DÉJÀ FLU? THE POTPOURRI PANDEMIC

The straight path never leads anywhere except to the objective. ~ Andre Gide 

Every state is now relaxing or modifying in some fashion their Sheltering-in Place (ShiP) orders. The first state to withdraw its ShiP order was Georgia on April 24, others like Florida and Alaska followed the next week. Now all states are in this process, each following their own reopening paths.

In California that means localities are exercising Governor Gavin Newsom’s four-stage plan for reopening to some sort of newly-defined normalcy. The qualified good news is there’s a plan; the bad news is it needs to be followed. How will this happen? What’s in store with this “reopening”? No one really knows; everyone’s wandering down their own recovery road. Ultimately, it will be up to us consumers as we decide when and how much to partake in the nation’s commerce.

California’s current covid situation is quite mixed. Some areas have done better than others; no surprise for a state as varied and large as ours. According to Google, Californians have more strictly abided with ShiP orders than people in other states, with fewer visits to retail stores and pharmacies. 👍 However, on May 26 California was the only state that had more than one metro area in the NYTimes’s list of areas with the dozen highest daily growth rate of covid-19 cases; both cities are in Southern California.

New coronaviral cases have risen state-wide, despite extant ShiP orders. There’s no recent decline or even plateauing; they’ve steadily ascended since May 17. During the past four days coronavirus cases have climbed 44.4% in California. 👎 That result is hardly according to anyone’s plan.

The governor has announced California sits in a very large, very deep hole because of covid-19. This threatening cavity is an expected $54 billion (B) fiscal deficit, together with unemployment hovering above 20%. It means the state is already in a substantial, viral recession.

For perspective, this $54B deficit is by itself larger than 40 states’ entire 2018 budgets. This fiscal hole will require state-funded services to be reduced (when they should be expanded), budgets to be cut, furloughs and layoffs to occur and taxes likely increased especially for richer folks. Unfortunately, there aren’t enough richer folks even in California to fill the state’s colossal revenue hole.

Here’s a local example of one consequence: the Berkeley School Board is now engaged in the painful process of how to quickly cut 10% from its coming school-year budget, a reduced budget that somehow has to provide a viral-safe PK-12 education for its 9,500 students.

California’s viral recession, like most places, has been caused by both supply-side (producers) and demand-side (consumers) shutdowns, which is the objective of ShiP orders. It means economic recovery will require both stimulating producers and consumers to re-participate in economic transactions. It also very likely means such a recovery will not be characterized as a “V” (relatively quick). Nope, it’s more likely to follow an “L”. This is unfortunately consistent with the Federal Reserve Bank of Atlanta’s most recent real GDPNow forecast for 2020Q2 (April-June) of a staggering -40.4%. This is not a recession forecast, it’s a depression forecast.

When former governor Jerry Brown was asked what could be done about California’s dismal economic dilemma he said, “The response should be a Rooseveltian intervention and effort to mobilize the economy the best way we can.” These are fair, but fictional words, as Mr. Brown knows. Such broad-scale intervention requires big-time federal funding. The current occupant of the White House now has no intention of “intervening” with hefty heaps of fiscal largesse to assist true blue California, or for that matter any other state. In the unlikely but best of circumstance, #45 and Sen. McConnell might offer selective, non-Rooseveltian funds only after the state agrees to provide some politically-substantial payment in return; maybe a guarantee that each California recipient will receive a certificate with #45’s beaming, orange-ish image at the top. Oh my, that’s what having to deal with Beelzebub (aka, our Lord of the Lies) may come down to.

California is now relaxing its Stage 1 rules in most regions, leaving reopening decisions up to local authorities. The City of Berkeley, like the rest of the hesitant SF Bay Area counties, remains in Stage 1 through the end of May – we’re staying in our homes, attempting to flatten the now well-known curve. Nevertheless, the Stage 1 restlessness index is rising. The transition to Stage 2 will ease the ShiP orders and lift restrictions for lower-risk workplaces.

We’re at Stage 1.8 in Berkeley, and expect to enter Stage 2 soon, by necessity. We should also expect that as cities, counties and states open up, they might selectively move or reorient the official goalposts, changing imperatives to rid themselves of rules they cannot fully comply with, like Washington DC has done.

California’s tourist industry is the largest in the US. Oops, no one is touristing these days and hasn’t been for several months. I’m not alone in cancelling several trips. About 600,000 of California’s travel industry employees have lost their jobs. Hotel rooms in California’s famed Napa Valley are empty; on a recent weekday only 6% of the thousands of rooms in Napa were occupied. Vineyards’ tasting room revenues have been transformed into empty glasses; revenues have dropped 400%. Overall spending on California wines has fallen at least 25%. Vintners wonder how they’ll survive.

