Why it is time to throw out old certainties, starting with economics

Many people mistake economics for a hard science because it involves a lot of numbers. Don’t be fooled: it’s closer to sociology than chemistry.

Think of it this way. Biochemists searching for a vaccine can test in the laboratory whether it works or it doesn’t. Economists can’t do that to test their hypotheses about unemployment or the relationship between oil prices and the housing market. These are hugely complex phenomena that depend on the whims of the most mysterious and unpredictable of variables: human beings.

Economists will tell you they build mathematical models to simulate these conditions that are just as clever and complex. These can be useful. But their limits are demonstrated by their poor record in predicting the future. Physics will tell us what will happen if an object of a certain mass travelling at a certain speed smacks into a wall. Economics cannot tell us what will happen when Covid-19 hits humanity.

Scientific certainties

You might not know this from the confidence of some economists, who put forward assertions as if they were scientific certainties when in fact they are beliefs, informed by political choices.

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Take for example the measure of gross domestic product, or GDP, which is used as a shorthand for measuring the health of economies internationally. It helps us understand the world we live in, and informs our choices about how to shape it.

Criticisms of GDP go back as far as the development of the concept in its modern form in the 1930s. It is calculated by adding together monetary value. Huge sections of life are therefore invisible to it, as they are not given a value by financial markets, or do not involve money changing hands.

Despite the role they play in our lives, many online services, such as email, chat, search, or maps, are not counted in GDP because we pay for them with our data rather than with cash. Our new ability to speak over video for free, which has enabled many companies to keep working through lockdown, counts for zero in GDP.

GDP doesn’t capture inequality. A society where the rich enjoyed Champagne and caviar each day for breakfast while the poor starved to death might appear to be growing at a healthy rate. So might a place where people were working themselves into an early grave: GDP has no way to capture quality of life or life expectancy.

The mass societal endeavour of learning is also invisible to GDP, despite the clear value of a skilled populace. Any kind of unpaid labour – from raising children, to caring for the infirm, to any kind of volunteering – has a value of zero, even though much of the life we know depends on this kind of work. The Amazon rainforest counts for zero until it is bought, sold, or cut down and sold for timber, because providing the oxygen we need to breathe doesn’t count.

Another flawed measure to consider is productivity, which is a way of measuring how effectively we are working, and is often the subject of obsession about how to increase it.

Flawed measure

Currently, entire societies rely on the labour of healthcare workers to be able to return to normal life. Productivity measures how many treated patients a doctor or nurse can discharge per hour of work. According to this flawed measure, with so many patients now sick for so long in intensive care, the productivity of the health service has just crashed.

Initial panic about the pandemic is giving way to panic about its economic consequences. The truth is, no one knows what its effect will be, or what the right thing to do is. But it has become apparent that huge swathes of the population are going to be reliant on government support. Huge numbers of companies too, and they are clamouring for government rescues.

This means for a brief time, governments have the power to shape the kind of economy they would like to have.

Poland, Denmark and France have said they will not give taxpayers' money to companies that avoid paying tax themselves because they are registered in tax havens. In Germany, the government is holding out on giving a bailout to airline Lufthansa unless it agrees to give it a stake in its governance.

In the European Commission, there is furious debate about whether to tie bailout money to requirements to cut emissions. Because once the public money is gone, there may be none left for what was supposed to be the great policy priority of our times: shifting our economies away from fossil fuels to save us from catastrophic climate change.

Governments now have the choice of whether to try to preserve what we had – which may not be coming back – or decide it’s time for change.