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  • rmacculloch

Shaun Hendy vs The Productivity Commission: DownToEarth.Kiwi is on the Commission's Side

Outstanding NZ Herald Investigative Journalist, Kate McNamara, has done some digging & picked up on a story-line that we blogged about back in August in a post titled, "My toy model is better than your toy model". In that post, we noted how Newshub reported that, "A scientist [Professor Shaun Hendy] .. has criticized a report which suggested lengthening the time spent in level 4 cost a fortune, while providing few health benefits". That report was by the Productivity Commission. It was a cost-benefit analysis on whether a decision to extend the lock-down in 2020 was justified on a social welfare basis. We took the Commission's side in its spat with Hendy, who said that their work looked like nothing more than a "toy model". The title of McNamara's article is, "How Shaun Hendy's Twitter Blasts Poisoned Engagement with the Productivity Commission".

It's worth noting that Hendy's own modelers estimated back in August that the size of the current "outbreak" could be in the range of 200 cases, which they called their "best case scenario", and possibly going up to as many as 1,000. Yet the number of cases arising from the current "outbreak" now sits at nearly 10,000. As a consequence, we called for more humility on behalf of the modelers & for them to refrain from arguing that their model is better than others. All such models are built of a vast number of assumptions which are typically subject to doubt & uncertainty. Modelling virus transmission & anything that involves people & their behavior throws one into the social sciences. It makes my subject, economics, particularly difficult. Models in the physical sciences, by contrast, are different, since they are devoid of the irrationalities & unpredictable ways that make us human.

We stated back in August how the Productivity Commission "was doing exactly what it should be doing. Trying to work out the full costs and benefits of government policy. And those costs and benefits play no role whatsoever in the Covid-19 mathematicians' model which is narrowly focused on simply trying to predict case numbers".

Ironically, after we applauded the Productivity Commission's effort to do a cost-benefit analysis on this topic, now the group with which Hendy is associated is getting into the game! Their recent (non-peer reviewed) attempt is called "Economic comparison of the use of Alert Levels 3 & 4 in eliminating the Auckland August outbreak: a cost-effectiveness analysis". But I can't find a single economist on their list of authors, even though the paper has 'economics' in the title. The Hendy-et-al article references previous NZ work on the topic, though misses out the only one I know of that is peer-reviewed. Its author, Prof. John Gibson, is one of this country's (and the world's) most highly cited economists. Gibson is a Distinguished Fellow of the NZ Society of Economists. His article on whether the lock-down costs were justified was published in NZ Economic Papers. Gibson's view opposes Hendy's.

I'd note that the Hendy-et-al paper leaves out all psychic, or well-being costs, which nowadays can be quantified in monetary terms. The paper focuses entirely on lost GDP, obtained from Treasury. In this sense, the paper misses out many of the most important costs when doing its cost-effectiveness comparison - not just according to me, but also Auckland's Mayor, who supported exiting lockdown because "the psychological pressures of the long level 4 lockdown are growing ..". Given improving the well-being of Kiwis is central to the government's agenda & reporting on well-being has been enshrined in legislation, as per the Public Finance (Well-being) Amendment Act in 2020, I'd recommend to the Covid-modelers that next time they try writing on welfare economics, they estimate all relevant costs, which in the case of stringent lock-downs, include their severely oppressive psychic effects. Economists know that the psychic effects of job loss, for example, far exceed the loss of wages. Yes, modern economics is not all about GDP.



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