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The sad state of New Zealand’s scientific discourse

Ananish Chaudhuri

Ananish is Professor of Behavioural and Experimental Economics at the University of Auckland and the author of the forthcoming book “Behavioural Economics and Experiments”. The view expressed are his own.

I am the co-author a paper questioning the sagacity of New Zealand’s Covid-19 elimination strategy published recently in a medical journal. Surprisingly the paper set off a media fire-storm, which is unusual for academic articles.   

A news report published in the New Zealand Herald suggested the publication of the paper was “almost scandalous”; it was supposedly “rebuked” by the Ministry of Health and according to a prominent scientist, the authors of this paper were living in an alternative reality and that the paper must not have been thoroughly reviewed.

The reality is actually quite different. As part of the review process the editor of the journal asked the Ministry of Health for a response. This is common practice. This response was written by the Chief Science Advisor of the Ministry with input from the Treasury. The original paper, an addendum to it and the response from the Ministry are all available to the public from various public sources.

To any objective reader, what would be striking is the balanced and somewhat bland nature of the exchange replete as they are with citations and footnotes. They exhibit a group of people, both with a large degree of expertise, disagreeing over the desirable course of action.

In his response, the Chief Science Advisor of the Ministry of Health writes:

“Sundborn et al. conclude with an emotional plea for a review of the Elimination Strategy. Such a review is well advanced and includes an all-of-government conversation about exactly the things the authors are calling for, including: alert level settings and triggers; refinement of border controls using a risk based approach; adoption of technologies for COVID-19 testing and contact tracing enhancements. There is a real commitment across all agencies to a wider policy review, including the sorts of choices the newly elected Government will need to make on our behalf.”

Does this sound like a “rebuke”? To me this suggests a fair bit of common ground among the two sides.

So, the question then becomes: how and why did this debate end-up as a media story?

It is unlikely that the reporter from the New Zealand Herald routinely scours the pages of obscure medical journals for newsworthy stories. So, at some level, someone decided it was important to make sure that this dissent regarding New Zealand’s elimination strategy needed to be tamped down hard and the authors need to be tarred and feathered.

The question is why? And, what does this say about the level of scientific discourse in New Zealand?

Let us take an example. Currently, we are spending hundreds of millions of dollars in maintaining our managed isolation system. Is this worthwhile?

The risk is that if we do not do this, then people with Covid-19 may enter the country and this may lead to new infections and the possibility of community transmission. But this is a probabilistic event and one needs to ask: how high is the chance this will happen? What happens if instead we asked people to self-isolate, engage in good hygiene, wear masks in confined spaces and backed this up by contact tracing?

Allowing for self-isolation will, of course, make it more likely that Covid-19 may spread but how high is that risk? What is the associated cost of doing this? How does this balance against the cost of maintaining the elaborate and expensive managed isolation system and the massive cost of keeping our borders closed, resulting in hobbling a bunch of key industries?

Could we re-direct some of the managed isolation money to building new hospitals, or buying ventilators or bolstering ICUs?

It seems to me that there are two feasible answers to this question. One is to say that the government has looked at these trade-offs carefully and has decided that on balance, the current elimination strategy makes sense. But, as far as I know, no such analysis has been conducted or if done, results have not been made public.

Another option might be to say that no such analysis has been carried out but the government is in the process of undertaking such an exercise in order to inform future policy making. This is the substance of the Ministry of Health response.

What does not seem to be a feasible response is to immediately start suggesting that anyone who dares to ask questions is living in an alternative reality.

Questioning established orthodoxy is the way science and society progress. There are legitimate questions that are being asked by scientists all over the world as we grapple with the best way to deal with the pandemic.

It seems that there exists a group of scientists in New Zealand who believe that questioning the wisdom of our elected representatives is tantamount to heresy. This group seems unaware of the limits of their expertise. The Covid-19 pandemic in not merely an epidemiological crisis: it is an economic, moral, social and philosophical crisis, where in the end elected political leaders are making decisions based on their own values and ideologies that go far beyond the scientific issues concerned.

Scientists should be wary of taking on the role of guardians of the prevailing political orthodoxy; political winds change often and unpredictably. The principle of scientific inquiry should not be subject to such political winds. This is a sad state of affairs that does not speak highly of the level of scientific discourse in New Zealand.

The Source of Trump’s Support

Ananish Chaudhuri

Ananish Chaudhuri is Professor of Experimental Economics at the University of Auckland. He studied and taught Economics in the United States for many years. The views expressed are his own.

With Joseph Biden becoming the President-Elect of the United States and Kamala Harris making history as the first woman to become Vice-President, some political realities are becoming clear.

This was nowhere near the blue-wave forecast by the pollsters who predicted an easy Biden victory even if they were as wrong as they were back in 2016. They were still very wrong!

It is clear that Trump supporters are not a majority. Biden will comfortably win the popular vote by a very large margin as did Hillary Clinton in 2016 and Al Gore in 2000. But Trump’s support base is more expansive and solid than most commentators have acknowledged till date.

Second, it is possibly time to retire the view that the votes for Donald Trump represents nothing other than the dying gasps of white supremacists, alarmed at the prospect of becoming outnumbered by people of colour in their own country.

The New York Times columnist Tom Friedman writes:

The U.S. Census Bureau projects that by the middle of this year, non-whites will constitute a majority of the nation’s 74 million children. At the same time, it is estimated that by sometime in the 2040s, whites will make up 49 percent of the U.S. population, and Latinos, Blacks, Asians and multiracial populations 51 percent. There is clearly a discomfort, and even resistance, among many whites, particularly white working-class males without college degrees, to the fact that our nation is in a steady process of becoming “minority white.” They see Trump as a bulwark against the social, cultural and economic implications of that. What many Democrats see as a good trend — a country reckoning with structural racism and learning to embrace and celebrate increasing diversity — many white people see as a fundamental cultural threat.

