Thoughts on economics and liberty

Category: Economics

The problem of groupthink and the madness of crowds

A placeholder post. Some recent tweets:

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Six reasons why there won’t be an economic depression

The virus may have caused the recession but only governments can convert this calamity into a depression. Fortunately, I am able to predict that most governments will not reimpose strong lockdowns even if there is a spike in cases.

  1. Serological studies confirm that this virus is not a Spanish flu. Its IFR is far lower than originally anticipated.
  2. In some countries many people have already got the virus, so its future spread will be slower. That assures their governments that they can manage its further spread.
  3. Politicians can see that hospitalisation capacity was not breached (in most countries). In addition, PPE and equipment shortfalls that were seen initially have been mostly overcome. This gives politicians comfort in dealing with the virus.
  4. Governments are facing dire fiscal consequences from continued lockdowns. They desperately need economic activity to resume so revenues can start rolling in.
  5. Politicians can sense opposition to indefinite lockdowns starting to build. Nobody can wait for two years for a vaccine which may never come. The youth, in particular, realise that they are not significantly affected and need to get back to their normal work and life.
  6. Sweden’s success will put great pressure on other nations. Within days now we will start seeing pictures of an even fuller level of normalcy in Sweden. That will put enormous pressure on other countries to review their lockdowns.

If governments give in to these pressures and do not re-impose lockdowns and, instead, learn to live with the virus, we won’t get a Depression – just a prolonged, bad recession. Sweden will in any case return to the pre-pandemic level of economic activity from September 2020, but even other nations could return to these levels from late 2020 or early 2021.

If major countries re-impose lockdowns then all bets are off – we may well see an economic depression, then.

 

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Economic consequences of lockdowns – including their regressive impacts

Lockdowns are nothing short of suicidal. Upper class elites are very relaxed about them (at least for now), but the poor are beginning to suffer very badly.

There is a lot of literature floating around. I’m unable to spend time to bring all this together, but a few links below when I find time.

My earlier blog post: Further notes on CBA for pandemic options

My TOI article on economic impacts:  An outline cost-benefit test of COVID-19 lockdowns

Experts are blind: “Medical scientists’ … opinions ought not to be given undue weight. They are only focusing on what can be seen – the COVID-19 deaths and not the unseen deaths, misery and loss of liberty.” [Source]

The lockdown is killing people, too – 16 April 2020

SARS-CoV-2 Response: Where Do We Go from Here? (Introduction) – 16 April 2020

Coronavirus: We can win this war — and avoid an economic defeat – Henry Ergas, 17 April 2020

Although estimates vary, merely extending the restrictions by another two months could permanently reduce gross domestic product by $95bn, almost equal to a year’s public spending on education. The decline in what economists call “welfare”, which adds to the GDP cost the losses consumers and producer incur when they are prevented from engaging in mutually beneficial trades, would be even larger, taking the total to about $130bn.

The supply chain starts to fail, part two – 13 April 2020

Another U.S.-Wide Housing Slump Is Coming – 12 April 2020

JPMorgan economists have recently amended their forecast to a 40 per cent decline in GDP in the quarter and a 20 per cent unemployment rate. [Source]

Coronavirus Australia: worst year since Great Depression, says IMF – 15 April 2020

New OECD outlook on the global economy – 26 March 2020

For each month of containment, there will be a loss of 2 percentage points in annual GDP growth.

SPECIFIC SECTORS THAT ARE GOING TO BE IMPACTED

Jim Cramer advises investors to sell these groups of stocks ‘whenever they bounce’ – 16 April 2020

Sectors that will suffer badly without herd immunity

  • travel (including air, train/public transport)
  • tourism and hospitality (including airbnb, hotels, cruise ships)
  • entertainment (TV live shows, opera, theatre, theme parks, movies, big events, small events – political and religious gatherings/ events are included here)
  • sports and gyms (all – cricket, football, tennis, competitive and recreational sports etc. except maybe chess and such “distant” sports)
  • restaurants (many will minimise visits), street food.
  • house repairs (people will minimise outsiders visiting their homes)
  • hair dressing (many will avoid)
  • clothing and shoes (less “big social events” means less need for fancy clothes)
  • retail malls (fewer trips made)
  • executive education (many aged students will minimise such courses)
  • food processing (particularly industries with intense human involvement)

Many other sectors will suffer second-order affects – through reduced demand (e.g. furniture, house furnishings, toys, pet stores, IT hardware, etc.).

 

HIDDEN COSTS/ UNINTENDED CONSEQUENCES

 

A zoo is struggling so much that it may have to feed some animals to other animals – 15 April 2020

When Home Is More Dangerous Than the Coronavirus – 27 March 2020

Coronavirus outbreak raises threats to mental health – 27 March 2020

People in countries without herd immunity will remain in a perpetual state of fear, flattening their economies:

reversion to the use of firewood

 

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List of economists against total lockdowns

Almost all economists with any sense are dead against lockdowns. Here’s a compilation from the internet. This is a placeholder post. Will add more when I find time. Send me more links if you find them.

Of course, don’t forget me: My articles at http://swarnabahrat.in/pandemic + on this blog

Paul Frijters

Adam Creighton

Let’s hope the economic train crash is worth it – 14 April 2020

Lars Peter Hansen, Economics Nobel winner

Vernon Smith, Nobel in Economics

The greatest public policy risk in the pandemic is that governments local,
central, and worldwide would all seek the same minimum risk policy and follow it.
The first principle in the science of decision is to assess the value or cost of
probabilistic outcomes and weight the outcomes with their value (cost). There is no such thing as a minimum risk policy defined only in terms of unweighted
Outcomes. Covid-19 has very different consequences across population characteristics and necessarily the variability of those characteristics must be part of policy decision making.

Sweden is following a more “relaxed” policy, and will be a source of learning not
Available otherwise. [Source]

 

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