| Next | Section menu | Main menu | Previous |

Intelligent design

Rachana Shanbhogue: finance editor, The Economist

How simulations can help shape economic policies

HAVING GONE deep into the red during the covid-19 pandemic, governments will
grapple in 2021 with getting their finances back in order. After the global financial crisis
of 2007-09, those in rich countries tightened their belts too much, choking the economic
recovery. This time they will want to be cleverer about it. Some will be more ambitious,
seeking to redesign their welfare systems: the pandemic will strengthen public support
for stronger social safety-nets. And policymakers in poor countries will want to alleviate
poverty and sustain economic development.

How to balance all these aims? An experiment might tell you if a particular tool works,
and findings from projects on basic income, such as that run in Kenya by Give Directly, a
charity, will influence governments’ thinking. But experiments can be neither broad nor
timely enough to help governments set a plethora of tax and subsidy rates every year.
Conventional economic models do not capture the complexity of human behaviour: that
people change what they do as tax rates rise, or that corrupt officials might pocket some
public funds. So in 2021 governments will be tempted to throw computational power at