Chris Giles in The Financial Times
Every so often, public policy provides a reason to discover or remember the value of Goodhart’s law. The UK’s response to coronavirus is a powerful and tragic example.
Named after Charles Goodhart, a financial guru, former chief economist of the Bank of England and a sheep farmer, the maxim is about the dangers of setting targets. When a useful measure becomes a target, the law states, it often ceases to be a good measure.
Mr Goodhart developed the law after observing how Margaret Thatcher’s government in the 1980s targeted the supply of money to control inflation but then found the monetary aggregates lost their previously strong relationship with inflation. Inflation ran out of control even when the government held a tight grip on the money supply.
What was true in 1980s UK economic policy is regularly experienced in the private sector. Far too often companies hit their top-down targets without improving underlying performance.
In the current crisis, target-setting is altogether more important. Early in March, Italy’s government strove to protect the nation’s health by locking down the Lombardy region. Initially, this led to a mini exodus that probably increased the spread of the disease to other parts of the country.
But it is in the UK where Goodhart’s law was most obviously overlooked. Throughout the crisis, “protect the NHS” has been the government’s core target. Along with “stay at home” it was the slogan repeated daily to “save lives”.
At first sight, nothing seemed amiss. Ensuring hospitals would not be overwhelmed seems so obviously necessary. Who would have wanted to see them starved of funds in a public health crisis? And their staff needed to be given all necessary equipment to battle the pandemic. With many weeks of experience, however, the slogan and associated numerical targets for making hospital beds available have been nothing short of a disaster. The evidence is overwhelming that instead of saving lives, they have cost them.
While the government focused on hospitals, care homes were given much less priority. Over the past five years between mid-March and the end of April, an average of 17,700 people have died in England and Wales’s care homes. This year, the total is just above 37,600. There is a debate over whether coronavirus was recklessly seeded into care homes when patients were moved there from hospitals. But there can be no doubt that relegating care homes to second division status contributed to the 19,900 excess deaths in the care sector.
Far more people than normal have also been dying at home and most of the excess deaths have not been classified as related to Covid-19 on death certificates. We do not yet know precisely why, but at the height of the crisis local doctors were asking their elderly patients to think hard about whether they really wanted to go to hospital or use the emergency services. A fit and sharp relative of mine received two of these calls.
The exact causal links will take time to establish. But 29,874 people have died at home since mid-March in England and Wales, 10,800 more than normal.
No one should think the government’s ambitions deliberately cost lives. But it was a deadly example of Goodhart’s law. The moment “protect the NHS” became the mantra, people dying elsewhere or without being tested didn’t count.
By comparison, the much criticised target of performing 100,000 coronavirus tests a day by the end of April was better conceived. Although the health department fiddled definitions to hit the goal for one day, earning a rebuke from the statistical regulator, the effort has left the UK better positioned for its ultimate objective of testing, tracking and isolating those with the virus.
Goodhart’s law always pops up in unexpected places. The failure in this crisis to think through the incentives created by the “protect the NHS” slogan will haunt Britain for many years.