A proper kind of economic thinking will be helpful as the world seeks a balanced approach to the policy challenges raised by the current flu virus. What are needed are the ideas of trade-off, cost versus benefit, economic history, and avoidance of scapegoat blame and finger-pointing. Proper economic thinking is not about narrow expertise or specialist-dependence.
In particular, balanced cost/benefit big-picture thinking will put medical experts in their proper place among the set of players who advise the Magistrates who make policy for the 150 different nations whose citizens are worried about the virus.
All my adult life, I have been a professional academic. Economics professor Frank H Knight, a founder of the Chicago School of Economics, was born too soon (1885) to earn a Nobel Prize himself, but was teacher/mentor to at least three laureates (Milton Friedman, George Stigler and James M Buchanan). According to what may be an apocryphal story, Knight once said: “When I meet another economist on the street, I don’t know whether to laugh or hide my face.”
Professor Knight practiced “proper” economic thinking. He referred to what was known, even in his day, as the notorious inability on the part of most economists to foresee oncoming problems, or to cure trouble when it came to be.
Knight was saying that the profession’s fault (and this is evident in the factual record of his voluminous publications) is that economists may be blinded by their own expertise, and so prejudge and take too narrow a view of the world they seek to understand. But let us be quick to say that this fault is common to other specialists.
It is an old story by John Godfrey Saxe (1872) that I here paraphrase: Six learned but blind experts meet an elephant. The plasterer touches the beast’s side and says, “It’s a wall.” The metalworker feels a tusk and says, “It’s a collection of spears.” The Florida pet-shop owner takes hold of the trunk and says, “A snake, of course.” The imaginative poet, cooled by the waving ears, says, ”It’s the God of Winds himself,” and the Lady Author of Fifty Shades of Grey pronounces, “It’s a whip!”
The writer of the poem, Mr Saxe, in his summing-up moral, says, “They rail on in ignorance,” because not one of them has previously seen an elephant and so they over-rely on their specialized past experience, none of them able to balance and weigh and compare their observations and judgments among themselves.
The mélange of specialized wise men who currently seek to understand the “virus problem” is a case in point. But all the while being appropriately aware of Frank Knight’s warning, perhaps a big-picture solution may be found if the public and media adopt some of the rules followed by economists when they analyze (not so much when they predict or imagine they control) socio-economic-political problems.
This note concentrates on the situation in the US, which is an example relevant to the problems elsewhere in the world. The American experts who are most prominent are mainly medical people. While they provide much data, they tend not to discuss consequences outside the field of medicine. They are blinded by expertise, and sometimes fail to notice they are dealing with an elephant. The economist’s tendency to discuss all things in terms of trade-offs and cost-benefit ratios are too often missing.
Also missing in the apparent inability on the part of almost all concerned with making policy is the comparative scale of things.
So let us do just a bit of economic calculation, combined with a sense of history, to break out from the limits imposed by blindness, or at least narrow-mindedness, of experts.
The US restaurant business has lost $25 billion in the past month. It is one element of the cost side of the benefits that come from the reality of the “social distancing” policy the medical folks have set up.
Writ large, social distancing has imposed aggregate shutdown costs, when measured by the $2.2 trillion law just passed by the US Congress, that are twice as great (in current dollars) as the entire monetary cost of the $1 trillion war in Vietnam, which raged from the time of president Dwight Eisenhower to the Richard Nixon era. American deaths and disabilities suffered in that war exceeded 210,000, while the dead in North and South Vietnam together were 2 million.
Today, the downstream possible added “virus” spending in the US may include another $4 trillion, because the Federal Reserve (government) banking system might create that much new paper money, because the Fed may itself “pay for” various kinds of personal and business purchases made during the period of “the crisis.” That brings to $6 trillion the total possible spending proposed as the counterweight policy to offset the supposed American cost of the virus.
Professor Frank Knight, a real expert when it comes to understanding the follies of which a panic-stricken politician is capable, would shake his head like Puck in William Shakespeare’s Midsummer Night’s Dream, and quote: “What fools these mortals be.”
In other words, I cannot believe that a careful study of the costs and benefits associated with the “war” against the current flu virus is worth an outlay of borrowed money, and printed money, amounting to about one-third the entire annual gross domestic product of the world’s richest society.
To continue with the war analogy: The American Congressional Research Service estimates the cost in current dollars to the US of the fighting in Asia and Europe during World War II at $4.1 trillion. If the three-month virus war will cost 50% more ($6 trillion) than World War II, somebody capable of, among other things, reading economic history needs to rethink the social arithmetic now being applied by blind experts.
Next, it is elementary that social-science methodology does not allow scapegoat finger-pointing to be part of respectable policy analysis. China, the place where the flu virus “chose” to evolve to its latest 2019 form, is no more to blame than was Spain in 1918. If national pride, and a traditional culture that required it to be self-sufficient, caused a delay in telling the world about what might have appeared to be a domestic problem, the secret was not kept for long.
Finally, let us think statistically. The 2019 US death from all causes was 8.782 per 1,000 persons or 0.87%. The current national death rate for persons who are known to be infected by the virus is 1.75%. At this writing 140,904 persons are infected out of a total US population of 324 million (2017 data; 141,000 divided by 324 million is 0.0004351). The infections will not significantly change the national death rate.
But that number is overweighted by the few states where the disease is concentrated. In New York (home to more than half of all cases), Louisiana, Washington and Vermont respectively, rates are 1.65%, 4.13%, 4.39% and 5.69%. Twenty-seven of the 50 US states have death rates of 1.55% or less, according to Forbes.com.
This year so far the virus has caused 2,197 deaths in the US. In 2017, 2,813,503 American persons died from all causes. Heart disease brought down 647,457; cancer killed 599,108; accidents 169,936; chronic respiratory disease 160,201; stroke 146,383; Alzheimer’s disease 121,404; diabetes 83,564. Even suicide (47,173) is far more “dangerous” than the virus, according to the National Center for Health Statistics. To draw the big picture requires proportion.
To this economist, economic history, econometric data and open-eyed study of the elephant tells me it makes sense to think about a return to normal economic, social and even medical customs, habits and processes. It is reasonable to ask just how much economic damage we can justify in the name of “winning the war against the virus.”
Tom Velk is a libertarian-leaning American economist who teaches and lives in Montreal, Canada. He is the chairman of the North American Studies Program at McGill University and a professor in that university’s Economics Department.