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.
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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