COVID-19 and Game Theory
As the UK faces increasingly severe lockdown measures, it is ironic that we are stuck in a very real prisoner’s dilemma.
For those uninitiated with game theory, the prisoner’s dilemma is a situation in which we have an incentive to make a choice that does not produce the optimal result for the group.
In the classic case of the prisoner’s dilemma, two members of a criminal gang are arrested and imprisoned. They cannot communicate. The authorities cannot convict them on the main charge, but they can on a minor charge. If they both stay silent they get they both get the lesser charge, the optimal result between the two of them.
But, if one speaks out then they are released, and the other person is put away for years. The incentive is for both to betray the other, in the hope of getting a reduced sentence, but which results in them both getting a medium sentence. The implication of the game is that two individuals acting in their own interest reach a suboptimal outcome.
Stuck in isolation, we have no idea as to how our fellow city-dwellers will act, and many choose to act in self-interested manner since they can assume others will as well. Let’s take the case of supermarket stockpiling. The media might have us believe that the virus has led to a plague of ‘covidiots’; revellers and hoarders hell bent on and single-handedly clearing out supermarket shelves.
But are people acting irrationally? At a collective level, it is leading to shortages of goods. But in a direct sense, people are acting rationally. It becomes optimal rather than suboptimal to start stockpiling if everyone else does because their stockpiling creates the very supply problem they are trying to avoid in the first place.
No one particularly wants to hoard hand sanitiser, but will do so if they think others are doing so. The stockpiling of toilet roll doesn’t even have the same disease-preventing benefits of grabbing extra soap, but no one wants to be caught out without any loo roll if all their neighbours raid the local store shelves.
This perspective does not seem to be one entirely shared by supermarkets or the government, with the suggestion today that supermarkets will be advised to allow only 10 people in at a time, alongside the already implemented two or three items per person rules to stave off induced shortages. These policies are based on a cynical intuition that the majority of shoppers are irrational hoarders, that they will purchase these items whatever the price, and consequently that price rises are an equally cynical attempt at profiteering during an emergency.
The item limit policies function as a blunt tool to prevent overbuying, but it comes with costs. It disproportionately endangers those who might need more like families and vulnerable members of society who will be forced to go into the shops more regularly to adequately supply themselves. This is likely to become increasingly difficult as further measures are taken to discourage time spent in public spaces.
By increasing prices on certain goods like toilet paper, those who don’t want to be caught without it could opt to buy in smaller volumes, leaving more stock on the shelf and increasing buyer confidence that stock isn’t dwindling. In the case of meat and dairy, this has the added benefit of displacing demand onto cheaper vegetables of which there is a greater supply. As buyer confidence in the supply chain is restored, prices could be returned to standard levels. Government is rightly increasing welfare payments to compensate the least-well off for these short-term hikes.
While perhaps counter-intuitive, raising prices in our current context is not a cynical cash grab, but an effective means of restoring consumer confidence and ensuring we can all access the goods we need during these strange and difficult times. While purely anecdotal, the supermarkets near me haven’t had eggs for days, but the corner-shop has plenty after raising prices to 40p an egg, and for that, I am glad.
The broader experience of this pandemic might also point to other economic insights, like that of the tragedy of the commons, in which people overuse a shared resource. The classic case being overgrazing by farmers of a shared field of grass.
When the PM announced that pubs, clubs, bars and gyms should close down, he inadvertently created an incentive to flock towards public parks and holiday homes as the last vestiges of unrestricted leisure. What better time for a breath of fresh air than when your compatriots are cooped up inside?
Somewhat predictably, the media has us staring at images of parks heaving with joggers and tube stations chock-full of commuters (only worsened by the Mayor’s decision to reduce services at a time when people need to socially distance).
If everyone believes it is optimal for themselves to go to the park, it quickly becomes sub-optimal because the park becomes unpleasantly full, increasingly hazardous and precipitates further government lockdown. Social distancing is enforced either through individual inference or law enforcement. As per the tragedy of the commons, our own self interest has created a suboptimal state of affairs for everyone in jeopardizing public health, and incurring increasingly necessary restrictions on personal freedom.
However, if YouGov is to be believed, 93% of us back protocols recommended by the Government, with those who do not forming a hyper-visible minority. Corroborated by recent observations that footfall in public spaces is dropping, we can conclude that as society adapts to this new normal, most of us will make mutually beneficial decisions.
Learning the lessons of the end of World War II
The Allies won a remarkable victory in World War II. Although among the victors, the UK was bankrupt and exhausted, its economy was in poor shape, and its infrastructure - roads, rail and telecommunications - was out-of-date and worn out. Its economy needed a reboot to refresh and renew itself to deal with the postwar world.