Such revenues are all highly-taxed. Travel-related tax proceeds are an important item for many California cities’ revenues, totaling about $12B last year; they won’t be anywhere near that level this year.

No matter what the official ShiP orders state, more people now are publicly walking, hiking, driving, meeting and interacting, even in Berkeley. Our masks-to-exposed-lips (MEL) ratio remains fairly high here, thankfully. I expect we’ll seep into Stage 2 without satisfying every one of the governor’s requirements.

Why? Because ShiP fatigue is at hand, people want orders relaxed and rules’ enforcement is a no-win proposition for anyone. Equally importantly, state, county and municipal budgets clearly necessitate it. The costs of ShiP continue to escalate. State tax revenues have greatly dropped, county property tax receipts are flagging, local tax revenues are unsustainably dwindling.

It’s not quite Exodus, but the fiscal waters parted when Berkeley, whose city council has consistently disdained the need for automotive transport (while sizably raising parking meter fees), stopped the collection of parking meter payments during Stage 1. It’s as if the city told residents please, please drive downtown to safely engage in commercial activity.

Unlike many people, my ShiP “quarantine” hasn’t been a binary change from full-time work to staying at home watching the artichokes grow. My change is one of degrees, because I’ve been retired for a while and have worked only part-time. Increasing numbers of people are unsick and tired of ShiP and want to re-engage in some hopefully-benign fashion. Beyond being simply stir-crazed, large numbers of folks need money that’s headed into their wallets from worked wages, no matter what their covid concerns. Increased income is everyone’s – workers and businesses – very top priority.

The policy “contest” between epidemiologists and economists that I previously characterized has rapidly edged into reopening, after following the epidemiologists’ prescriptions since March. According to one assessment, 25 million more Americans ventured out of their homes on any given day during the first week of May than over the prior six weeks. Nonetheless some steroidal epidemiologists believe, among other needed changes, cities should be thinking about installing new doors that don’t require grasping a handle and re-engineering traffic signals so pedestrians don’t have to push crosswalk buttons. They also suggest that meatpacking plants turn entirely robotic and paid sick time might become a necessity for jobs of all types.

Despite swimming in the deep end of daily pronouncements about covid-19’s treachery, much technical knowledge about the coronavirus remains unknown. Including how contagious and how deadly it is for whom, and under what circumstances infections can be mitigated for how long.

Epidemiologists remain unsure about how to answer the “What should I do?” question that has been posed since the pandemic began more than three months ago. The process of gathering and assessing relevant covid data has indeed been sped up. But as one scientist put it, “The pace of uncertainty reduction in science is way slower than the pace of a pandemic.” That uncertainty means people will favor safely reopening the economy, come covid or high water.
   In due course when we consumers gain enough disposable income and confidence, our demand for goods and services can grow, benefiting all of us. That hasn’t happened yet. US consumer spending dropped in April by 13.6%, the largest one-month decline since this data series began in 1959. This colossal reduction includes spending on durable goods, non-durable goods and services. 

Since #45 has selfishly rejected providing further federal government support or specifying how we are to re-engage commercially and personally, each state and locality is forging a distinct path forward. We can think of this now as our potpourri pandemic. Here’s hoping your and my paths deliver healthy benefits for us and many others.

SUDS AND BLACK GOLD STORIES

Beauty is in the eye of the beer holder ~ Kinky Friedman 

Talk about market madness. The combination of the constantly-mutating coronavirus and the necessary Sheltering-in-Place (SHiPing), has dramatically unhinged our economy during the past several months. Many goods markets have become lop-sided rollercoasters. There has been radically reduced demand, consequent surplus supply, and even short-term excess demand. The federal government and the Federal Reserve have already provided multiple trillions of aid to people and businesses, with more on the way. States are now either extending or relaxing their SHiPing restrictions because no one really knows what path to follow for reopening markets in our devastated economy.

Gone into the mists of some ever-fainter past are the stable goods markets drawn by people like me on Economics 101 classroom white-boards. The traditional microeconomic market diagram shows product demand and supply curves intersecting at a single point, demarking market “equilibrium” price and quantity. Those were the days. It’s no longer a two-dimensional white-board world (it never was, but…).

