WHEN I started working from home during lockdown my Irish terrier, Barney (below), took to sleeping under my desk. While I was on video calls, he would occasionally wake up and bark in the background or poke his ginger snout into the camera’s field of vision. His interruptions were occasionally inconvenient but mostly they were a welcome distraction from the monotony of remote working.
Sadly, Barney is no longer with us. He died a few weeks ago of a growth on his spleen. We know this because we took him to the vet who scanned him immediately and told us of the growth. There were no waiting lists for Barney as there are for humans today. We are sad to see him go but, as they say, he had a good innings and were it not for the vet’s diagnosis we would have said he died of old age.
Barney did not just make lockdown more bearable, he also made an important contribution to the analysis of government policy. In his honour I have named his contribution ‘Barney’s Policy Curve’ or ‘Barney’s P Curve’ for short. I strongly suspect it describes a universal feature of all government policies and especially the policies used during lockdown.
A few months ago, I had my back garden re-turfed. Within a few weeks the pristine new lawn was peppered with circular patches of dead grass. Interestingly, these were encircled with rings of abnormally healthy grass. These donuts of healthy grass were growing noticeably faster than the rest of the lawn.
A friendly doctor of plant molecular biology explained the origin of these grass donuts (thank you Wendy). The cause was Barney, who had been randomly dosing my new lawn with a nitrogen-rich liquid fertiliser. Nitrogen, I’m told, is a vital macronutrient necessary for plant growth. The addition of the extra nitrogen to the soil was leading to the circles of more vigorous growth. But, if the concentration of nitrogen exceeds a certain threshold, the grass begins to suffer an effect known as nitrogen toxicity. Nitrogen toxicity first hinders growth and then, as the dose is increased, eventually kills the grass completely. My newly laid lawn, with its relatively shallow roots, was especially susceptible to nitrogen toxicity.
These grass donuts are good examples of how complex systems often respond in a non-linear manner to changing levels of stimulus. In a complex system the non-linearity is frequently so extreme that the response does not just change in magnitude, it even reverses direction, turning from beneficial to detrimental.
For commercial agriculture, where the aim is to efficiently boost crop yields, understanding this type of complex non-linear relationship is vital. Too little fertiliser will lead to a poor crop, but too much fertiliser could lead to both a big fertiliser bill and total crop failure.
The cost-benefit curve of intervention in complex systems can usefully be divided into three distinct phases. Initially the relationship is linear and positive. This phase could be called ‘the efficient phase’ because increased expenditure leads, almost linearly, to the desired benefit. The second stage, which occurs at higher cost, is an ‘inefficient phase’. In the inefficient phase, as expenditure increases the benefits decrease and, at every point in the inefficient phase, there is always a lower-cost way to achieve the same benefit, hence the inefficiency. Finally, there is the third ‘counterproductive phase’ where the expenditure is highest, but the outcome is actually worse than with no intervention at all.
In the biological sciences, and especially in medicine, non-linear relationships of this type are commonplace and well understood. Doctors know drugs must be administered in safe doses and that even the safest of drugs turn toxic if administered to excess. Unfortunately, economics is not as sophisticated as medicine, or even agriculture. Economics still relies, almost exclusively, on linear models and those linear models tend to lead to similarly linear thinking in economic policy decisions. If one dose of a policy produces one unit of the desired outcome, it is usually assumed two doses of the same policy will yield two units of the desired benefit. Unfortunately, in an adaptive complex system, like a society or an economy, linear thinking is almost always wrong, so policy interventions, like medical drugs, invariably turn toxic if their dose is continually increased. (Do say below the line if you can think of a plausible counterexample.)
It is not difficult to identify when a particular government policy has entered the inefficient or counterproductive phase of Barney’s P Curve. Just look for a situation in which the policy outcome has been far below that which the politicians promised and for which the recommended remedy is to do even more of the same policy. Lockdowns and the Covid vaccination programs are two examples of policies which are already clearly deep into the third counterproductive phases of Barney’s P Curve. Lockdown was supposed to improve the health of the nation but instead it has, at frightening expense, undermined the health of the nation with nearly two years of missed medical procedures and a backlog of treatment stretching years into the future. Similarly, as two doses of the vaccine has been shown not to prevent infection or transmission of Covid the policy recommendation has morphed into advising an unplanned and untested third dose. Barney’s P Curve is a graphic warning to policymakers against doubling up on policy failure in this way.
In ordinary circumstances, the constraints of balanced budgets – the need to keep government spending linked to tax receipts – sets limits on the amount of money a government can spend on policy interventions. This discipline is useful because it tends to keep expenditure toward the efficient, left-hand side, of Barney’s Policy Curve, where the payoff remains beneficial. Recently, however, economists have concocted a new monetary theory known as Modern Monetary Theory. This is the idea that, because governments can print their own money, a government’s spending need not and should not be constrained by the amount of tax it receives. Modern Monetary Theory has removed all discipline from policymaking decisions, allowing governments to fund wildly expensive policies, such as lockdown. The damage done to the economy can be ignored under MMT because they government no longer requires tax revenue to fund its policies because the funding comes freshly printed from the Bank of England.
Our government’s response to Covid has been the most extreme social and economic policy intervention in history. Those policies are obviously failing both on the narrow goal of controlling the virus and on the broader goal of improving the welfare of society. Nevertheless, policymakers are pursuing a doubling down on these failed interventions. The rising level of policy intervention, the increasingly damage and the recommendation for even more of the same all point to us being in the third counterproductive phase of Barney’s P Curve.
Eventually the adverse effects of these policies will become so extreme as to make their failure manifest. Once that happens, we must remember to look closely to the role of MMT and the Bank of England in perpetuating this dangerous misadventure.