This week, the press has been dominated by the Dominic Cummings’ trip to Durham in search of childcare, in breach of the spirit if not the strict letter, of the social distancing law that he himself had been partly responsible for.
Head of Economics, Professor Sarah Smith discusses the events from an economics point of view.
Boris Johnson has stood by his man and gave a press conference at which he defended Dominic Cummings’ actions. But before he spoke, he might have benefitted from an understanding of some simple economic concepts.
First, externalities – the idea that one person’s actions have an impact on other people and, consequently, that what is optimal for them may not be optimal from society’s point of view.
Boris Johnson said that Dominic Cummings “followed the instincts of every father and every parent” when travelling during lockdown and that he would not “mark him down for that”.
Cambridge economist, Flavio Toxvaerd, tweeted a clear response:
“This is true. And it is also irrelevant. When the government imposes lockdowns instead of relying on spontaneous social distancing to control the epidemic, it is because of the concern that individuals behave only in their own interests, not those of society as a whole.
Economists call this a case of people not “internalising the externalities.” Because of external effects, you cannot always rely on people to do the right things to the right extent. Otherwise, there’s no reason to impose lockdown in the first place.
The appeal to Dominic Cummings’ specific situation and constraints goes against the basic idea that people should act in the interests of society, not in their own.”
A previous Discover Economics blog on socially responsible behaviour discusses these ideas. It also highlights that social norms can be important for maintaining and enforcing socially responsible behaviour. When a prominent person – someone who is responsible for drawing up the social distancing rules – breaks those rules, it erodes the social norms and threatens to undermine compliance. Self-isolation remains critical for ensuring no second peak in a world of test, track and trace but people’s willingness to do this may now be lower as a result of Dominic Cummings’ actions. Another negative externality arising from the Durham trip.
Second, sunk costs, sometimes called retrospective costs, which are the costs that have already been incurred and that cannot be recovered. These are contrasted with prospective costs which are the future costs that are going to be incurred by current actions. Economics sends a clear message that sunk costs are irrelevant for decision-making and that only prospective costs should be considered. What is gone is gone and only future costs (and benefits) matter.
Boris Johnson needs to think seriously about the sunk nature of his investment in Dominic Cummings. He has defended Cummings before when the latter was in contempt of parliament. He is continuing to show a high degree of loyalty to his adviser, possibly feeling the need to repay him for his role in delivering both a Brexit and an election victory
But the past is the past and, in the present, the effect of a continued defence of Cummings is freefall in the opinion polls and a very sudden erosion of political capital.
A previous blog has talked about the popularity boost given to all governments in the wake of a national emergency. Instinctively, the public backs the government to help in times of crisis. But the way in which governments deal with crises matters for what happens next. Back in March, Johnson enjoyed a bounce in the opinion polls, but his approval rating has fallen by 20 percentage points within a week. By contrast, New Zealand Prime Minister Jacinda Ardern, widely seen as having had a “good crisis” has seen her popularity continue to increase, giving her the political capital to move ahead with other policies and reforms should she wish.
Johnson may be suffering from what is known as the sunk cost fallacy, i.e. taking sunk costs into account when making decisions. Rather than thinking about the future effects of his defence of Cummings, he may have taken their past history and the cost of past defence into account. This is a common thing to do – the longer a relationship lasts, the harder it is to break up because we feel that the past emotional investment will have been wasted, when the rational thing to do is to call it a day. The Prime Minister would benefit from recognising a sunk cost for what it is and thinking only about the best way forward.