Crystal-ball economists

Updated May 18, 2020

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JOSEPH Stalin said one death was a tragedy but one million deaths were a statistic. Taking a leaf out of the Soviet strongman’s book, two economists from Yale University published a paper last month that concluded the dollar cost of uncontrolled Covid-19 is “minuscule” in Pakistan but “unambiguously large” in the United States.

They came to this conclusion on the basis of the monetary value assigned to saving a single life in each country.

Simply stated, the Yale “scientists” recommend Pakistan should steer clear of the lockdown option because its economic cost outweighs the gain even after accounting for the all-too-evident loss of a large number of lives.

The paper proved to be a taser gun fired from Connecticut that sent Pakistan into convulsions. Cloaked in the language of science and math, its findings coincide precisely with the interests of big money.

The prime minister may say otherwise, but the elite are the last group to favour a lockdown. They own income-generating assets. This means they can afford to stay safe while putting their employees in harm’s way to do the grunt work.

The government was already under pressure from vested interests to reopen the economy. But with the “scientific evidence” from a couple of overconfident economists in his bag, Asad Umar was more than game.

What can possibly go wrong in turning the country into a bloody laboratory to test the validity of a “model” peddled by the economists who have never set foot here? Despite the doctors’ loud warnings against lifting the lockdown, the government decided to accept the economists’ untested wisdom as gospel. Using millions of citizens as guinea pigs, the government embraced their “model” out of pure conviction — a policy that has already started breeding widespread illness.

What can possibly go wrong in turning the country into a bloody laboratory to test the validity of a ‘model’ peddled by the economists who have never set foot here?

The government’s decision to lift lockdown restrictions demonstrates that politicians are suckers for junk science that serves their pre-existing views. Mr Umar’s attempt to justify the lifting of restrictions on the pretext that traffic accidents cause more deaths every day shows his gullible side.

Doesn’t he know that car crashes are independent of each other, that they are not scalable? But viruses are contagious and that’s what makes their spread exponential, not linear. The scalability of Covid-19 means there is no headwind to slow it down without active policy intervention.

More importantly, economists should confine themselves to ex post analyses only. They should not poke their nose into the doctors’ business. Doctors have skin in the game, economists don’t.

In any case, economists are so bad at forecasting they couldn’t foresee any of the major economic crises — there’s been at least one every 10 years for the last five decades — that wiped off savings of millions of people. What makes them believe they can slide back into the forecasting game amidst a global pandemic? What good are their “models” when nobody knows when a vaccine for the coronavirus will become widely available? How can they forecast the future without any clue about the central element of the post-coronavirus world?

This propensity to dish out bogus forecasts runs deep among economists of all stripes. Take the example of the State Bank of Pakistan. It has revised the benchmark interest rate four times in two months. Although it didn’t know on April 16 how long the economy would remain under the lockdown, it confidently projected a growth rate for 2020-21 nonetheless.

The International Monetary Fund is bolder in its approach. Even though its predictions from six months ago have gone completely haywire, it has issued revised forecasts about Pakistan’s key indicators for as far as 2023-24.

Economists in local brokerage houses aren’t far behind in this guessing game, with each cleverly coming up with predictions that tend to be in the vicinity of the ones already published by others.

The emerging situation in the first few days after the easing of the lockdown shows phoney economic models are meant to provide anxiety relief only. The government must listen to the doctors and resist the temptation to throw people at the mercy of the virus. The fate of the nation cannot be left to part-time forecasters.

Published in Dawn, The Business and Finance Weekly, May 18th , 2020