Finance: Research, Policy and Anecdotes

The last months have seen an explosion of research papers on the pandemic (to which I have done my small contribution, with another one coming up shortly).  Herewith three recent ones I liked especially, two of them by Thiemo Fetzer (who has achieved certain fame among political economist by linking austerity policies in the UK to the Brexit vote):  In Subsidizing the Spread of COVID-19: Evidence from the UK’s Eat-Out-to-Help-Out Scheme, he shows that government subsidies for the hospitality sector in England  (50% of food and non-alcoholic beverages on Monday through Wednesday in August, up to 10 pounds per client and order – and yes, yours truly also benefitted from it) are responsible for an increase in new COVID-19 infection clusters.   He does so by linking the number of participating restaurants in an area to mobility and restaurant booking data and COVID infection data, comparing Monday-Wednesday in August to the same weekdays in July and September. To control for any simultaneity bias, he uses rainfall data (during lunch and dinner hours) to show that rainfall dampened restaurant bookings and COVID infections during Monday-Wednesday in August but not the months before and after and not Thursday-Sunday in August (weekdays with no subsidies). His estimates suggest that the subsidy scheme may have been responsible for around 8 to 17% of all new detected COVID19 clusters emerging during August and into early September in the UK.  If this does not sound too dangerous, remember that due to the exponential growth of infection, this economic support programme might very well have contributed to the second wave (on 10 August, a week after the programme started there were 826 new cases in the UK, while there were 2,948 on 7 September, a week after the programme ended). While some might argue that this shows the trade-off between economy and public health, that would certainly be penny-wide and pound-fool, given the second lock-down we are currently in, plus the enormous economic (not to speak of human) costs of COVID patients.

Another depressing paper by Thiemo and Thomas Graeber considers the importance of a functioning track-and-trace system. In Does Contract Tracing Work? Quasi-experimental Evidence from an Excel Error in England, they exploit a unique quasi-experiment in England that generated exogenous variation in the intensity of contact tracing: On October 3, 2020, the government announced that due to a “technical error,” 15,841 COVID-19 cases that should have been reported between September 25 and October 2 had not entered the official case statistics and had therefore not been referred to the central contact tracing system (around 15-20% of all cases during this time period and randomly distributed across England)).  As Thiemo and Thomas show, this mistake had deadly consequences: In areas with higher exposure to the contact tracing mistake, they find a notable subsequent increase in COVID-19 infections and, with the usual delay, in COVID-19- related deaths, for a total of between 1,500 and 2,000 additional COVID-19-related deaths. One important channel was a sharp decline in the efficiency of the track-and-trace system in contacting positive cases, once they were overwhelmed with the additional 16,000 cases. Far from the world-beating track-and-trace system that Boris Johnson promised, England rather got a world-killing system.  

A final paper (Revenge of the Experts: Will COVID-19 Renew or Diminish Public Trust in Science?), gauges the effect that pandemics have on the public’s trust in scientists.  Using data from the 2018 Wellcome Global Monitor (WGM), which includes responses to from over 75,000 individuals in 138 countries, Barry Eichengreen, Cevat Giray Aksoy and Orkun Saka link individual responses to questions about trust in science and scientists to the incidence of epidemics since 1970. Focusing on individuals that were between 18 and 15 during an epidemic in their country (“impressionable late-adolescent and early-adult years”), they find that epidemics do not significantly affect trust in science, but reduce trust in scientists, with the consequence that these individuals are subsequently less likely to vaccinate their children. While the authors are careful to not use their findings to predict a similar reaction to the COVID-19 pandemic, their findings should clearly ring alarms across the globe.

Overview