The high cost of not understanding economics



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With the application of the second motion control order (MCO 2.0), the debate about saving lives or saving the economy has returned. We seem to be forced to choose between a lockdown that can help save lives while damaging the economy and keeping the economy open, but with the possibility of increasing the number of Covid-19 cases and deaths.

However, after a year of dealing with the pandemic, we can conclude that such a debate is unnecessary.

First, there is a growing body of scientific evidence showing that there is no correlation between lockdowns and deaths from Covid-19. Second, the economy is not an abstract entity, it is also made up of human lives. The choice is, at best, lives against lives.

The implementation of effective and non-detrimental policies must be based on a sound analysis of the trade-offs, with a serious look at the unintended consequences produced by such policies.

The way the government reacted to the increase in Covid-19 cases shows the exact opposite: a knee-jerk reaction that is not based on evidence and is rooted in a distorted view of the economic system, seen as something that can be activated and deactivate according to the needs of the moment.

Of the 144,518 confirmed cases of Covid-19 in Malaysia, there were 563 deaths, or 0.389%. Most likely that is not the real number because surely there are undetected cases and some of the deaths recorded as deaths from Covid-19 were actually due to different reasons, but by chance the patients were also positive for Covid-19.

But, even if that percentage were valid, it means that 99.611% of Covid-19 patients in Malaysia did not die.

However, based on these data, a lockdown was decided that will affect the lives of many.

While it must be recognized that the Malaysian Ministry of Industry and International Trade and the Investment Development Authority of Malaysia worked hard to keep the economy alive, in particular to maintain the pace of recovery, this government decision was flawed from many perspectives.

You have now returned to the distinction between essential and nonessential sectors, where that distinction is also flawed.

It should be noted that all types of work or business are essential. It is critical in the sense that it puts food on the table for workers and their families.

While the government may eventually decide that we can do it without cutting our hair, and this is a dangerous ethical decision, not a technical one, and even if we agree that we can avoid cutting our hair for two weeks or a month, which is not known. understand It is that hairdressers will not be making money during that period of time, while at the same time being asked to continue paying wages and rents.

For those small businesses that survived the first round of lockdowns, this time they may not be able to.

If a hairdresser goes down, all the companies and people connected will suffer.

For this reason, the economy must be considered as an organic and interconnected whole, not as a simple sum of pieces.

If a restaurant, forced to carry only takeout, sells fewer chicken meals, this will gradually fall on the entire chicken supply chain. And if that restaurant closes and people lose jobs, the consumption related to it is lost.

The longer the OLS, the greater the domino effect. And the domino effect will also involve sectors that are labeled as essential. The supply side works to satisfy a certain demand, and if you reduce it, the supply will also readjust.

Chief Health Officer Dr. Noor Hisham Abdullah recently said that any MCO would last no more than four weeks. But such a statement, while it could have been made with good intentions, is only evidence of a very poor understanding of how the economy works. You can’t turn it on and off.

Businesses and jobs that are destroyed during the MCO are lost. They will not reappear after the lockdown and are lost at a time when new opportunities are difficult to find.

What will happen to these affected people? They will become easy prey to depression, hunger and loan sharks. Is the government willing to take responsibility for this?

My personal opinion is that the blockade is being implemented not because the government believes in its effectiveness, as the evidence says otherwise, but probably because they need to show that they are at least doing something.

Above all, our leaders do not seem to understand what the economy is and how it works.

Unfortunately, decisions that ignore the nature and essence of the economic process will produce not only bad results, but also painful ones.

Carmelo Ferlito is the general director of the Market Education Center.

The opinions expressed are those of the author and do not necessarily reflect those of FMT.

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