The government announced on April 29 that the 2020Q1 real GDP dropped by 4.8%, with consumer spending down 7.6% and business investment falling 8.6%. March unemployment rose to 4.4%; about 13% of our labor force is now receiving unemployment benefits. April’s unemployment tally will be even higher. It’s not official yet, but everyone who’s breathing already knows we’re now dealing with a significant macroeconomic recession. Unlike other recessions, this one has happened quite suddenly, with rising unemployment as a leading, not lagging, indicator of distress.

The media attempts to explain our changing macroeconomic situation by using “letters”: like “V” showing a rapid expansion after the big drop; “W” a bumpy increase than another drop and a final improvement; and what the “L” that signifies an economic drop with no actual bounce-back recovery for a longer time. Very nasty. Very possible.

Much mention has been made about covid-19’s effects on business’s supply-chains, especially those that have anything to do with Asia. Less attention has been paid to how the virus has affected “demand-chains,” meaning in what way customer purchases are happening; and how we’re actually buying, and not buying stuff. Right now, we consumers are mostly “chained” to our shelters, with too many of us unemployed. That’s why aggregate demand for goods and services has plummeted so much and so rapidly.

But it’s consumers who will ultimately determine how and when our decimated economy will be revived. The media’s pics showing the first brave (bleeding-edge?) folks getting their hair cut and nails painted are curious. The economy won’t be adopting a general recovery “letter” until multitudes of just-regular customers like your Uncle Myron and Aunt Dorie feel safe and secure enough to physically re-enter the nation’s markets and stores on a regular basis.

Everyone has now has gotten through last month’s “where’s the TP?” epoch that was caused by panic buying. People no longer eat in restaurants; they pick-up food from them or have it delivered. Restaurants expect sales to decline at least 27%. The media is now braying about up-coming meat shortages because 33% of US packing plants have been shut down. Will there thus be a run on ground beef and Big Macs? Yet another reason to become a vegetarian.

Some medicines remain in short supply, like hydroxychloroquine for lupus and arthritis patients and azithromycin, because #45 made false public statements that they might prevent covid-19. It’s astonishing that despite his maskarading as our leader (unlike his VP, who won’t even wear a mask since it’s the devil’s mark), 31% of surveyed adults still believe he’s “trustworthy.” Seriously, it’s beyond depressing that nearly one-third of adults still trusts what he says is true.

I highlight here two very different goods’ markets – beer and oil – that caught my eye as consumers and producers attempt to adjust in our covidified economy. They don’t mix well at all, being oil and water, but they each offer a special type of liquidity that makes them quite popular.

Beer.  Beer with me for a moment. There’s a growing problem in the beer market, like many, because of an imbalance, especially for independent craft beer brewers and brewpubs that don’t bottle or can their product. Although total US beer sales were down 1.6% in 2019 (a long-term trend), craft-brewed sales increased to more than 25% of the beer market. In 2019 there were 8,275 craft breweries, up 9.1% since 2018 (also a trend). Until until several months ago, more craft brewers and their brews were facing a growing market. That’s always good news. But 2020 is a different kettle of beer.

Demand has sunk to the very bottom of a pint glass 🍺 and supply can’t easily adjust. Humans have been brewing beer for 7,000 years during good times and bad. Modern craft brewing usually takes two to three weeks to create a new batch of beer; a double IPA or sour beer can take five weeks or more. Also, draft brews taste best for a relatively short time.

Many brewers therefore are agonizing about dumping their excess craft beer. “There was literally nothing that we could do with it,” lamented a Minneapolis brewer, as he ditched his unconsumed product. Closed bars and abandoned social happenings have created a draft beer surplus, which is being abandoned into wastewater treatment plants. This frees up tanks, kettles and kegs for breweries to start post-covid production at some point, but this loss is a calamity.

So it might be a very good time to fill your growler at a favorite local bar or brewery with surplus banana-scented hefeweizen (OMG), or whatever your brewpub’s special spring beer might be. Sure as shootin’ they’re having unaccustomed challenges selling it.

One Oregon microbrewery has sold only draft beer since it served its first pint over 20 years ago. But after the state closed all bars and restaurants in March, distributors canceled their beer orders. The owner had to decide whether to dump all of his already-brewed, but aging IPAs. Faced with that disconcerting prospect, the brewery hurriedly swung to canning its product; something the owner previously had sworn he would never do. Canning involves considerable expense, but less risk. He stated, “I would rather eat a lot of crow than send beer to a sewer.” Only the crocodiles will be disappointed.