But this view is almost certainly incomplete if not incorrect given that between 2016 and 2020, Trump’s support has increased among Latinos, particularly in Florida and Texas in spite of his rabid anti-immigration stance geared mostly toward members of the same ethnic community.

Surprisingly, Trump’s support, though still small, has also risen among African Americans from 2016.

There are at least two reasons for this increase in support from minorities for Trump. First, racism is not confined among Whites. There are significant streaks of racism among minority groups. So, when Trump condones anti-Semitic rhetoric, it is not only some Whites who cheer him on; the message finds resonance among some who are African American or Muslim or both. Second, large swaths of minorities are also socially conservative.

So, a better explanation for Tump’s enduring support may be cultural (and possibly even class) warfare. Trump seems to be an unlikely candidate for wearing this mantle but he has delivered on a number of fronts for a disparate group of supporters.

He has stayed away from foreign wars and reduced troops overseas.

He has shifted the composition of the Supreme Court far to the right delighting, among others, abortion opponents.

While his ill-advised trade wars with China and his re-negotiations of NAFTA will likely cause losses for the economy as a whole, these policies, coupled with extensive farm subsidies, have delivered jobs to the mid-Western states that stand solidly behind him.

The First Steps Act signed by Trump was a significant achievement in criminal justice reform; something that has had a positive impact among the African American community. This also needs to be seen in the context of Joe Biden’s strong support for the 1994 Violent Crime Control and Law Enforcement Act, which is generally regarded as being ruinous to the same community. This is something that Biden was called out for repeatedly during the Democratic Primary by Kamala Harris and Corey Booker. 

Even I cheered when the Justice Department brought its anti-trust lawsuit against Google. Prior administrations have done little to rein in the power of such massive monopolies.

Rich Lowry, the editor of National Review, says about Trump: 

…for many people, he’s the only middle finger available — to brandish against the people who’ve assumed they have the whip hand in American culture. This may not be a very good reason to vote for a president, and it doesn’t excuse Trump’s abysmal conduct and maladministration.

But these people are willing to look beyond the lying, the boorishness, the bullying, the philandering, the cheating, the incompetence, the demands for loyalty and the cruelty because they are not looking for a pastor or rabbi but rather an enforcer who is delivering things they care about.

None of this excuses Trump’s vileness; particularly his willingness to snatch children away from their parents. Neither does any of this align with values I hold dear. But, I am no longer convinced that all of his support can be attributed to racism alone. It is an outgrowth of deep-seated inequities and challenges in the American system that Trump has channelled to his own benefit.

It seems clear that Trump has put together a coalition, which to many of us seems to have little internal consistency but is nonetheless, abiding.

He could have done it differently; he could have done it better; he could have done it with less gratuitous cruelty and more class but clearly there is a sizable chunk of the US population who are still enthused about what he has delivered for them. Biden (and other future Presidents) would do well to try and understand the source of this angst if they are going to have any hope of starting the repair the breaches.

A recent article in the New Zealand Herald suggests that we may get a vaccine for Covid19 in the not too distant future. It is important to recognize that there are still plenty of challenges left.

Yes, a number of vaccines are at Phase 3, but even among drugs that reach Phase 3, 42 percent fail. Even when a drug does get through Phase 3, there is still a time lag before final approval (and about 15% fail to make the cut) before proceeding to production.

What is less widely known is that a vaccine if and when it comes will have only limited efficacy. According to a recent BMJ article none of the current vaccine candidates may be successful in reducing severe covid-19 (hospital admission, ICU, or death) or interrupting transmission (person to person spread). At least the trials are not designed to test for these. The trials will be considered a success if they can prevent symptomatic Covid19 among a small number of participants (as few as 150-160 overall cases). This is mostly due to the compressed time-frame. Testing for wider efficacy will take much longer.

But the challenges do not end at this point. We will still need to produce and distribute seven billion vaccines around the world. Other than the one being developed by Johnson and Johnson, every vaccine needs to be frozen, a serious challenge in less developed tropical countries with high temperatures and often unreliable power supplies.

Then there is the issue of cost and availability.

The distribution of this vaccine is being organized by Gavi, the Vaccine Alliance, a philanthropic enterprise through its COVAX facility.  According Doctors Without Borders (MSF), the facility was designed by an invited group of organisations and individuals. The core group of decision-making partners are Gavi’s Secretariat, the World Bank, the Coalition for Epidemic Preparedness Innovations (CEPI), the Bill & Melinda Gates Foundation, UNICEF, and WHO, led by the consulting firm McKinsey & Company. This may be fine but it is not entirely clear who Gavi or the COVAX facility is ultimately accountable to and what its mandates are.

According to the same press release from Doctors Without Borders, “Gavi also does not have experience negotiating with pharmaceutical companies on behalf of these countries. Meanwhile, the WHO Pandemic Influenza Preparedness (PIP) Framework is an example of WHO’s global normative and operational role to develop public health instruments that help to prepare for and respond to global pandemics. The PIP Framework includes requirements from manufacturers that they set aside specific quantities of medicines or vaccines in the case of a global influenza pandemic, with WHO determining the equitable allocation of those medical tools.”

Gavi envisages a two-tiered system for vaccine distribution; self-financing countries (richer countries that can afford to pay) and funded countries (poorer countries that need help.) Once a vaccine is available, the self-financing countries will be entitled to receive enough vaccines for at least 20% of their population. Countries will then decide who gets those vaccines. The funded countries that need help will only get the vaccine if and when all  the self-financing countries have received their 20% quota.

