways to go.
If economists had designed Australia’s vaccine procurement policies, they would have hedged the nation’s bets.Credit: Getty
Back in January last year, journalist Samantha Maiden wrote on Twitter, in response to my suggestion that Australia had failed to hedge its bets in vaccine procurement: “Sorry, but I genuinely don’t think you have any sort of public health background or know what you’re talking about.” A few days later, we published a piece laying out these concerns, and the rest is history.
The point here isn’t to dunk on Maiden – an extraordinary investigative journalist – or to toot my own horn, but rather to highlight a popular misconception that economists aren’t qualified to comment on matters beyond this quarter’s GDP figures or the closing level of the ASX200. I think this stems from the fact almost nobody understands what we do.
In the before times, whenever I’d tell someone on a plane that I’m an economist, they’d ask what will happen to the share market or whether they should buy US dollars. Ironically, a key contribution of economics has been to explain that we cannot systematically make these predictions because if we could, we’d all be rich.
Once you grasp what economics is really about, its role in pandemic policy resolves. Economics is, fundamentally, about good decision-making. One of economists’ most important contributions is cost-benefit analysis. In quantifying the costs and benefits of policy – including the quantity and quality of human life – economists offer policymakers critical support.
Part of this is due to our insistence on thinking at the margin. Economic decision-making is about optimising – finding the sweet spot balancing marginal costs and benefits. I’ve listened to a lot of politicians say “there was no stopping Omicron” and early action “wouldn’t have made any difference”. But this binary framing – either the wave happens or not – is a failure of marginal thinking.
The right way to think about early action (mask mandates, rapid tests, capacity limits, health messaging, etc.) is that each can have a marginal impact in reducing spread, which can marginally lower peak cases and thus peak hospitalisations and deaths. This is exactly what we need to prevent health system collapse. Economists feel this in their bones.
Another insight is economists’ intimate understanding of the process via which viruses spread: exponential growth. This is how bank interest compounds; it’s the process behind economic growth. Economists have tools and intuition well suited to advising on dynamic policymaking – foreseeing how small changes now can have profound impacts over time. A failure in what economists call “optimal control” is why NSW has run into trouble.
Economists understand “option value”, which is why many advocated for what looked like wasteful spending on multiple vaccines. Buying car insurance isn’t a waste just because you didn’t have a crash – it’s prudent risk management. And our understanding of game theory and political economy helps us anticipate how politicians respond to political incentives.
I believe mainstream economists have acquitted themselves well during the pandemic. In April 2020, 288 Australian economists wrote an open letter advocating against the premature lifting of public health restrictions, saying: “We cannot have a functioning economy unless we first comprehensively address the public health crisis.” Yet, many still reflexively think of us as “let-it-rip” extremists.
Australian economist Professor Joshua Gans advocated, way back in March 2020, the widespread use of rapid testing, years before policymakers because public health experts resisted rapid testing based on established dogma about PCR tests being the “gold standard”. Rather, rapid tests are more reliable in detecting infectivity, and are far cheaper, faster, and more convenient.
The US government’s “operation warp speed”, critical to developing the COVID-19 vaccines, was based on “advanced market commitments”, whereby governments guarantee the purchase of vaccines, regardless of whether they work, to give developers certainty – an idea developed by economics Nobel laureate Michael Kremer and others.
Perhaps relying exclusively on only a narrow set of medical expertise was a key reason our vaccine procurement policy in Australia failed so spectacularly. I’m confident that, had Treasury been deeply involved – with its secretary Steven Kennedy both an economist and former nurse – many of these problems would have been avoided.
Over policy, no field should have a monopoly. If someone has a heart attack, a doctor of economics won’t do much good. But, similarly, it’s unreasonable to expect a medical doctor to understand optimal vaccine procurement. The pandemic is complex, involving multi-dimensional trade-offs. Rather than gatekeeping, I wish public health experts would be grateful for any help they can get.
Steven Hamilton is an assistant professor of economics at George Washington University and visiting fellow at the Tax and Transfer Policy Institute at the ANU. Ross Gittins is on leave.
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