ORANGES, KUMQUATS AND THE EASTER DUMMY

If the world’s a veil of tears, smile till the rainbows appear. ~ Lucy Larcom  

The fight against the coronavirus may be shaping into a battle. In one corner of the viral boxing ring are epidemiologists, in the other economists. Here in the good ol’ USofA, we’re still standing in the early rounds of this fight.

These two erudite warriors have much different perspectives. Which side you decide to most support now may hinge on your answer to these questions. What’s now the most critical repercussion of the coronavirus’s ever-increasing damage? Is it the tragic human toll or is it the consequential economic harm?

I’ve pomologized[1] the epidemiologists’ recommended actions as “oranges” and the economists’ actions as “kumquats.” They’re both citrus fruits that I enjoy, but quite distinct. The challenge for policy-makers – and really all of us – is akin to how much of each fruit should be mixed into the needed fruit salad bowl of policies that will best combat the coronavirus within our economy. The timing of mixing the oranges with the kumquats into the policy bowl may be important as well. Unfortunately, there is no existing recipe that anyone can use for this fruit salad to be a winner.

Neither fighter’s stances are founded on much actual US covid-19 data, although useful information is growing day by day, just like the deaths. Despite reassuring statements, everyone’s guessing (and hoping). “Exponential” has become one of the most-employed words in the media; raise your hand if you knew what it meant before mid-December. Nevertheless, the accuracy of death rate projections should still be taken with a large grain of salt.

Most epidemiologists argue that the nation should wholly focus on minimizing the healthcare system’s impending trauma, so that we won’t run out of ER and ICU beds, equipment and staff. Their prime emphasis is on strengthening policies that will reduce death counts and flatten the curve. This has consequences for our economy. Before the coronavirus became the center of everything, and unbeknownst to most economists (like me), a flock of epidemiological models have been widely used to predict a broad range of human health consequences from viral and other types of communicative diseases. These models are now being adapted to the coronavirus on the very public stage of policy discussions.

Fundamentally, there are two epidemiological strategies for managing and hopefully, ultimately suppressing this virus. First, mitigation of the coronavirus that’s designed to delay and curb the virus’ spread through isolating and quarantining infected households as well as other procedures.

Second, suppression, known as “flattening the curve,” attempts to limit the pandemic, although it will likely also lengthen the dispersion period. Suppression consists of broader tactics, including public social distancing, sheltering-in-place, limiting large and not-so-large gatherings at which the virus might spread like theater performances, concerts, closing schools and canceling/postponing sporting events like NBA and MLB games. Japan just announced it was postponing the world’s largest sports event, formerly known as the 2020 Summer Olympics.

Suppression aims to stop the virus, not just delay it like mitigation does. Suppression has the benefit that it seems to have worked in China, where the coronavirus first appeared. However, suppression requires that many, many more people rigorously, consistently and continuously follow its requirements. Suppression’s effects are thus hopefully much larger but likely more extended over time than mitigation.

Epidemiological models of covid-19 are all based on conjectured values of key parameters, like the contagion rate. Here’s one example of the wide range of different epidemiological models’ underlying parameters. The Imperial College (London, UK) model has used a coronavirus infection rate of 81% of the US and UK population. Another often-cited model, this one built at Johns Hopkins, cites a quite different 56% infection rate, 30% lower than the Imperial College model’s rate. Many such models are forecasting large numbers of deaths. The Imperial College model has predicted 22 million people will die in the US. That attention-grabbing number is almost 7% of our population and over 30 times the total number of US fatalities from all conflicts we’ve fought in since the Revolutionary War.

Economists entered the covid-19 policy match a bit after the epidemiologists. They are using their macroeconomic models to predict possible economic consequences of the pandemic. Modern general-equilibrium macroeconomic models are complex and rely on hundreds of parameters and equations for their predictions. Coronavirus-scenario macroeconomic models, like those of epidemiologists, probably depend on covid-19’s parametric inputs, but also a host of economic factors. Salt should also be applied liberally with these predictions.

