We don’t yet know whether the spread of the Wuhan virus is a real crisis or not, but as Rahm Emmanuel would have said, we should not let it go to waste. The World Health Organization (WHO) just declared a Public Health Emergency of International Concern—a PHEIC in its jargon. One funny thing is that it comes on top of another global epidemic WHO also declared.
Just a few months ago, WHO launched a “new report” on what it has been calling for decades “the global tobacco epidemic.” (“WHO Launches New Report on the Global Tobacco Epidemic,” WHO, July 26, 2019). Shouldn’t there be two different words for a communicable-disease epidemic—the protection against which can be viewed as a public good, with many caveats—and an individual’s choice of a personal pleasure? On the other hand, a despised lifestyle choice allows the state to manufacture a crisis justifying its intervention.
I will probably come back to the economics of epidemics in future posts. Here, let’s just try to learn some humor from reactions to the Wuhan virus. Another funny thing stems from today’s WHO press release, which notes quite sensibly:
Evidence has shown that restricting the movement of people and goods during public health emergencies may be ineffective and may divert resources from other interventions.
The comment on diverting resources is interesting coming from an international bureaucracy that has spent decades doing just that by fighting non-communicable lifestyle diseases. But just a few lines later, it adds:
However, in certain specific circumstances, measures that restrict the movement of people may prove temporarily useful … In such situations, countries should perform risk and cost-benefit analyses before implementing such restrictions to assess whether the benefits would outweigh the drawbacks.
Notwithstanding the substance of this statement, don’t they know that a cost-benefit analysis is different from a committee meeting and takes months of data gathering, analysis, and expert discussion (and a couple more for a government organization)? Or perhaps I have misjudged them and they are after ways to slow down coercive government interventions, in which case I apologize.
I also find the following pearl in a Wall Street Journal story (“U.S. Confirms First Person-to-Person Spread of Coronavirus,” January 30, 2020):
The head of the infectious diseases division at Shanghai’s Huashan Hospital declared that all the doctors who had been treating coronavirus patients would be allowed to rest and would be replaced by doctors who were Chinese Communist Party members. …
In words tinged with exhaustion and frustration, Mr. Zhang, who is also the senior party leader of his division, said Communist Party members needed to live up to their vows to serve the people. “I don’t care whether or not you’re willing, you’re all going to step up,” he said.
In many ways, epidemics, like wars, are the health of the state. But at least, if we all die, we can make fun of it.
READER COMMENTS
Thaomas
Jan 31 2020 at 8:12am
If not cost-benefit analysis, just how should a government decide whether to restrict movement or not?
robc
Jan 31 2020 at 9:45am
Deontology.
Pierre Lemieux
Jan 31 2020 at 10:35am
@robc: You are right. Cost-benefit analysis may be a good necessary condition for rational public policy, but it cannot be a sufficient condition. You might like to have a look at the two links in my response to @Thaomas.
Thaomas
Feb 1 2020 at 8:16am
🙂 Thanks
Pierre Lemieux
Jan 31 2020 at 10:32am
@Thaomas: You raise the substantive issue I mentioned and which would be relevant if it were possible to do emergency cost-benefit analyses. The substantive issue, in brief, is the question, Can government always choose any measure whose benefits to certain individuals are lower than the costs imposed on other individuals? Can tyranny be submitted to a cost-benefit analysis? A coup-d’État? The Bill of Rights? I touch these issues briefly a previous post as well in my recent Reason Foundation paper.
Thaomas
Feb 1 2020 at 9:19am
Maybe I’m just being too sensitive to the jibe about cost benefit analysis, but the point I wanted to make is that the whole piece does not give any hint of what you think the WHO, national governments or whoever should do.
That is the same problem I find with your refutation of the Z fallacy. The implication seems to be “do nothing,” not just use “do nothing” as the null hypothesis, not just recognize that there are moral implications in Z, Z1, Z2, …. Zn, but conclude, “do nothing.” That Z does not follow from the premises is not a proof of ~Z.
Jon Murphy
Jan 31 2020 at 8:48am
I think you highlight an important fact that folks who like to flatten everything down to cost-benefit analysis (eg, Stiglitz, Samuelson, Elizabeth Warren) often forget: the political process is costly. Any cost-benefit analysis for Policy X must also take into account the costs/benefits of gathering the necessary information to do the cost/benefit analysis for Policy X (and the subsequent cost/benefits for gathering the information on gathering the information for Policy X, etc etc).
Furthermore, since costs and benefits occur in the future, what happens in the past is not necessarily a good indicator. As John Nye noted on Facebook, with the Coronavirus spreading at an exponential rate, looking merely at the mortality rate of the virus in the past (ie, dividing the number dead by the number infected) will underestimate the mortality rate of the virus. You need to either adjust or wait until the apex of infections, and with a global epidemic, such a delay can be problematic.
Jon Murphy
Jan 31 2020 at 8:50am
None of this is to say governments should do nothing. Unlike more traditional public good and externality issues (like CO2 or other pollutants), there is reason to think the current level of global travel (for instance) is likely too high. Rather, I am just pointing out the technical and logistical difficulties of cost-benefit analysis,
Thaomas
Feb 1 2020 at 9:29am
So our only difference about taxation of net CO2 emissions is in the estimate of harm? 🙂
Actually, I think that “just pointing out the technical and logistical difficulties of cost-benefit analysis” without a hint of how those difficulties should be overcome in this case does imply not using cost benefit analysis.
Jon Murphy
Feb 1 2020 at 12:01pm
Part of it. The other part is public choice issues: the feasibility of any such optimal taxation scheme.
