A LITTLE SLACK

I think there will be a lot of debate in the future about the options that could have been chosen instead of a lockdown - but lockdown is here and its a week old. The most serious argument against lockdown is the economic costs - and that those costs will be particularly acute in Africa and other developing countries with a high poverty incidence (like India). Also, the standard objection to that argument is that saving lives now is worth a temporary loss in economic value. I do not think the trade-offs are so stark - but that is not what I want to discuss. Rather, I want to talk about how policymakers should think about helping people get through a lockdown.

Governments around the world who have shut down their economies to combat COVID-19 have built a raft of relief measures to help businesses and households. Developing nations have a much smaller room for action on that front because they have poorer governments. Nigeria particularly is facing a difficult year because of the fall of oil prices - which is a budgetary nightmare for the government. Businesses and households face an even tighter squeeze. As has been discussed in this publication earlier, the Nigerian business landscape is skewed towards small and micro-businesses - many of them possibly tethering at the edge of subsistence. Millions of households rely on daily cash flow from these businesses to survive. So it is not surprising that despite the lockdown, many people still break the curfew to "hustle". In poorer neighbourhoods where the lockdown is weakly enforced, this "underground" economy kept many households from starving. It is easy to see the risks here. Not taking protective measures in the middle of an epidemic - especially in densely populated and unhygienic slums can hasten a community spread of the virus. But the response should not just be tightening the noose of enforcements without understanding why people make certain choices.

SCARCITY OF SLACK

A concept I found very useful while thinking about this is scarcity. In their brilliant book on the subject, Eldar Shafir and Sendhil Mullainathan explored the many ways scarcity can affect the mind. They define scarcity as a "subjective sense of having more needs than resources" - and this state force people into thinking in terms of tradeoffs. Most of us laypeople lack the biological and mathematical understanding of how a virus spreads. and scarcity can then lead people to make choices that were not carefully considered. Shafir and Mullainathan say that scarcity induces what they call "tunneling" - a state of focusing overwhelmingly on a singular thing and excluding other considerations. The ability to focus on other things is impeded when a singular thing occupies the mind and looms large - a "bandwidth tax". It is not about differences in individual cognitive capabilities or economic status. Scarcity can affect any mind.

You may be skeptical of this simple theory, and you will be in good company. Research in the field of social psychology has been on shaky ground in the last few years. But I still found this concept persuasive - and a lot of certain behaviours can make sense in its lights. If scarcity affects the mind as noted, then people finding the slightest chance to break curfews and sell their goods does not seem so strange anymore. The same is true for their customers who simply cannot afford to "stock-up" food and supplies at just twenty-four hours’ notice. The young men who disregard social distancing by playing football on the streets because Netflix is not on the options menu. Or the small business owner struggling to make payroll who just want the damn lockdown to be over. Again, this is not an explanation for everything. Buying every household a Netflix subscription does not lead to less demand for street football. The scarcity effect is such that in the pursuit of our goals, the options or means available to us shape how we think about the actions we take.

This brings me to what got me started on this path. How should policymakers think about policy interventions in a situation where people's options(already severely limited in some cases) have been shunted due to a public health emergency? Further into the book, Shafir and Mullainathan introduced another powerful concept called slack - and I think it is a very useful way for our policymakers to think. Slack is simply when your thinking is not constrained by scarcity. Slack is when you have enough room in your cognitive suitcase to put things. I think "cutting people some slack" is the right way to think about policy in the current situation. Scarcity not only raises the cost of error, but it also provides more opportunity to err. A little room to avoid difficult trade-offs induced by scarcity is what people need. I am not advocating any specific basket of policies, but thinking about slack can help policymakers figure out the things that are most likely to be helpful. For example, businesses cannot function at the moment and are under pressure to lay off people - a worse outcome for the economy. Extending credit lines to businesses without burdening interests will cut them a little slack to keep their best talents, invest in remote capabilities or delivery services (for applicable businesses), and plan for life after the pandemic. Not all households have working people. Some of the ones that do are running low on supplies and face higher prices. They need some slack too. Tax relief can be slack for big businesses, the same with reducing of removing import duties on inputs that such businesses use. Regardless of the specific policy collective that is adopted - what should matter is that it gives the affected enough room (slack) to avoid trade-offs that can lead to reckless choices.

The government itself is facing scarcity and may need a little slack. Revenue source has shrunk and the economy is looking increasingly weaker. There is a temptation to "tunnel" towards suboptimal choices. External borrowing to shore up the precarious fiscal position may be the best option in the short term. Making sure interventions benefit the intended should be a priority - this applies to state governments too. Sharing food at the ruling party's state offices as "palliative" may not be a wise choice. If in-kind gifts are logistically difficult and breach social distancing, then give people money. The same difficulties will arise with cash. In that case, the government should work with banks (using BVNs), microfinance banks, fintech startups, and telecoms service providers to create a unified database for beneficiaries. The software engineering talents at Yaba, Abuja or Kaduna can be a useful resource for this goal - I am sure they are ready to help. This is not a time for absurd legibility criteria like voter’s cards or identity cards. Everyone who needs help should get it. We are all in this together, and we will get through it better if we just cut each other a little slack.