Instead, the UK government, a major recipient of Marshall Aid (far more than West Germany), and having negotiated a huge loan from the United States, squandered the money on building up an expensive welfare state, nationalizing industry, and trying to maintain the costly illusion that it was still a superpower. The sad story is documented in detail by Corelli Barnett in “The Lost Victory” (Macmillan 1995).
The result was that while Germany and Japan saw reinvestment and renewal, the UK went into an economic decline that lasted for decades. Instead of abandoning the wartime restrictions and regulations, as other countries did, they lingered in the UK, hindering the country’s economic development and the process of renewal. The UK became the sick man of Europe.
There is an obvious lesson to be learned. Although extreme measures were needed to defeat the threat from Nazi Germany and Imperial Japan, they should have been temporary, as they were in other countries. Instead the UK retained many of the restrictions, to its long-term cost.
To cope with the threat of the coronavirus, extraordinary measures have been adopted. An unprecedented economic stimulus has thrown away the rule-book, and restrictions on civil liberties have been introduced that are unprecedented in peacetime. The lesson to be learned from postwar Britain is that if these are needed to defeat the threat, they must be temporary. We must not continue to suffer under the burdens they impose to our economic well-being and our way of life once the threat is over.
Of course, there will be those who want to keep these measures in place in case they might be needed again in the future. The reply to this argument is that if they are needed in future, they can be re-imposed in future. But it is important to get rid of their burden until such a time, so that we might meanwhile prosper in freedom.
What we should now do is prepare a programme for the systematic removal of the emergency measures, both the economic ones and those that pertain to civil liberties, once the threat has receded. Even more than that, we should go further, going beyond the status quo that prevailed before the emergency, and removing some of the restrictions that held back our adaptation to the new economy. And we should undo the nanny state restrictions that thwarted our right to make our own lifestyle decisions concerning what we eat and drink and choose to live. After winning the war, this time we must win the peace.
Colin Hines still hasn't grasped the basics here
Colin Hines has spent the last decade telling us that if we can print billions, nay trillions, to save the banks then we can print billions, nay trillions, to spend on his Green New Deal.
Which means that Colin Hines has spent the last decade not grasping the basics:
Central bankers used “bankers’ QE” to help tackle the 2008 financial crisis and are now turning to “coronavirus QE”. While working to bring this latest threat to human health under some degree of control, it is time to also plan for “green QE” to fund a global green new deal to transform the health of the planet. In the UK this would involve the Bank of England e-printing hundreds of billions of pounds. A new national investment bank would issue bonds that would be bought using QE and the money used to fund a green and decentralised infrastructure programme. This could include a decades-long, multi-skilled initiative involving energy refits of all 30 million UK buildings, a shift to localised renewable energy and food production, and the building of local transport and flood defence systems. The last war led to the NHS; this one must result in a green new deal.
Colin Hines
Convener, UK Green New Deal Group
The entire point of QE is that you don’t actually spend the new money on anything. It is prestidigitation to lower long term interest rates, that’s all. The moment the money is spent on real and actual services and products out there in the economy it becomes not-QE, it becomes the monetisation of fiscal policy. Just printing money to go spend, rather than the manipulation of the money supply.
This second is what happened in Weimar Germany, is what John Law performed with his Mississippi scheme, a large part of what has brought both Zimbabwe and Venezuela to their knees and so on.
Far from being the “new economics” which will solve problems this is old, tried and discarded economics which creates problems.
As to why, all this printing more money can change the price of money - that interest rate being the price of the use of money over time - and it can change the value of the money itself, through inflation. What printing more money cannot do is create more resources within the economy to devote to this or that or any other problem we might like to solve.
Or as we might put it, sure there’s a magic money tree and it works only with money, not with anything real and important.
We’d rather hoped that Hines and others would have learned something over this past decade as many have indeed been stating this obvious truth. But apparently not.
Answering the wrong question but it's good propaganda all the same
We’re told, in The Guardian, that electric vehicles are the saviour of Gaia:
Electric vehicles produce less carbon dioxide than petrol cars across the vast majority of the globe – contrary to the claims of some detractors, who have alleged that the CO2 emitted in the production of electricity and their manufacture outweighs the benefits.
The finding is a boost to governments, including the UK, seeking to move to net zero carbon emissions, which will require a massive expansion of the electric car fleet.