Jon Murphy
Feb 1 2020 at 12:02pm
So how do you propose overcoming them?
Thaomas
Feb 1 2020 at 4:07pm
Dialectical Empiricism 🙂
Mainstream economist proposes a straight calculation of non zero Pigou tax
Public choice economist points out different estimates of “mainstream” variables and additional public choice variables that should be incorporated and their values.
Mainstream economist and public choice economist discuss values of variables
Mainstream economist proposes modified calculation of Pigou tax, still non-zero.
Methodological-philosophical discussion ensues concerning decision criterion.
Rinse, Repeat.
Each cites and thanks the other for valuable comments.
Both granted tenure
And/or
Public choice economist proposes model showing zero Pigou tax based on inter alia values of public choice variables.
Mutatis mutandis …
Jon Murphy
Feb 2 2020 at 6:51am
Except it doesn’t. See Coase 1960, Dahlman 1979, Buchanan and Stubblebine 1962, and Nye 2008, for starters.
This is the problem: you are merely assuming an externality exists, but strict Pigouvian logic shows that just because some cost is imposed upon a third party and that cost is measurable, it does not imply a non-zero tax exists.
Thaomas
Feb 5 2020 at 11:14am
Thanks for the link. From Google, I thought you meant Bill Nye, the Science Guy. 🙂
From the abstract, it seems that John Nye is questioning whether a Pigou tax calculated without taking account of other policies already addressing the externality in question can be optimal. That would be a reasonable point for a Pigou tax skeptic to make in my suggested dialectical empiricism procedure.
As a matter of principle, a net tax on CO2 emissions, for example, ought to be a substitute for other subsidies to “green energy” the ethanol subsidy, mileage standards, percent “renewable” set asides, etc.* If this is not done, the remaining tax would be somewhat less, conceivably zero, but I doubt it.
Fuel taxation, which is a sub-optimal road user charge, would have to be figured in somehow or another, depending on just how finely you want to cut the salami. 🙂
Pierre Lemieux
Jan 31 2020 at 10:48am
@Jon: The uncertainty of long-term consequences (a “froth of massive uncertainty,” Tyler Cowen says) is the reason why cost-benefit analysis is bad for choosing rules as opposed to specific policy measures. I touch on this issue in a previous post:
Thaomas
Feb 1 2020 at 9:38am
But the post did not articulate the correct rule to apply, either, just that cost benefit analysis was not the correct policy in this case.
Pierre Lemieux
Feb 3 2020 at 11:35am
Individual liberty is the general rule.
Thaomas
Feb 5 2020 at 10:43am
So no quarantine, restriction of movement ever? I’d say that should be the “null hypothesis,” but one to which there could be exceptions. But by what rule or principle would you make exceptions except cost-benefit analysis?
Pierre Lemieux
Feb 9 2020 at 10:27pm
Good question. Presumed unanimity, at least at the constitutional level, à la Buchanan?
Alan Goldhammer
Jan 31 2020 at 2:06pm
More funny than the title of this post are the responses that seem to ignore past public health practices. In the pre-vaccine and antibiotic era, quarantines were quite common. Of course this was in the early 1900s when we didn’t have the same modes of transportation as today. There were instances of people picking up and moving as a result of the Spanish Flu pandemic in 1918 (my grandmother’s family moved from Sharon PA to Los Angeles and San Diego for better weather (at the time thought to be a respite).
Those of us familiar with epizoonotic outbreaks don’t find much to chortle about. That being said, the Chinese government which seems to manage so much of it’s citizen’s daily lives has really done nothing to curtail animal husbandry and dietary practices that are conducive to these public health problems. One would have thought after the 2002-03 SARS outbreak they would have taken some action. Perhaps with this new coronavirus they will.
Mark Brady
Feb 2 2020 at 1:42am
Pierre writes, “We don’t yet know whether the spread of the Wuhan virus is a real crisis or not.”
I think we do. “As the overall death toll passed 300,…”
https://www.nytimes.com/2020/02/02/world/asia/china-coronavirus.html
Thaomas
Feb 2 2020 at 8:19am
@ J Murphy
We just restrict the game to one in which a “mainstream economist” estimates a non-zero tax. The game then proceeds although I certainly allow that the “public choice” economist’s first move might be to show using only “strict Pigouvian logic” and not any “public choice” considerations, that the tax is zero.
“Nye 2008?” First he’s not an economist and from the news reports I could find the issue is the science of ACC. I thought we were in agreement that there are net harms from CO2 accumulation and that our issue was just whether or not the optimal Pigou tax is greater than zero?
Jon Murphy
Feb 2 2020 at 9:40am
I think he’d be surprised to hear you say that.
Which I am saying is begging the question. You need to get to that point first, which is the point of Nye’s paper. One of the obstacles that needs to be overcome establishing that, in fact, there is a non-zero externality.
Thaomas
Feb 6 2020 at 9:15pm
I though you meant Bill Nye. 🙂
JOHN Nye in the paper you cite raises a perfectly good point. The estimate of a Pigou tax should take account of policies that are already addressing it. If the estimate by “mainstream economist” did not do so adequately, the “Pigou skeptic” could point that out and potentially show that when this is done, the externality goes away, i.e., the tax is zero.
In the case of a tax on net CO2 emissions, this would ideally replace the current nonsense like green energy set asides, ethanol subsidies, percentage depletion of fossil fuel extraction, mileage standards, etc, not a lot, I suspect because I don’t think that they are very effective, but some. If not, these would reduce the optimal tax (except percentage depletion which raises it).
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