New Zealand has contributed $27million to the COVAX facility as essentially a pre-purchase of vaccines if and when produced.

But questions remain: USA, China and Russia are not signatories to COVAX. If and when a vaccine is produced and demand far outstrips supply, it is not clear why and whether pharmaceutical companies will sell to Gavi at a cost-plus pricing model rather than to others. The relationship with Gavi does not rule out other bilateral relationships.

Even assuming that the companies like AstraZeneca do agree to provide vaccines to Gavi, there is currently no plan for generic production. This means that companies will be allowed to maintain patent protection of their vaccines.

Again, according to Doctors Without Borders, till recently the only two producers of the pneumonia vaccine have been Pfizer and GlaxoSmithKline, who were selling it to Gavi for US $9 per child in the poorest countries and for US $80 in middle and higher income countries. The Serum Institute of India has offered to sell the vaccine at US $6 per child in the poorest countries and for no more than about US $11 per child in middle-income countries.

But providing the vaccine cheaply is crucially dependent on the ability to produce generic substitutes without running into charges of violating patent protection.

It seems likely that in the near future we will be in a world of vaccine-haves and vaccine-have-nots. Citizens of countries in the former group will be able to travel freely among each other but travel and trade relations with vaccine-have-not countries will be severely curtailed. This, in turn, will have serious adverse impact on the lives and livelihoods of those countries’ citizens.

Recently, in an article published in the Financial Times , New Zealand’s Finance Minister Grant Robertson defended one of the world’s toughest Covid-19 lockdowns following a record economic contraction, insisting the restrictions saved lives and was facilitating a strong recovery.

Robertson suggested that “the best economic response remains a strong public health response”.

New Zealand’s GDP contracted by around 12 per cent in the second quarter. But probably more important is what lies underneath those GDP figures. According to current forecasts, we will expect to see fairly high levels of unemployment till at least 2027.

It is likely that the current unemployment figures are conservative because one would really need to account for the wage subsidies that are in place now. If a lot of workers get laid off once the subsidies expire then the unemployment rate will obviously jump up.

Long term it is also worth thinking about our debt levels. Deficit financing under current circumstances is certainly not unusual. Our current debt levels are not that high compared to others like Japan, Singapore or Greece whose debt amounts to more than 100 per cent of GDP. But it is worth noting that NZ more than tripled its net debt this fiscal year alone.

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‌Net crown debt is forecast to peak at over $200 billion in three years’ time, from around $57 billion pre-Covid-19. That is $143 billion of additional borrowing. This will become a significant burden for today’s younger workers, who will also be the most adversely affected by the economic fallout of Covid-19.

Robertson’s responses are problematic at multiple levels.

First, if it is indeed the case that the best economic response is a strong health response in the form of stringent lockdowns, then why does Robertson not commission a study to show us the data that backs this up?

Robertson can pick anyone he wants as long as he gets representatives from the Treasury, the Reserve Bank and the Productivity Commission and some independent economists with serious research credentials and peer reviewed publications such as Martin Berka of Massey or John Gibson of Waikato, who have already worked on the relevant cost-benefit modelling.

The only independent study conducted so far, that I am aware of, is the Productivity Commission one showing the opposite of what Robertson claims.

Robertson’s answer is also disingenuous because most people realise that the government has pivoted away from its so-called elimination strategy and has quietly decided to manage the virus without actually saying so.

This is apparent from the current tinkering of the alert level settings and also the fact that even Robertson’s colleagues do not take their own proclamations seriously. Recently, the Herald featured a photo of Ashley Bloomfield taking a selfie with an elderly gentleman and guess what? No masks on either face. The same was true of the Prime Minister as she toured Massey’s Palmerston North campus and took selfies with large groups of admirers.

Another example. The University of Auckland recently made news for supposedly “forcing” students back to campus. In doing so, the university and its Vice Chancellor were following clear guidelines laid down by the Ministry of Health until Ashley Bloomfield declared that gatherings of more than ten were not allowed. In doing so he was contradicting the guidelines laid down by his own department.

The third reason I find Robertson’s response troubling is the following comment: “It’s a game of two halves, to use a rugby analogy. In the short-term, New Zealand is better than was expected,” said the finance minister. “But the medium and long-term is more challenging and we put that very squarely at the feet of the global economy.”

Come on. If you are going to impose significant economic hardship on many because the “best economic response remains a strong public health response” then at least have the courage of conviction to stand by your own policy choices.

It is not Covid-19 or the global economy causing all of this. Some of this is the result of our own policy choices. If you think the economic cost and hardship is worth it in the long-run, then at least stand by your own policies rather than shifting blame.

The fact remains that this government launched into a set of policy choices without adequate fore-thought or consultation about the consequences. Now that those consequences are becoming clear, it is scrambling to find an appropriate response. After having staked its reputation on elimination, ego and hubris is making it difficult to change course.

But recovering from the coming recession requires that the government does some soul-searching and adapt its future approach by calling upon a wide range of experts and expertise.

Covid-19 would have been challenging enough but we made things more difficult for ourselves by not investing the time and effort to think through alternative scenarios.

Recently, an interlocutor asked me: Where would you rather be, if not in New Zealand? I find this to be a non sequitur.

For one thing, the outlook for a middle-aged tenured professor is vastly different from a that of a young family struggling with debt and mortgage payments while worrying about their jobs.

And secondly, just because many others around us are losing their minds does not make irrationality rational.

I have been reading a lot about how the Economics Nobel Laureate Joseph Stiglitz has “praised New Zealand’s handling of the Coronavirus.” .