That’s sorta true, dependent upon certain assumptions. This isn’t:
“The idea that electric vehicles or heat pumps could increase emissions is essentially a myth,” said Florian Knobloch of Nijmegen University in the Netherlands, the lead author of the study. “We’ve seen a lot of disinformation going around. Here is a definitive study that can dispel those myths.”
Jean-Francois Mercure, of Exeter University, a co-author of the study, added: “The answer is clear: to reduce carbon emissions, we should choose electric cars and household heat pumps over fossil fuel alternatives.”
The paper is here.
The crucial assumption is that the EV or ICE powered car is measured at doing 150,000 km over its lifetime. We already know from VW’s own advertising that the electric Golf only has lower emissions than the petrol one - over the lifetime - if the lifetime distance is more than 120,000 km.
OK, so, the embedded emissions from manufacture and disposal outweigh the fuel emission savings for cars heavily used. They do not for those lightly used.
This does not, therefore, mean that the manner of reducing emissions is to mandate, by law, that only EVs may take to the roads. What we actually desire is that the low usage and short distance fleet be ICE, the long distance be EV. Exactly the opposite of the current usage, which is the EV for the little trips around town and an ICE to trash on the long distance motorway journeys.
We come back, once again, to the point that the economy is complex. It is not possible to plan it, to mandate the optimal outcome through the law or regulations. Only the use of the price system can do this. For only that price system is capable of distinguishing correctly.
In this case, given that requirement for substantial distance covered before emissions are reduced the correct policy is to be taxing EVs heavily when they first take to the road, To account for those embedded emissions. Also to tax the fuel for the ICE - as we already do - to account for the emissions in use. That is, the tax system for EVs should be entirely the opposite of the one we have, where people are subsidised to take to the roads in 120,000 km of encapsulated emissions.
Taking both sets of emissions, equally, is the only thing that will give us the optimal outcome between the two forms of transport.
This is before we get to the important point here, that they’re answering the wrong question. They’ve shown, given their distance in use assumptions, that EVs have lower - but not no - emissions than ICE. Which isn’t what we want to know at all. Rather, the question we’d like answered is what form of transport - restricting ourselves to cars if we must - lowers emissions the most. Not just ICE v. EV, but those two versus fuel cell, hydrogen, algal oil, hybrid and on and on through the entire list of possible manners of propelling a tonne of steel on four wheels. Which is, obviously enough, an answer we don’t get if we ask only the question about EV v ICE.
But this will still be used as propaganda in favour of the EV, to the exclusion of all those other possible solutions. To the point that the law will be based on that binary choice instead of the entire universe of possible answers.
We have said that planning isn’t the way to deal with this problem, haven’t we?
No, don't close the stock markets, really, don't
There’s a bit of chatter floating around that possibly the stock markets will be closed over the coronavirus problems. No, don’t do this, really, don’t do it.
It’s entirely true that said markets are bouncing all over the place. But that’s because no one actually knows what is going to happen. We’re facing that uncertainty, not risk.
What needs to be remembered is the efficient markets hypothesis. Which doesn’t say that markets are the efficient manner of doing everything. It doesn’t even say that markets are the efficient method of allocating capital - although they largely are. Instead it says only that markets are efficient at processing information.
So, we face uncertainty. And at some point that uncertainty will collapse down into actual knowledge. Either because the thing(s) will have happened or because the knowledge in general of what will becomes available. We would like that knowledge, as it becomes available - that is, as information about infection rates, communicability, death rates and all that - to be processed. We’d even like to know, as best we can, what is the collective and aggregate opinion on what people and governments are trying to do about the current problems.
Markets are that information processing system. Closing them down just when we so desperately desire to use them for this process would be the utmost perversity.
Or, as we might put it, we can certainly dislike the messages brought to us by market prices, even rail against them, but they are reality as best we can work out what that is. Reality being rather what we’re supposed to take note of, the more extreme our situation the more this is so.
What should it cost to get one out of bed?
COVID-19 has the occasional silver lining. One is that the Department of Health and Social Care is finally addressing bed-blocking. On 19th March, the DHSC announced new measures which will release “at least 15,000 beds by 27th March” and thereafter from the NHS stock of around 140,000. Coincidentally, this roughly restores the total hospital bed count to 2010 levels. Unsurprisingly, occupancy has increased from around 85% to about 90% and the peaks in that figure are responsible for long wait times in winter at A&E.
The first problem with the “at least 15,000” claim is that bed-blocking, or, technically, “Delayed Transfer of Care (DTOC)”, only accounts for 4,500 beds. Where are the other 10,500 coming from?