Some economists believe a prime concern now is how to keep the economy going so as the viral battle continues, there are still places for us to work, earn income and buy stuff. In other words, keeping the economy functioning in some fashion is at least as important as containing the coronavirus. If many restaurants, bars, other local retail establishments and larger national firms end up laying off people and run out of money, bad things will happen to vital economic infrastructure. Like the epidemiologists’ models, a herd of macroeconomic models are predicting very broad ranges of impacts, including reductions in GDP and increases in job losses.

Two often-mentioned macroeconomic models are ones developed by Goldman Sachs (GS) and Morgan Stanley. These models’ covid-19 impact predictions have dramatically worsened over the past two weeks. On March 15 the GS model estimated the second quarter (April 1 – June 30) GDP would decrease by 5%; on March 22 the prediction was amplified to a 24% reduction, almost five times as large as a week before! A one-quarter US GDP drop of 24% has never occurred historically. [The GDP dropped a maximum 12.9% during the Great Depression, from 1931 to 1932.] I wonder what this model’s GDP reduction will be next week. Will anyone be employed? 

Not to be outdone in their “how low can we go” duel, on March 21 Morgan Stanley said the GDP will fall 30.1% between April and June. This horrific drop would push unemployment up to 12.8%, over three times as large as the current 3.5% rate. Another Bad News Bearer has stated that unemployment will rise to 30% in the next few months.    

 The actual increases in applications for unemployment insurance are truly alarming. During the last week 3.3 million people have filed for unemployment benefits; 1 million in just California.

There is an evolving relationship between policies that directly battle the coronavirus and policies that manage our economy. Keeping more people working now to minimize economic challenges could allow the virus to spread faster and broader. Undertaking more stringent epidemiological lockout policies to curb the virus may exacerbate the economy’s challenges.

It’s been clear from the beginning (now three months into the covid-19 crisis, although it seems like much longer) that weighty, no-win trade-offs will need to be made by elected decision-makers. Every politician should be publicly stating that pain and nasty consequences will continue to occur, whatever salad bowl of policies are adopted to resolve this crisis. Managing public expectations is as important as the policies themselves. This runs entirely against what politicians usually pronounce: that there’ll be no pain accompanying their solutions. But the coronavirus doesn’t listen to anyone, including politicians. It just does its horrid thing. No one can simply and immediately turn on and off our complex, giant economy using a political light switch. Duh. It will take longer than desired for any economic remedies (like checks getting to citizens) to really happen.

The divided political control of who establishes the government’s plan for action has led to gnashing the teeth of the stock market, the media, us folks and the government itself. The VIX market volatility index is at a five-year high.

What the existing, deadly rampage of the coronavirus has done so far (and it’s hardly finished), together with the predicted epidemiological and economic consequences, seems to have forced both Congressional Democrat and Republican to create the largest-ever package of benefits, subsidies and loans. On March 25, the Senate finally set an agreed-upon, gargantuan $2 trillion legislative package to mitigate some of the economic effects of the coronavirus and flatten its curve. Benefits will be provided to workers, businesses, healthcare facilities and others who’ve been adversely affected. For inexplicable reasons, the House did little in developing its own legislative ideas, perplexingly leaving it to the Senate to initially define Congress’s plan. Consider it phase I of needed fiscal medicine.  

The beyond-dire predictions of the virus’s consequences have caused #45 and his clique to recoil from on-going epidemiological control measures. The president reads these consequences as defeat in the November election. He wants to be resurrected on November 3, not routed. So #45 is now threatening to pull the plug on most coronavirus suppression efforts because he’s terrified of curve-flattening’s political consequences for him. Our beyond-bumbling president announced on March 24 that he wants to end all restrictions on people’s movement in the economy by April 12, Easter.

The media and epidemiologists shouldn’t be surprised by his possible retreat They’ve been steadily predicting political calamity for the thin-skinned, empathy-empty #45.

He became the Easter Dummy when he stated, “We’re opening up this incredible country. I would love to have the country opened up and just raring to go by Easter.” The president wants to throw the epidemiological fighters out of the ring. Understandably, his scheme has been strongly condemned by epidemiologists, economists and many others as foolhardy and short-sighted. He has specialized in myopia once again. 