I am big fan of his and so I decided to read what Stiglitz actually has to say. I found that the article is not about the handling of coronavirus by either USA or New Zealand but rather about how covid-19 will lead to growing economic inequality around the world.

What did Stiglitz say actually?

“Still, two countries illustrate likely lessons that will emerge. If the United States represents one extreme, perhaps New Zealand represents the other. It’s a country in which competent government relied on science and expertise to make decisions, a country where there is a high level of social solidarity—citizens recognize that their behavior affects others—and trust, including trust in government. New Zealand has managed to bring the disease under control and is working to redeploy some underused resources to build the kind of economy that should mark the post-pandemic world: one that is greener and more knowledge-based, with even greater equality, trust, and solidarity.”

In my mind, “perhaps New Zealand represents the other” does not sound like full-throated praise.

But fine, let us accept the compliment gracefully and then go on to parse some of the other things he says.

New Zealand indeed is a high-trust country. Here is how I would expect a high-trust country to operate. Involve a wide range of experts and expertise in tackling a national challenge; provide a realistic assessment of the risks along with the costs and benefits of locking down a whole country. Establish clear guidelines and make decision making criteria transparent. Be honest with your citizens when you are asking them to make such big sacrifices.

How did we actually respond?

The government chose to listen to only one side advocating lock downs instead of calling upon a wide range of expertise. Others, including leading international scholars were dismissed in the media as contrarians or “lock down sceptics”.

The first nine days of our April lock down have been found to be unlawful by a court of law.  

A recent report from the Productivity Commission suggests that the cost of extending our earlier lock down by five days outweighed the benefits by more than 90:1.  Kate MacNamara points out in the Herald that the government has ignored this report and not commissioned any further cost-benefit analysis, which is an integral part of good policy making.

We have passed a new law under urgency, which among other things allow the police to enter homes without warrants, if they believe quarantine laws are being violated.

The family of a 11-year old girl who died suddenly was denied permission to travel through Auckland to Northland for a  tangi.

We jailed a woman for breaking quarantine to attend her father’s funeral but a man who also broke quarantine to buy alcohol escaped with only a sentence of community service.

Even if the first lock down was justifiable, that is hardly true for the second, particularly the one imposed on Auckland. A high trust government would have trusted its citizens to listen to requests for physical distancing and mask wearing. If it is safe to go out now with masks, surely the same was true prior to the second lock down in Auckland. And if it is was not safe then, how is it safe now, with the same level of community transmission?

Are these the actions of a high-trust government?

Those who are so happy about the Stiglitz endorsement seem curiously silent about the fact that others like the 2013 Chemistry Nobel Laureate Michael Levitt suggests that New Zealand’s elimination strategy will impose significant social and economic costs.

How have we managed to bring the disease under control, when life remains interrupted and the border is shut tight? Businesses, universities and even sports bodies are asking what the future holds for them.  

Are we working to redeploy underused resources to build the kind of economy that should mark the post-pandemic world: one that is greener and more knowledge-based, with even greater equality, trust, and solidarity?

What kind of solidarity is it when there are experts asking the government to make sure that Aucklanders not be allowed to travel outside the city? Did they miss the memo that in the absence of international tourists, it was Aucklanders that made up much of the shortfall in the wake of our first lock down?

How did we get from the team of 5 million to Jafas versus the rest of the country?

Much of the shovel ready projects seem to be going to roads and the big “win” for the Green Party is the nearly $12 million given to the Taranaki Green School.

In the United States, for all its faults, we have people like Alexandria Ocasio Cortez, pushing for a  Green New Deal. Where is our version of it?

After borrowing $50 billion, the government has raised taxes for the top 2% amounting to just over $500 million (assuming no leakage). This is a small fraction of the total borrowing. The former Reserve Bank Governor Alan Bollard recently pointed out that in order to improve the fiscal outlook, capital gains tax must be back on the table.

But, clearly not all experts carry the same weight or are worth listening to.

How does one create a knowledge-based economy by hobbling one’s universities, international connections and by shutting itself from the expertise of a large section of its own knowledge workers?

Around the world new results are being published and serological testing is shedding additional light on the virus and how to control this and future pandemics. But, sitting in New Zealand, one would never get to hear about any of this. All one would know is that there is no other recourse than to implement periodic lock downs till a vaccine arrives.

Recently, The BMJ (formerly the British Medical Journal), a highly prestigious outlet, featured two scholarly and well-reasoned articles arguing for and against locks downs. The opposing view has been written by the academics dismissed and ridiculed as “contrarian” in New Zealand. Why are we so averse to debating the merits of the alternative viewpoints?

The fact is that the citizens of New Zealand are indeed highly trusting, of themselves and of their government. But our government has hardly reciprocated that trust. I say this with an enormous amount of regret as an admirer of our Prime Minister and a long-time supporter of our governing party. By shutting itself off from different sets of expertise our governments has done itself and the population a singular disservice.

Air NZ to lay-off 387 pilots

Ananish Chaudhuri

I don’t envy Greg Foran; what a way to start a new job, in the midst of a historically unprecedented catastrophe. I also don’t have access to the budgetary nuts-and-bolts of Air NZ. It is clear that the company is facing a tremendously difficult time. I think it is an extremely well-managed company, something that is not true of many other enterprises in NZ.

I think Mr Foran is making a mistake.

Laying off workers in a recession is a common practice. Though, it needs to be noted that this is not true of all countries in the world. Companies in USA or NZ typically resort to lay-offs while others in countries like Germany or France are more reluctant to do so. This has to do both with history as well as the legal institutions in these countries.

But, in general, in a country like NZ, the easiest way of reducing costs is to lay off workers. This is for a number of reasons. First, given the scale of revenue loss, it is virtually impossible for Air NZ to cut costs to an extent that it would actually make a difference.

