Economics for other people
Two core economics concepts are crucial to our decisions, and even more so if they affect others than just ourselves
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Late last Sunday, May 31st, my wife’s friend Linda got a surprise from the UK government. Since the beginning of the lockdown, she and her husband Tom, together with 2.5 million others who were deemed “ clinically extremely vulnerable” to COVID-19, had been advised to stay at home 100% of the time — i.e., unlike others, not even go to shops or pharmacies or exercise. Now, after having been shielding in this way for nearly ten weeks, from the next day Linda would be allowed to go outside once per day, as long as she kept at least the UK safe distance of 2 metres from anyone other than her husband.
For someone with more than a passing interest in decision making (like your correspondent), both this decision and its timing provided food for thought. What was behind the decision? Why was it made now? What were the cost and benefits involved, and for whom? Two key economics concepts can help us understand.
Not everyone was comfortable to venture out straight away. Some people still feel the risk of getting infected, however much lower than ten weeks ago, was too high. But on Tuesday morning at 5am, for the first time in more than two months, Linda and Tom went out and enjoyed the new old freedom of going for a long walk. Few people normally get up this early, so the fact that they took this costly action reveals their preference: they indicated they were prepared to give up a good few hours of sleep in order to be able to have that walk in safety. For our friends, the decision was clearly a good one, and an overdue one.
Trading off costs and benefits
When the government recommended certain people to stay indoors (and the rest to only go out for very specific reasons and in very restricted ways), it made a trade-off. It had to “ flatten the curve “ to prevent the healthcare system to become overwhelmed with COVID-19 patients. That came with a price tag: the economic consequences of such a lockdown are, by all accounts, huge. But the social and economic consequences of hundreds of thousands of deaths, too, would have been huge. Working out this trade-off is complex, and it…