Fortunately, Dr. Anthony Fauci may have saved us from #45. According to the March 25 Borowitz Report, Dr. Fauci has tricked Mr. Trump into believing there is no Easter this year. If only that were true. ☹ Speaking of the essential Dr. Fauci, who’s been MIA at several of the recent White House covid-19 briefings, he’s figured out a far better partner to work with for spreading clear, truthful information about this crisis, Steph Curry. He and Steph hosted an Instagram Q&A session recently. Goooo, Tony and Steph.

Should the president call off the federal virus suppression efforts? Most assuredly, no. Doing that will cause even more viral devastation later. As one commentator characterized #45’s recoil, “Damn the mortality, full speed ahead.” But, even with continuation of viral suppression and immobilization of huge numbers of people, the already-large economic costs will continue to grow bigger. Additional fiscal assistance will be needed. 

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[1] Pomology is the science of growing fruit. 

VIRAL LOAD MANAGEMENT

Never let a serious crisis go to waste. ~ Rahm Emmanuel 

Politicians have finally decided to take demonstrative actions to reduce the spread of the coronavirus and reassure the public that they really don’t need to wipe out all the available packages of toilet paper from local stores. Unsurprisingly, most of these actions to date have been initiated by local and state governments. However, Dr. Anthony Fauci has further cemented his role as America’s 79-year old patron saint of rational, informed virus dialogue. Thank you, thank you Dr. Fauci.

On March 19 California Governor Gavin Newsom adopted the local SF Bay Area counties’ recently-enacted Shelter-in-Place – ShiP – rules (aka, everyone stay at home) by ordering all Californians to board the ShiP until further notice. Welcome to the ShiP, designed to manage our rising viral load.

According to the letter sent by Governor Newsom to President Trump, the governor justified his state-wide order by stating, “We believe the virus will impact about 56% of California’s population – 25.5 million people – within the next eight weeks.” This estimated 56% infection rate is apparently based on projections from Johns Hopkins University. It’s been a sellers’ market for epidemiologists and their models that have spread far and wide. The more chilling these models’ predictions are, the more media-notice they get.

Here’s why the governor’s projections are fugazzi^[1] math. California’s current population is 39.94 million people. His statement that 25.5 million people represent 56% of the population means his state population has to be 45.54 million [45.54 = 25.5/0.56], which it’s clearly not. To make his math work, he’s overestimating California’s population by 15%. Oh, well. His heart is in the right place.

Also extreme is his assumed 56% infection rate. This is a gigantic percentage of people who will have been infected (assuming the governor’s fuzzy word, “impact” means infected) by the coronavirus in eight weeks. For comparison, Italy is dealing with its own significant viral threat that’s several weeks ahead of California’s. Italy now has 41,021 cases of covid-19, the largest in Europe, out of a total population of 60.48 million people. Its infection rate is thus 0.07%. As of March 21, the New York Times shows California has 1,261 coronavirus cases and 23 deaths, which works out to a case fatality rate of 1.8%. Cases will certainly surge, as epidemiologically expected, with more testing finally getting done and as the virus continues its sweep, but having over one-half of my fellow Californians be infected has not been expected.

As threatening as Italy’s infection rate is, it’s worlds apart from Gov. Newsom’s projected 56% rate. However, there is virtually no downside for politicians not amplifying the potential threat to their constituents; even if a worst, worst-case epidemiological model result is used like the governor probably did. He understandably wants attention and fiscal support from the federal government, overly-giant numbers probably help. Even though any projections, like those from Johns Hopkins, remain based on completely preliminary, ever-changing input values for infection and case fatality rates. However, Gov. Newsom’s dramatic prediction for viral infections in California got #45’s commitment to send the USNS Mercy Hospital Ship to the Port of Los Angeles. Alas, #45’s promise wasn’t to last, like too many others. Later, the US Navy said the Mercy would instead be steaming to Seattle, the initial US epicenter of the coronavirus pandemic.

The Governor’s 56% infection rate together with a fatality rate of 3% (similar to China, Iran and Italy) would produce 5.55 million possible deaths in the US from covid-19. That is over four times the deaths from summing the fatalities of both heart disease and cancer, the two most lethal diseases in the US.

This series of ever-escalating, extreme epidemiological projections may provoke stronger policy actions that can begin to manage the viral load on our healthcare system.