This is also partly because all that needs to happen to make a position redundant is to remove and re-allocate items from one’s job description. Once, all such items are removed, the position becomes redundant. The other advantage is that layoffs lead to other cost savings in the form of perks, benefits, retirement contributions and other fixed costs such as office space etc.

But, this is also somewhat myopic. Recessions pass. In fact, large scale lay-offs often make recessions worse. Workers who are laid off are pessimistic about their chances of getting work in the future. Even the ones who have work are afraid of losing their jobs and therefore cut down on spending. This exacerbates recessions.

Already there are signs that the worst of COVID19 may be over, particularly in the developed nations. The disease is beginning to taper off in much of the world. Of course, it is still raging in the US, which probably accounts for a large part of Air NZ revenue.

It is not clear to me that there are nearly 400 qualified pilots available at short notice. The same goes for other qualified and trained staff who are facing the axe. So, what does Air NZ do, when business starts to take off again?

I suggest Mr Foran negotiate with the government for a much larger bail-out package than the NZ $900 million credit limit the government has offered.

Then, I suggest that Mr Foran look into the German practice of Kurzarbeit (working short-time). This is essentially a furlough program, where employees agree to or are forced to accept a reduction in working time and pay. In the present case, this may well imply some people going on unpaid leave for 3-4 months.

But at the end of that period or even before, if and when business picks up again, Air NZ will promise to re-hire those workers. They can be re-hired on the basis of length of service or some other performance-related criteria.

Air NZ should probably come to terms with the fact that the US sector as a source of revenue will either take a long time to recover or possibly not recover at all to its previous state.

In the interim, if the US market does not pick up, I would look into ramping up flights to other parts of the world. Increase direct flights to Shanghai and Beijing and/or look into other large metropolitan cities like Tianjin, Shenzen, Guangzhou and Chengdu. Each of these are cities of more than 10 million people.

The same would be true of cities like Bangkok (population of Thailand: 69 million), Jakarta (population of Indonesia: 264 million), Kuala Lumpur (population of Malaysia: 31 million), Manila (population of Philippines: 104 million) and New Delhi (population of India: 1.3 billion).

If Air NZ can fly to Chicago and is thinking of flying non-stop to New York City, then each of these cities are within reach. Taken together, this amounts to roughly 3 billion people with a burgeoning middle-class. Even if the customer base amounts to 1 percent, this is still 30 million people. If it is 5%, then this is 150 million people. Soon, this starts to look as big as the US market.

A similar argument would be true of direct flights to both Brazil, Argentina and Chile.

What Air NZ is proposing now, will essentially gut the company and pretty much destroy any chance of it turning around when the crisis passes.

But, has Mr Foran and the think-tank at Air NZ really gamed out all potential situations? Is someone playing Devil’s Advocate in that boardroom? What if we did this other thing instead of this thing?

One of the problems with dealing with crises is that we get consumed by dealing with the here and the now. At times, it is important to take a step back. Reason analogically, look at other times when Air NZ faced a catastrophe like this. Look at other airline companies that may have faced similar ruinous situations. Did they manage to work their way out? What was the response? What worked? What did not?

I may well be wrong. I am simply asking whether there may be other ways out; whether all the different options and the trade-offs have been adequately weighed.

Ananish Chaudhuri is Professor of Experimental Economics at the University of Auckland and during January-June 2020, Visiting Professor of Public Policy at Harvard Kennedy School. The views expressed are those of the author alone and do not reflect the views of these institutions.

Government right to pivot away from elimination

Ananish Chaudhuri

Ananish Chaudhuri is Professor of Experimental Economics at the University of Auckland and the author of the book “Experiments in Economics: Playing Fair with Money”. The views expressed are his own.

It is clear that the government has begun to realize how costly lockdowns can be in terms of their economic and social impact. As a result, the government now seems to be willing to pivot away from their goal of total elimination. This is made clear by the recent announcement by the Minister of Health that Auckland will most likely be allowed to drop down from the current 2.5 level even if community transmission does not drop to zero.

This is welcome news since elimination via lockdowns was never really a feasible goal given the significant collateral damage inflicted by such lockdowns.  

Some commentators, however, would like us to “stay the course”.  According to this view: “We’ve come this far and given up so much, it would be crazy to stop now.”

This is actually a common intuition among many but happens to be misguided. Economists call this the “sunk cost fallacy”. To understand why, I need to relate two stories.

The first story refers to an exercise that I often carry out in my classes on decision making. This is called “The $20 auction”.

I start the lecture by taking out a $20 bill out of my wallet and tell my students that I am going to sell it to the highest bidder.

I then invite students to bid on the $20 bill with one small caveat. This is an “all pay” auction. That means that everyone who bids an amount must pay with only the highest bidder winning the money. But the losers must also pay whatever they bid.

This type of situation is quite commonplace. Think about running for public office. Every candidate/party spends substantial amounts of money but there can only be one winner with the expenses incurred by everyone else being lost. Similarly, right now companies around the world are in a mad race to develop a vaccine for Covid-19. They will spend billions of dollars in doing so and finally only one of them will be successful; the one whose vaccine eventually goes to the market. The investments made by others will likely come to nought.

As the auction starts, there is a general sense of amusement at first. A titter here, a nervous chuckle there. But eventually someone or the other takes the plunge and bids $1. If the bidding stops there, then this person would have won $20 for $1 and will make a $19 profit.

But soon others join the fray and the bids start to increase. Pretty soon, people actually start to bid more than $20 to win $20! Why?

Suppose you have bid $20 while someone outbids you by going up to $21. If this person wins the $20, then this person has lost $1 while by being outbid you are now looking at losing the entire $20 you bid. So, even if one has to go above $20, people do it because now it is a question of minimizing losses.