Petroleum.  Like beer, oil has been used for thousands of years. The walls and towers of Babylon apparently used asphalt in their construction 4,000 years ago. Until very recently, petroleum products like kerosene were mostly consumed as a fuel for night-time lighting and for lubrication. The I Ching, written around 1000BCE, mentions oil in its unrefined, raw state being used by Chinese people.

The first drilled (rather than hand-dug) crude oil well in the US was near Titusville, PA in 1859. Recently, about 1 million oil and gas wells were active in the US; fewer are now actually pumping. Until February, the petroleum industry had yearly revenues of about $1.7 billion. The world’s largest oil producers are the US, Saudi Arabia and Russia.

The real (inflation-adjusted) price of crude oil has significantly fluctuated over time, as shown in this chart. 

real price of crude oiL, 1860-2020 ($/bbl.)

Source: The Economist, 4/27/2020.

The US spot price of WTI (West Texas Intermediate) crude oil – the US benchmark – on April 27, 2020 was $12.17/bbl. Two months before, on February 27, 2020, it was $47.17/bbl, almost 4x as high. That’s market turmoil.

Although there were price spikes in the 1860s because of the American civil war, in the 1970s because of the OPEC oil shock and again during the 2000s commodities boom, the real price of a barrel of crude today is around the same level it was between the late 1800s and the early 1970s.

The recent price drop initially happened when Saudi Arabia and Russia couldn’t agree about how much to cut their production to push petroleum’s world market price upwards. The US president, displaying his own oleaginous properties, came down firmly on the side of oil suppliers – the US petroleum giants and their brethren – in facilitating an agreement between OPEC and Russia.

Then the coronavirus emerged as an all too powerful oil market counterweight by suddenly cutting the demand for the Saudis’, Ruskies’ and everyone else’s “black gold.” World-wide demand for petroleum is down at least 30%, causing prices to dramatically fall, as shown above.

The world’s huge oil markets are now in meltdown, just like the far teenier, but dearer craft beer market mentioned above – and for the same reason, a novel microscopic avenger.

This petroleum price reduction can have several consequences. First, much of the now-uncompetitive US shale-oil production will be drastically reduced, if not halted. This is no small matter because, according to the US Energy Department, 63% of total US petroleum production in 2019 came from shale. US shale has some of the highest lifting (production) costs in the world, requiring a market price around $50/bbl to breakeven. Watch for an increasing number of shale firms declaring bankruptcy and/or being purchased by the already-massive, established firms like Exxon/Mobil, Chevron and Shell. Also watch for the US to lose its ranking as the world’s largest oil producer, which was the Saudi’s and Russian’s original goal, and for us to eventually begin importing more petroleum.

Second, with very low oil prices alternative energy will have more challenges in usurping market share from fossil technologies; recent progress in clean-energy technologies might be threatened. Third, because of petroleum’s outsized influence on the economy, its much-lowered price will likely increase deflationary pressures on overall prices. This isn’t necessarily good. If oil’s price stays very low for a while, policy-makers’ near-total reliance on deficit-financed aid may become a bit more costly. Why? Because one often-used hedge against both bigger public and private debt – inflation – won’t be in the cards.

Here’s hoping the beer, oil and every other market’s turmoil can soon diminish in consumers’ favor. That will likely take a fair amount of time, far more covid-19 testing, large improvements in consumer confidence, as well as a practically light-speed-provided effective vaccine.

BACK TO THE PAST? OR BACK TO THE FUTURE?

What you gonna to do when you’re black & blue? ~ Louden Wainwright III 

In an all too real a sense, the coronavirus has forced everyone to grudgingly drop our hubris. Our now-exposed conceit is that we could straightforwardly surmount any issue we’re facing because of our richly “cutting edge” technology, science and vast knowledge. Not this time.

Once again Mother Nature has reminded us, “You are not in control of this situation, I am.” Is it going to be back to the past echoed by the 1918-20 Spanish Flu one more time? Hopefully not, but it does have its rhyming parts.

At this point, it seems we have a choice: Are we going back to the past, or back to the future (admittedly without Doc Brown’s time-travelling DeLorean)? My hope is that with clear, systematic planning and proper policies we can head back to the future, albeit a different one than originally planned.

For thousands of years diseases have challenged our place on Earth. However, for the first time a viral attack is happening with the modern rendition of widespread personal and national globalization as our standard operating practice and with social media instantly available to billions of us.