For politicians, ever-stricter interventions are designed in no small part to demonstrate they care, really care, about their constituents’ well-being, whether or not such rules and orders are truly effective. A fine example of this is the federal Treasury Department’s possibly postponing the due date for annual tax form submission from April 15 to July 15. This proposal seems fairly vacuous; after all, for the expanded millions of us who now live under SHiP orders – and it’s only a matter of time that we all will be – won’t we have more time to fill out our 1040EZ’s by April 15? But Secretary Mnuchin’s postponement perhaps shows he does care about the stress of filing your tax form in just 3½  weeks, while you’re doing nothing else.

Media criticism has focused the fact that US hospitals are “thoroughly unprepared” to deal with this viral crisis, citing the US’s rather low hospital beds/1000 people statistic. Such criticism implies or explicitly mentions that if we miraculously already had a publicly-funded, universal healthcare system – say along the lines of Medicare-for-All that Bernie Sanders (remember him?) has proposed – everything would better.  

That’s very unlikely. The US hospital beds/1000 people statistic is 2.89; the UK’s statistic (home of the publicly-funded National Health Service, NHS) is 2.76, according to OECD data. Both US healthcare and the NHS, two nations with two very different systems, have apparently under-invested in medical capacity. But every nation’s healthcare system has inadequate capacity to deal with a novel coronavirus pandemic that no one’s built up immunity to.

My reaction to such criticism is at best a large simplification with a very pricy solution. If our healthcare sector were built to satisfy every unforeseen peak-demand surge, like covid-19, and thus have existing physical infrastructure (e.g., hospitals, beds, medical equipment) and more importantly additional numbers of well-trained medical staff (doctors, nurses, administrators) to deal with every unanticipated peak demand, we citizens would be paying far more for healthcare every month, whether a peak happens or not. I doubt whether many people or politicians would be willing to have their regular healthcare costs or taxes increase to build for such peaks that would only rarely happen. If you build to meet any unforeseen peak, you pay for that capability each and every day.

Healthcare systems are managed to deal with expected variations in required demand, through disaster preparedness plans, contingent staffing and supply-chain tractability. Satisfying sizeable, unexpected peak medical demand would require large numbers of extra Emergency Rooms, ICUs, beds, equipment, nurses and doctors to be already available in place. No real instant-on extra hospital capacity or nurses or doctors are realistically possible, aside from temporary structures or Clinics-in-a-Can. Training nurses and doctors takes years, not weeks. Having such medical healthcare resources standing idly by only for infrequent extreme peak surges would be a significantly expense, all the time. The complaint about insufficient extreme peak medical capacity is real. Its solution would be steep for the healthcare system, no matter what its structure or ownership. That’s the logic of reducing peak medical demand via “flattening the curve.”

Flatten the curve has rapidly become policy makers' go-to goal for managing and surviving the coronavirus’ spread, and is hypothetically illustrated in the chart below.  

Flattening the Curve

A concern I have with this curve flattening is that the public’s general acceptance of the goal does not include much understanding of one consequence. Specifically, as policy and personal actions hopefully, eventually flatten the curve, people will become infected over a much-extended time period, as shown above. Thus, people and hospitals will have to deal with coronavirus cases during a far more protracted period. Will that be ok with everyone? Everybody is now for flattening the curve, are they also for extending the viral distress?

The coronavirus pandemic’s timeline is very distinct from the many financial crises we’ve weathered. The virus’s time period is sort of reversed: it is unclear what will happen in the coming several months, but reasonably certain (hopefully) that within twelve months its menace will have subsided. This world-wide health emergency is unlike the economic crisis of 2007-09, where the government was certain what it had to do in the immediate time, but uncertain about the longer-term issues would be.

Speaking of economic crises, the coronavirus’ consequent economic maelstrom is now growing ever-larger. As I mentioned above about the propensity of seemingly worst-worst case projections to dominate headlines, the same also goes with regard to the imminent “coronavirus recession.” One economics professor cogently characterized our upcoming recession as: This will probably be the world’s first recession that starts in the service sector, not in manufacturing.