The second story comes from my colleague Tim Hazledine at the University of Auckland and relates to Auckland’s City Rail Link.  According to Tim, when the city rail link was first proposed the benefits of the project (on a net present value basis) were estimated to be about $2 billion, and the construction cost was originally estimated to be about $2 billion also. Then, in April 2019, with $700 million already spent, the costs were revised upward to $4.4 billion with no change in the estimated benefits and no guaranteed finish date.

In April 2020, the city rail link management announced that, because of Covid-19, costs would rise further and the impending May budget should make allowances for this. No mention was made of the possibility that Covid-19 may actually reduce the benefits of the rail link, through more people continuing to work at home rather than commute. Tim wrote:

“Adding in some substantial costs missing from the official calculations, the costs of disruption to business and citizens during the build, and the cost of the huge subsidy on the price of rail tickets, it seems sadly reasonable to predict that we now have a $5 billion+ monster on our hands. Even with more sunk costs incurred since last year, we are looking, in the best scenario, at having to fork out another $4 billion to finish a possibly $2 billion value project.

This behaviour lies at the crux of the sunk cost fallacy; the idea that people often pursue goals even when the benefits fall short of the costs.

Countries keep on fighting ruinous wars even when it is clear that nothing remotely resembling victory is possible. Candidates keep campaigning even when it is clear that the additional costs of doing so will outweigh any potential benefits given the virtually zero chance of victory.  In fact, the fact that they have incurred substantial costs is reason for doubling down and getting in deeper.

This argument applies to our policy on Covid-19 as well. The fact that we have incurred substantial costs does not imply that we should continue to do so when the projected benefits fall considerably short of the costs. A recent report from the Productivity Commission suggests that the cost of extending our April lockdown by five days outweighed the benefits by more than 90 to 1.

So, it is good news that the government, albeit belatedly, has recognized the error in the previous approach and is now adopting a more practical view of controlling the pandemic.

Do we really need yet another lock down?

Ananish Chaudhuri and Simon Thornley

The authors are members of the Department of Economics and School of Population Health respectively at the University of Auckland. The views expressed are their own.

During the Vietnam war, the well-known (and Kiwi-born) journalist Peter Arnett is supposed to have quoted a US Major as saying “We had to destroy the village in order to save it.”

Regardless of whether anyone actually said this or not, we cannot help reflecting on the idea behind this as we go into yet another lock-down.

Back in March, when we entered our first lock-down, the evidence was not so clear. Reasonable people could have disagreed about the sagacity of the lock-down. Some of us did but on the whole most were willing to abide by the government’s decision.

But the evidence is clear now. Lock downs are not a panacea. There is, at best, weak if any correlation between lock downs and the spread of the disease. At best, they merely postpone the spread of the infection.

When the Swedish authorities said this, the rest of the world sneered at them.

Now, there is increasing recognition that maybe the Swedes did get it right. Certainly not all of it; they did experience a failure to protect the frail and elderly. But, on balance, it appears they will emerge from the pandemic stronger than their neighbours and that in the current globalized world, lock downs are not and cannot be a sustainable solution.

A recent report from the Productivity Commission now provides support for this Swedish view by asking questions about the relative costs and  benefits of prolonging our earlier lock down. The conclusion: the costs conservatively outweighed the benefits of an extended lockdown by 95:1.  

And the Swedish approach has been reiterated by Camilla Stoltenberg, Director General of the Norwegian Institute of Public Health; that Norway could have handled the disease without locking down.

There is no vaccine and if there is one, it is still some time away. The fastest vaccine ever developed, for mumps, took four years. In any event, even with a vaccine there is no way of guaranteeing that every Kiwi will take it. In fact, unless we keep our borders closed forever, we need everyone else in the world to take the vaccine too. Diseases we thought had been eliminated, like measles, have made a come-back.

Consequently, in an earlier article we pointed out that elimination is not and never was a realistic strategy and suggested ways of moving forward and resuming normalcy including opening our borders.

It was certainly inevitable that the disease would recur. What was not inevitable was the steps we took along the way and the economic and social costs of those steps.

Did we really need to spend the time, effort and resources to force people into quarantine? Could we not trust them to self-isolate like we did earlier with prosecution of violators? Like Sweden, New Zealand is a high trust society. Why does our government have such little faith in its citizens? Why does it claim for its police the right to enter people’s home without warrants to enforce quarantine?

And if a government does not trust its citizens, then why and how long should the citizens continue to trust the government?

Even with preponderance of evidence that lock downs are mostly useless, our government has responded to an outbreak with another lock down. The initial rationale for a lockdown was protecting our hospitals, but now with cases linked to only one household, the threshold for pulling the lockdown trigger has dropped considerably.

Is this really sustainable: To lurch from one from lock down to another with breaks in between?

Yes, resuming normal life will lead to more cases and there will be more deaths due to Covid-19; just as there will be more deaths from auto accidents, flu, pneumonia, respiratory illnesses, loneliness and self-harm. We also now appreciate that the age distribution of deaths from Covid-19 is indistinguishable from background mortality.

Maybe we need to better confront the idea of our own mortality. Such a conversation is topical given the upcoming referendum on euthanasia.

If we could shut down all motorized vehicles, then the reduction in pollution will save many lives that are lost from respiratory illnesses. But, no one suggests that since this is not a realistic proposition. Instead, we set emissions standards in such a way that the social benefit of driving or flying is equal to or higher than the social cost.