Under the new measures, “Every patient on every general ward should be reviewed on a twice daily board round to determine the following. If the answer to each [of several] question[s] is ‘no’, active consideration for discharge to a less acute setting must be made.” There is a slight fudge between the main text and this quote from Annex B: the latter merely requires consideration to be given to a less acute setting (possibly a community hospital) whereas the main text reads “Transfer from the ward should happen within one hour of that decision being made to a designated discharge area. Discharge from hospital should happen as soon after that as possible, normally within 2 hours.”
About two thirds of DTOC is due to NHS hospitals’ bureaucratic processes. I have two personal experiences of the difficulty of escaping from a hospital bed once cured. Papers must be signed and the necessary signatories fail to show up. Both times, in desperation, I discharged myself but even that is not supposed to take place before signing to say the patient takes full responsibility and preparing such a document is itself a slow process.
Section 3.1 of the new measures requires, inter alia, “At least twice daily review of all patients in acute beds to agree who is not required to be in hospital, and will therefore be discharged. Ensure professional and clinical leadership between nursing, medicine and allied health professions for managing decisions.” And “Social care colleagues should be involved in daily ward reviews.” Since the patients themselves need to agree with the decisions, there will be quite a cohort moving from bed to bed. There is no mention of what records will need to be kept by whom. Stand by for a wave of lawsuits in a year or two!
Another silver lining in all this is eliminating the current protracted argument between local authorities and the NHS over who pays for “Continuing Health Care”. If the post-hospital care is primarily medical, the NHS is supposed to pay, otherwise it falls to the local authority. Committees meet endlessly to debate where the line should be drawn. The new measures give local authorities the benefit of any doubt.
Chucking patients out of wards within an hour of being cured, rather than several days, should save the NHS money rather than costing them more but for reasons unexplained they are being given an extra £1.3bn to do so. If the DTOC figures are correct, that is about £430,000 per bed. I think I would get out of bed for that. We cannot match the Chinese who seem able to build a thousand-bed hospital in a week.
Clearing the beds for which the NHS is itself responsible for the delays is the easy part. The 1,500 DTOCs for which local authorities have responsibility are the difficulty and they have been allocated £1.6bn to deal with their side of the problem. The main 2018/19 reasons are:
Awaiting care package in own home (20.8%)
Awaiting further non-acute NHS care (17.2%) – surely an NHS responsibility?
Awaiting nursing home placement or availability (13.9%)
Patient or family choice (12.4%)
Awaiting residential home placement or availability (12.3%)
Awaiting completion of assessment (11.3%)
The new measures adopt a robust approach to the first item, namely send them home first and worry about the care package second. In the context of the current crisis it is hard to argue with that and maybe, force majeure, we should adopt the Spanish practice of requisitioning empty hotels, re-employing and re-training the hotel staff to take care of the ex-patients. Doing so by 27th March, though, is a bit fanciful.
I have previously accused Matt Hancock of trying to run his department by press releases. Yes, unblocking 15,000 beds by the end of this week may look good in the media but it seems a trifle short on substance.
Altrincham isn't the best place to live
The Sunday Times tells us that Altrincham is the best place to live on our sceptered isle. This is clearly, obviously, not true. One of us dealt with this last year when Orkney was claimed as the spot.
We know of those who would reject that near Manchester contention out of hand for it’s north of Watford Gap. Even one, to our knowledge, who would do so because it’s north of the Marylebone Road. Which is ridiculous, of course, but also the point.
There are many of this “this is the best place to live” sortings. Just as there are many “this is the best way to live” rankings out there. Those various alternatives to GDP that are constantly touted for example. The problem with them all being that they are subjective.
They are, that is, how those compiling the list, or determining that good life, define what is that good place or good life. And a very basic piece of economic reasoning is that utility is personal. We all enjoy different things and it is the duty of the liberal - like us - to keep insisting that the good life is the one that meets those personal definitions of what one is. The liberal polity being the one that enforces the ability to chacun a son gout.
That we don’t all flock to Altrincham - or last year to Orkney - to live shows that it isn’t that place for us. That we don’t all value equality of income, or a pristine environment, or one that’s tobacco free - just to mention three of the measures that are in various GDP alternatives - is exactly why they’re not good measures of the quality of existence.
GDP itself has problems, certainly, but it is at least objective - the value being added in the economy. Given that it’s at market prices it’s also the value added according to those entirely personal measures of utility. That is, it’s a better measure of how we’re doing at creating the liberal world order than any of the purported replacements.
