We can anticipate that in the future when the reaction to the coronavirus epidemic is discussed, it will become an example of a panicked reaction based on bad information. Our policymakers took bad information, in the form of exaggerated modeling outcomes, and failed to consider other information–the likely harms from shutdowns, both economic and non-economic, and allowed themselves to be stampeded into rash actions. It is an amazing example of group-think, because one country or state took this action, we have to take it. Fear of being criticized played a role as well. From the President on down, there has been very limited willingness to be more thoughtful, to consider a wider variety of information, before making a decision. There are a few exceptions–the government of Sweden, several state Governors, but by and large the response has been driven by nothing but fear. And now that it is apparent that the economic damage, especially job loss, is far worse than people anticipated, and that the virus poses little danger to anyone other than the infirm elderly and those with pre-existing conditions, our leaders are too stubborn, too prideful, to afraid of losing face, to admit that they made a mistake and need to change course. Instead they keep telling us how dangerous the epidemic is and how many lives they are saving, all of which is completely misleading. These errors are costing us tens of millions of jobs and trillions of dollars in economic output.
Humans seem uniquely susceptible to crazy group-think, much of it financial, but not exclusively in that realm. Since we all have lots of down time these days, if you are looking for some interesting reading that would explain how we got ourselves into this mess, let me suggest the following works.
Charles Mackay, Extraordinary Delusions and the Madness of Crowds 1841 (the seminal writer on this topic, with one of the first analyses of the tulip bulb mania in the Netherlands)
Kindleberger and Aliber, Manias, Panics and Crashes
Fooled by Randomness, Nassim Taleb
Akerlof and Shiller, Animal Spirits
Barbara Tuchman, The March of Folly
Daniel Kahneman, Thinking Fast and Slow A particularly useful guide to the fallacies of typical human reasoning.