Contrary to the culture of fear besetting us, Covid-19 is hardly the threat it has been made out to be. Both the case fatality ratio (number of deaths divided by the number of reported cases) and the infection fatality ratio (number of deaths divided by the number of people potentially infected) is relatively low and much lower than say Ebola or other corona viruses such as Middle Eastern Respiratory Syndrome (MERS) or Severe Acute Respiratory Syndrome (SARS). It is now clear that lockdowns are a blunt instrument that is disproportionate to the threat posed by this virus.

Simon Thornley, Gerhard Sundborn, Ananish Chaudhuri and Michael Jackson

It is clear now that estimates of death from the Covid-19 pandemic were exceeded by factors of hundreds, if not thousands. This sparked public and political panic and led to our government enacting one of the most stringent lockdowns in the world.  Te Pūnaha Matatini predicted 80,000 deaths even with mitigation strategies, while the University of Otago team forecast 12,600 to 33,600 deaths.  Their best possible estimate was 5,800 deaths. The models encouraged the government to enact tight control measures. Now, we are largely over the epidemic, although some of the modelers have warned of secondary waves. New Zealand now has 22 ‘official’ Covid-19 deaths – a far cry from the forecast doom and gloom, with at least a 263 fold over estimate at this point. A recent article about Sweden followed suit, predicting a total of 60,000 deaths for that country, and decrying its decision not to lockdown.

How was it possible for these forecasts to be so erroneous? The interesting aspect, reading the modelling now, is that the number infected under each control policy scenario, including lockdown, was about the same. The Matatini group described 89% of the population being ultimately infected under even the most stringent strategy. The moment the handbrake was let off, another outbreak would occur. However, in the paper, the modellers themselves questioned the effect of lockdowns. They wrote:  “In other countries, including those that have instigating (sic.) major lockdowns such as Italy, there is as yet insufficient evidence that this has reduced [the epidemic]”. They then stated that “successful mitigation requires periods of these intensive control measures to be continued for up to 2.5 years before the population acquires a sufficient level of herd immunity.” The conclusion was that lockdowns were buying time for vaccination and learning from other countries. The modelling that justified the lockdowns was itself clearly stating that such policies were far from a panacea.

Models incorporated lockdown measures yet still predicted thousands of deaths. Critics will say that the lockdown is precisely why the models were so inaccurate. We were saved from catastrophe. Several lines of consistent statistical evidence does not, however, support this idea. US States that did not lockdown report lower Covid-19 cases and death rates on average than States that enforced heavier restrictions. Time trends in Europe show that lockdowns prolonged the recovery from the epidemic after these policies were enforced. Closer to home, it is clear that cumulative per capita cases and deaths of Covid-19 are lower for Australia than for New Zealand despite more relaxed restrictions over the Tasman.

The major factors behind these erroneous models include: (1) an overestimate of the infection fatality rate, and (2) a reciprocal underestimate of the immunity of the population.  Mathematical models of infections project the assumptions of the modellers into the future. They are mathematically elegant, but also based on many untested assumptions. Models assume a far greater degree of certainty than is true in reality.

The models used are built for infections which declare themselves, like measles. Covid-19 is different, it produces high rates of infections in people who feel well. Measles primarily affects young children who are unlikely to die from other causes. Covid-19, on the other hand, has shown to be most vicious at the other end of the age spectrum, specifically causing death most frequently in people at a mean age very similar to our life expectancy, about 82 years. This is curious, as it strongly suggests that the virus does not shorten life, since our life expectancy, or average lifespan, is similar with or without the virus on board. There is little mention of this in the Matatini document, and it is relegated to the appendix of the University of Otago report. Instead the Otago group talk of deaths of the magnitude seen in World War I. Given the age differences of deaths in World War I (mean about 27 years), compared to Covid-19, this must surely be classed as exaggeration.

Neither modelling team attempted to quantify loss of life in terms of ‘years of life lost’ (YLL), a standard epidemiological technique for comparing disease burden. Such statistics would have produced a totally different picture than headline death tallies, portrayed simplistically by the media. YLL is the sum of the differences between age at death and median life expectancy and weights death in the young higher than deaths in the old. Since Covid-19 deaths occurred at an average age in the 80s, this method of measurement would have produced a much less striking picture than the less sophisticated count that values infant and nonagenarian mortality as equivalent. Years of life lost from Covid-19 are extremely low, and pale in comparison to other risks to health, such as cardiovascular disease, diabetes and cancer.

As in the case of swine flu, antibody tests of the virus, are dialling down the infection fatality rate, to a range similar to influenza (0.03% to 0.5%). This contrasts from the genetic test evidence used by some commentators. This cuts down the dire predictions for Sweden by a large ratio. Since even people without antibodies have evidence of seeing the virus, the true infection fatality ratios are likely to be even lower than those adjusted for antibody tests alone. It is now clear that the dire prediction is very unlikely to be correct, since Sweden is now well into the downward slide of its epidemic curve for Covid-19 deaths. The value of observed data over modelled predictions is demonstrated here.

Related to the immunity tests, a strong, and very questionable assumption of the modelling is that we are all, as a population, susceptible to the ‘novel’ virus. Since from early on in the epidemic, it was clear that infection was more likely in the elderly, this was unlikely to be so. Recent evidence from immunologists strongly indicate cross-reactivity between “common cold” coronaviruses and SARS-CoV-2, which was present in at least 30% of people that don’t show other evidence of having seen the disease before. This theory is supported by a study that showed that 34% of a sample of healthy blood donors who did not have antibodies, instead had other evidence of immunity, with reactive T cells to the virus. Also, the finding of test-positive samples in France well before the epidemic ‘officially’ occurred, dents the ‘we are all sitting ducks’ theory.

