No good economist would prioritise GDP at the expense of everything else. But that is what the government is doing with its new measuresby Jonathan Portes / September 19, 2020 / Leave a comment
I can get on the Piccadilly line to my office. And after meeting my colleagues, and preparing to welcome students—some of whom will have come from Birmingham, some from Belgium, some from Boston—back to King’s, I can go to the pub with friends, or even attend, sweaty and unmasked, a gym class.
But I can’t have my sister’s family round, and one of my oldest friends has just cancelled his long-planned 60th birthday party. The ambiguities and the inconsistencies in the latest restrictions announced by the government are legion. Are leaving drinks for a colleague a social occasion or a work one? The former is forbidden, the latter OK. Apparently, if you confine your conversation to work-related matters, it inhibits transmission of the virus.
But beyond the jokes about “mingling,” or the funny-not-funny spectacle of the government rewriting the rules at (literally) the 11th hour to ensure that grouse shooting could continue, there is a fundamentally serious point about the economics underlying the government’s approach.
The government’s motivation is clear. It wants to suppress the worrying recent resurgence of the virus, while at the same time avoiding a renewed national lockdown. In the view of the scientists, that requires restrictions on activities which could transmit the virus. Fair enough.
But the decision that those restrictions should fall entirely on social and personal interactions—rather than ones which take place for economic, commercial or business purposes, with money changing hands explicitly or implicitly—is fundamentally a political choice not dictated by science. We could have achieved the same reduction in personal contact with fewer restrictions on social interactions, and more on those that take place within the formal market economy. But the government, subject to the need to suppress the virus, is trying to minimise the negative impact on GDP.
Many—both supporters and critics—would say that in doing so, it’s behaving exactly as economists would advise. Economists in general—and those at the Treasury in particular—have long been accused of prioritising GDP over everything else, on topics ranging from climate change to immigration.
This is wrong. There is no basis in conventional economics, theoretically or empirically, for setting policy to maximise GDP. Right from the basics, when we talk about what…