JPMorgan Chase now estimates that the economy could decrease by 14% between April and June, the biggest contraction since post-WWII era. Goldman Sachs estimates 2.25 million people filed for unemployment this week, nearly a ten-times increase from a week ago. That estimate was before the White House demanded that state employment agencies not publicly provide information regarding unemployment claims.

Goldman Sachs (GS) also projected 0% GDP growth in the first quarter of this year and a 5% contraction in the second quarter. It estimated that we will lose 3 million jobs by summer. But then on Wednesday, JP Morgan saw GS and raised them in forecasting that the second quarter contraction would be a stunning 14% — worse than the depth of the Great Recession. This forecast could translate to 7.5 million jobs lost by the summer. Others are predicting that the drop in payrolls for April alone could be as high as 5 million.

Can we manage the coronavirus’ expansion and mitigate economic damage by flattening the curve with enough of us staying in our residences for an extended period? If we unswervingly practice staying in our dwellings, washing our hands semi-continuously, maintain 6-ft personal distancing, stop dancing on any beaches and stop tippling in all bars and restaurants, ☹ time will tell. Here’s hoping, really hoping.

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[1] Fugazi is a slang word which refers to something that is fake or damaged beyond repair

THE CORONAVIRUS IS PLAGUING EVERYTHING

Language is a virus from outer space. ~ William S. Burroughs 

The media has been hoisting up their flagpoles multitudinous covid-19 stories that cover everything and anything related to this novel virus. Including politics, given that it’s just 236 days before the presidential election. We’ve been told by the president that covid-19 is part of the Democrats’ plan to capture the election from him. The Chinese state media has encouraged their citizens to believe the coronavirus originated in the US, so as to deflect any blame on Xi Jinping, China’s hallowed premier. It’s difficult now to recall that this coronavirus was discovered in Wuhan less than three months ago, given its swift spread among the media and politicians.

Historians have revived horrific facts about the 1918 Spanish Flu pandemic that killed roughly 50 million people worldwide, including 675,000 people in the US and 12,500 in my hometown, Philadelphia. The president’s uncoordinated, ineffectual efforts to deal with covid-19 so far have been roundly criticized for several reasons, including for forgetting what we learned from this 102-year old flu pandemic. The Administration apparently botched big time the production and distribution of viral test kits, with serious, continuing consequences. Last week, the Surgeon General pleaded with the public to not buy any more N95 masks because medical providers cannot find any. And anyway, these masks aren’t as preventative as people assume. Really; how could a million Chinese be wrong?

We are told the unfortunate news of when yet another person has died from covid-19 in the US. Today, 30 people have now died, and 975 cases have been identified. Lost with the singular focus on covid-19 is that our “regular” seasonal influenza affects 32 million people, with several hundred thousand hospitalizations and 18,000 deaths, according to the CDC.

Here in the Bay Area we have been regularly informed about the dire straits of the 2,421 passengers (and 1,113 crew members) aboard the Grand Princess cruise ship. It was  finally allowed to dock in Oakland on Monday after much delay and hand-wringing [and despite the Vice President’s prior diktat that the ship would not berth at any “US commercial port”]. Last time I looked – today – the port of Oakland was operating commercially. Oh well. As everyone now knows, 45 people on the ship were tested for coronavirus and 21 tested positive, 19 of them crew members. The rest of the 3,516 people are being quarantined in many places.

Is this daily tidal wave of information helping? I doubt it, mostly because it rarely offers any perspective. Instead it’s magnifying two other well-known infectious viruses, anxiety and fear. These widespread public anxieties have cleared the shelves across America of facial masks, hand sanitizer, toilet paper and bottled water.

Going beyond items that used to be on isles 8 and 9 at your local drug store, increasing numbers of people have been inquiring about how to survive the coming pandemic. I’m not talking about a taking an ibuprofen, earning a Ph.D. in hand-washing or getting vaccinated, whenever that becomes available – at least a year away. No, these folks believe the apocalypse (aka, covid-19) is already upon us and they want to be fully prepared.