We don't have to abandon logic here
There are silly things to say about the coronavirus and this is one of them:
And now Covid-19. Imagine if blunt economic interest was, in fact, dictating our response. Would we be shutting the economy down? What we know about the virus tells us that it most often kills what are by the numbers the “least productive” members of society. The majority of the working population experience symptoms barely more significant than a regular flu. Unlike regular flus it does not threaten children, the future workers. The virus may be bad, but simplistic economic logic would dictate that until we have a vaccine it would be best to keep life going, because, you know, “it’s the economy stupid”.
Economics - and thus the economy - is not about money, or production, or consumption, incomes nor any of the specifics that are actually studied. We study those specifics in order to work out how to maximise utility. That is, as much as is possible of what people want.
Matters like GDP - and production, recorded consumption and so on - are only proxies for this underlying thing we’re trying to maximise. To talk of “the economy” is to reify that proxy, an error that often enough doesn’t matter - that’s the way with proxies, they’re often good enough - but we must not forget that it is just a proxy. And increased GDP means that we can produce more, therefore we can consume more. It’s an increase in our ability to maximise utility, that’s the very point.
Not killing grandpa by not going to the pub - or work - is an increase in utility, we have no conflict here. Except among those with the silly belief in that reification of “the economy”.
There are also stupid things that can be said:
It is the commercial logic of drug development that defines the range of vaccines we have ready and waiting; obscure coronaviruses don’t get the same attention as erectile dysfunction.
There is no possible system of organisation that would have a vaccine ready today. No one actually knew that there was anything to have a vaccine about until December at the earliest. Going back through blood samples gives us November 17 as the first (at this point at least) recorded evidence of the existence of the virus. To wibble that it’s commercialisation that created the current absence is to claim that the HIV drugs should have been created in 1959.
Yes, we have a problem here. But logic is an aid to solving problems, problems are not an excuse to abandon logic.
If it's so terrible why do you want more of it?
The Guardian tells us that the Home Office is terrible, awful, simply not fit for purpose:
The review exposes the department as unfit for the society it is supposed to serve, after a series of colossal failures, rooted in a toxic internal culture and an ingrained misunderstanding of Britain’s colonial history.
....
There is not one easy fix to the culture of the Home Office, or the inhumane policies driving the unnecessary suffering it creates.
For once we actually agree with that newspaper. However, we would go on and insist that there’s nothing particular nor specific about the Home Office. This is just what bureaucracies become, it’s an inevitable outcome of the points made by C. Northcote Parkinson. Once established the purpose of any bureaucracy is the perpetuation of that bureaucracy. Whatever it is that it was originally supposed to do becomes entirely an irrelevance to its own working procedures.
The solution therefore is to have as few bureaucracies as possible doing as little as possible. The Indian civil service in the days of the Raj was never more than 1200 people administering several hundred million. That might not be quite the exact and precise proportion we should have today but it’s a useful target to aim for.
The bit we truly don’t understand though. We get endless complaints from those to our left that government isn’t doing this right, or it’s appalling, or that the system has entirely lost its way. At which point we agree, of course. It’s just that having done this complaining, often providing convincing proof of the assertion, why do they then call for more of what so clearly doesn’t work?
The full dope on the costs of regulation
A standard point made about markets is that there must be regulation. Bureaucratic such, standards and methods and rules must be the same across all participants in order for the market to work at all. We see this in European insistences about access to the Single Market. We see it often enough in more domestic settings too. Only strong central control can create the level playing field necessary.
We, contrary as we are, insist the opposite. Rather the point of markets is that the playing field isn’t level - what is comparative advantage if it isn’t an insistence that we’re not all starting from the same point? Leaving such theoretical issues aside, we can also observe the effects of regulation out there in the wild.
Well, sometimes we can. It’s not all that often that we can see a large and functioning unregulated market operating alongside one regulated for the same goods. One of those sometimes is cannabis in the newly legalised areas:
The consensus on Vancouver’s cannabis-focused Reddit feeds is that the legal market is struggling to attract buyers because its product is more expensive but lower in quality than the black market alternative.
This is not a good advertisement for the merits of regulation.
“The government’s pot is too expensive. The government doesn’t show you a picture of what you’re buying before you buy it, so you cannot be informed as a consumer. The government weed has been full of bugs, mouldy or too dry in some cases, and often takes too long to get there,” one user said.
“The legal stuff is garbage,” said another Reddit user. A third said: “Friends don’t let friends smoke government weed.”
That’s not a good one for the merits of the government provision of an item either.
Government regulation, making things worse and more expensive. That being an impressive double achievement as there are few things that manage both at the same time.