In trying to make sense of these erroneous predictions we have to ask how this happened? We believe two basic features of the human psyche have been at work. The first of these is loss aversion: the desire to avoid losses that are right in front of us even if it means larger losses elsewhere or further down the road. The second is confirmation bias: that is the tendency to look for evidence that confirms one’s pre-supposition and discounts evidence that calls those beliefs into question. Of course, the 24-hour news-cycle, the cacophony of social media, the need for eyeballs, clicks, likes, tweets and retweets exacerbates these matters, since apocalyptic predictions are more likely to draw attention.

A casual look at an epidemic curve of Covid-19 deaths from Sweden shows that dire predictions, are extraordinarily unlikely to come to pass. Swine flu in 2009 was instructive as pessimistic models dictated an over-reaction. A post-mortem concluded that models “impress governments and provoke fears” and were overly pessimistic. Surveillance and reliance on biology and observed data were instead recommended. It seems that with Covid-19, we have learned little from this episode.[ST1] 

Several lines of evidence give us hope, to counter pessimistic modelling. One thing the inaccuracy of the models teach us is that our understanding of the behaviour of the virus is incomplete. Better understanding should translate to more accurate prediction. Epicurves by country in Europe and many parts of Asia, along with Australia and New Zealand are showing waning epidemics with insignificant secondary peaks. These patterns strongly suggest growing immunity in these countries, despite measured low antibody prevalence in some areas. The high rates of cellular and cross immunity explains this phenomenon. China, a very densely populated country, has now widely opened up after a lockdown and had few secondary waves. Japan is the same, although they had lighter restrictions. The sustained low number of cases when the curve falls strongly indicates that we can safely return to normality much more rapidly than was thought possible.

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In the aftermath of the Covid19 pandemic, it has been observed that countries led by female politicians have done better in terms of implementing social distancing measures. Examples include Angela Merkel of Germany, Jacinda Ardern of New Zealand, Mette Frederiksen of Denmark and Sanna Marin of Finland.

There is some controversy regarding the appropriate response and whether countries that locked down will experience additional waves once they emerge from lock down as opposed to a country like Sweden, which did not enforce such stringent policies. It is also the case that only a small number of countries around the world are governed by women. Extrapolating from small numbers is fraught with risks. 

But leaving those caveats aside, why were female leaders so much more pro-active in implementing social distancing policies?

Evolutionary theory may provide an answer. Evidence suggests that women tend to be more risk averse than men. An obvious consequence of this is that men tend to be hyper-competitive and over-confident. Faced with the risk of large-scale loss of lives, female leaders moved more swiftly to implement social distancing to minimize the risk. It is possibly not an exaggeration to suggest that the countries that have struggled the most in charting a consistent course (notably UK and USA) are led by competitive and over-confident men.

Evolutionary theory teaches us that a primary human drive is to pass on our genes to successive generations. Given that the amount of parental investment required of men is much less than that required of women, males can have many more off-springs than females. If a male can out-compete other males in terms of having a greater number of sexual partners, he can have more progeny. So, males have more of an incentive to compete, which in turn necessitates more risk taking, since there is always the possibility of injury or loss of life in such competitions for mates.  

In the animal kingdom, males are generally showier, more aggressive and more territorial. The level of male aggression is higher among animals that are polygamous as opposed to those who are monogamous. Males are also physically much larger than females in polygamous societies than in monogamous ones. Bull elephant seals are much larger in size than females and often engage in brutal battles for control of female harems.

Closer to home, Lise Vesterlund and Muriel Niederle show that women often tend to shy away from competing with men, even where there are no differences in their respective performance or ability. It is equally true that men tend to be over-confident and over-estimate their chances of success and therefore tend to compete “too much”.

There is now a large literature that looks at gender differences in risk aversion. Catherine Eckel and Philip Grossman point out that results from studies looking at either decisions made in abstract lottery choice experiments or in the context of financial decision making show women to be more risk averse. One example of this is that when it comes to retirement savings, a larger proportion of women prefer to invest in less risky options such as term deposits rather than stocks.

The same insight comes through if we look at actual investment behaviour of men and women.   Brad Barber and Terrance Odean study 35,000 investment accounts sorted by gender. They find that women outperform men mostly because men tend to be over-confident and trade a lot more. Women had turnover rates of 54 percent while for men this is 77 percent and the accounts with higher turnover performed worse than the average market return during this period.

In fact, there is also evidence to suggest that because women tend to be more risk-averse, they are less likely to generate asset bubbles (such as tech stock bubbles or housing bubbles) of the type that fueled the global financial crisis of 2008-09.

Helga Fehr-Duda and collaborators provide an alternative perspective on the supposedly greater female risk aversion by suggesting that men and women differ in the weights they assign to different probabilities. Women tend to underestimate probabilities of gains to a higher degree than do men, i.e. women are more pessimistic in the gain domain. The combination of these factors may lead to higher degrees of risk aversion for women.

It is also the case that such gender differences in risk taking tend to get compounded in times of stress. And existing evidence suggests that the such risk-aversion leads to the well-documented gender wage-gap, at least partly due to greater female reluctance to negotiate salaries. As Linda Babcock and Sara Laschever point out: Women don’t ask. The reluctance to negotiate may result in small differences between male and female salaries at the outset, but given that things like bonuses, outside offers and merit increases are all based on current salary, small differences in the beginning translate into large differentials a few years down the road.

However, here is a caveat: women who attend single-sex schools and those who grow up in matrilineal societies like the Khasi in India, exhibit similar risk-taking and competitive tendencies as men.

Bottomline: In times of crisis, whether it is a pandemic or a global financial crisis, when risk minimization becomes important, being led by women may be beneficial both for corporations and for countries. This also calls for greater diversity, both in the boardroom as well as in government for more reflective and deliberative policy making.