They are headed for them thar far hills and “going survivalist.” One story mentions a woman named Lynx who teaches a 10-day introduction for surviving wilderness living in the in the wilds of central Washington State. No surprise, her business has picked up recently. She believes that before too long the backwoods’ wilds will include feral rewilded people like herself, escaping the virus. In other locations, covid-19 is providing teachers of “bushcraft techniques” with growing numbers of willing applicants who want to prepare for viral catastrophe and beyond, along with other “SHTF” events (I expect you’ll figure out this acronym in no time) that will typify upcoming darker times.

But let’s return to more hospitable and familiar landscapes, which I think still exist. Despite of the abundant lack of relevant epidemiological information about the coronavirus, several incompatible forecasts have already been offered that characterize covid-19’s potential effects, when it becomes a WHO-designated pandemic. In epidemiology jargon a pandemic is a disease that has spread across multiple continents (covid-19 has already done this all too well) and become a serious, worldwide epidemic (that hasn’t officially happened, yet), although it has been detected in at least 97 countries so far. What is the WHO waiting for, one wonders?

Oxford Economics, a British consultancy, provided one of the first macroeconomic covid-19 impact forecasts last week and said the virus would reduce 2020 global GDP by 1.3%, or $1.12 trillion. The International Monetary Fund ran its macro models through a “covid-19 scenario” and expects the virus will reduce global growth this year by 0.1%, to just 3.2% over last year. We’ve been treated to many accounts of how covid-19 will cause a recession not just here in the US, but in China and Italy. Then there’s the stock markets.

The stock markets’ take on covid-19 has been startling for two reasons. First, we’re at the very commencement of this viral attack. Much more will follow. Yet market drops are already dramatic. Second, the virus has conveniently been labeled as “the cause” of last week’s big drop in the Dow and S&P500 indices, as well as many other equities. However, market valuations for some time have been stretched beyond what the tenuous global economy or business performance merit. Thus, financial markets have had lots of potential room to fall. And fall they have, despite today’s partial rally. Covid-19 is a timely and expedient reason for the tumble that requires no erudite rationale.

Additionally, central banks around the world have already used up most of their fiscal medicines to sustain continued gains. Now that the Fed last week responded within hours of #45's misplaced demand for a "big rate cut," our central bank has joined the covid-19 shoot-out in our fiscal OK Corral. It's the largest rate cut at one time since the 2008 financial crisis. I think this interest rate cut is like pushing on our "loose string" macroeconomy; it will have minimal effect. Instead, a fiscal policy that directly puts dollars in folks' pockets now should be implemented. Such a needed  policy will require agreement from both Congressional Democrats and Republicans. Should we hold our collective breaths? I hope so.
    Meanwhile monetary policy is stymied. Negative interest rates in Europe account for about half of all European public bonds. More than $14 trillion worth of corporate and public debt around the world has negative yields (interest rates). Currently 10-year Treasury notes yield only 0.456%, the lowest ever. Blaming the coronavirus for all this is ludicrous, but quite opportune. Our fiscal reality has been solidly covidified.

Published economic effects of covid-19 largely remain guestimates because no one yet has reliable values of several key epidemiological parameters of the coronavirus, including: its dispersion among people (how is the virus spread among people); its incumbency period (before infected people show symptoms, can they infect others?); its susceptibility, what types of people are most susceptible (what ages, races, etc.; so far relatively few diagnosed covid-19 infections involve very young people, but many older adults); its seasonality; its case fatality rate (CFR) of those infected, how many die; and its reproductive rate (R value; which represents the number of subsequent cases each new case will produce).

This understandable and inevitable lack of information about the brand-new coronavirus hasn’t stopped politicians from riding their hobbyhorse solutions, like Medicare for All, payroll tax elimination or universal sick pay. Also, despite little technical understanding or perspective, the media has been broadcasting all sorts of “advice” for us miserable wretches living in the now-proclaimed “covid-19 era”, including stories like: “Will the US go into lockdown from the coronavirus?”, “Cancel Everything” and “Politics in the Age of Coronavirus: No audience for the Democratic Debate on Sunday.” Fortunately, Elizabeth Warren now doesn’t need to write another plan. Perhaps Cardinal Voiello can offer spiritual guidance.

In spite of all of this, we can tread water hopefully and calmly as the media’s virus-related tsunami threatens to wash us into seas of doubt, anxiety, anger and fear. But don’t forget to vigorously bathe your hands.