Virtually everyone has followed the coronavirus’ ruinous voyage ever since it first attacked humanity in Wuhan, China last December. We’ve tallied its daily destructive path via social media. And it’s rapidly turned the world upside down – in no small part because of globalized mass travel and complacent conceit.  

Historically, there have been other journeys that have turned the world upside-down. At the end of the 15th century, Christopher Columbus discovered a “new world.” It took him 7 ½ months to present Queen Isabella and King Ferdinand, his royal venture capitalists, with proof of his success. He offered the monarchs as his testimonials; gold, pearls and aji (South American chili peppers) he had taken from indigenous peoples. For our current viral journey, we haven’t had to wait until mid-July to learn about the coronavirus’ presence in China. We learned about it in real-time.

Shown below are some of the pandemics that have significantly wounded us over a very long time.

PANDEMICS THROUGH THE AGES 

Pandemic	Date	Worldwide Deaths
Black Death/Bubonic Plague	1331-1353	75-200M
3rd Bubonic Plague	1855	10-15M
Spanish Flu	1918-20	50-100M
Spanish Flu in the US	1918-20	675,000
Hong Kong Flu	1968-69	1M
Swine Flu	2009-10	150-500K
Typhus	1489+	11.4M
Smallpox*	18th C –1979	900M
Measles	500AD+	1.3M annually
Malaria	450AD+	2M annually
HIV/AIDS	1980’s+	32M
Coronavirus	As of 4/20/20+	151.0K (US: 36.1K)

*The only infectious human disease ever to be completely eradicated. +Continuing

Sources: Wikipedia and New York Times

The reoccurring Black Death that probably killed 30% to 60% of Europe's population in the 14th Century wasn’t the first human pandemic; the coronavirus pandemic won’t be the last. Why? Because Mother Nature always bats last. Non-flu diseases continue their deadly routs around the world. Over their long history of human calamity, “ordinary” diseases like Typhus, Malaria, Yellow Fever, HIV/AIDS and Measles are responsible for more deaths than any others. Thankfully, only a few of these ordinary diseases are endemic in the US.

The chart above shows the dates these pandemics have occurred, from about 15 centuries ago to the present day. Only in the last century has medical science been able to stifle some of these diseases’ plunder. The victory over Smallpox is an impressive, singular example. A strange Black-Death linkage happened this year when many Christian churches around the world were closed for their April 5th Easter Services. When was the last time Churches closed en masse on Easter Sunday? During the 14th Century Black Death.

Perhaps the 1918-20 Spanish Flu is the most similar pandemic to the current covid-19 virus. They are produced by two different virus types, but they both caused (or are causing) tremendous suffering. I have regretted not asking my father, who was then a teenager in Brooklyn, about his recollections regarding the Spanish Flu medical catastrophe.

The Spanish Flu occurred during WWI, when knowledge of viral diseases was yet to be well comprehended, and was unknowingly carried by thousands of troops in Europe and beyond. One expert estimated that the Spanish Flu killed 218 out of every 100,000 people living on Earth at the time. In the US this flu was first noticed at Ft. Riley, Kansas among returning US Army soldiers.

The US was crippled by this flu that preyed particularly on young adults (unlike covid-19). The average age of a 1918 flu victim was 28. Older adults seemed to have some immunity, again unlike covid-19. The 1918-20 flu was particularly devastating in the high-density, industrial cities in Eastern US, especially in Pennsylvania. More than 17,500 Philadelphians (my original home town) died of this flu in the first six months of 1918; magnified by the city’s holding a giant downtown parade on September 29, 1918. About 200,000 people attended the Fourth Liberty Loan Drive parade that promoted the war effort and public purchases of war bonds. Floats displayed the latest locally-built additions to America’s arsenal. Within three days, every bed in Philadelphia’s 31 hospitals was filled with Spanish Flu victims. This flu struck in three distinct waves. In Philadelphia, the case fatality rate was a colossal 37%. By the end of this flu’s rampage over 60,000 Pennsylvania residents lost their lives. [At this point, 1,285 Pennsylvanians have succumbed to covid-19.] Many epidemiologists believe the Spanish Flu is still with us; over time it has metamorphosed into the seasonal H1N1 flu.

The “novel” characteristics of the current coronavirus mean we don’t yet have any way of directly alleviating its damage; mitigation persists as our only means of fighting covid-19. In stark terms, it’s 6-feet apart or 6-feet under. The frenetic, on-going efforts to produce a coronavirus vaccine won’t be finished for at least 12-18 months under the best of circumstances. Success is not guaranteed despite our knowledge and technology. So far, every nation including ours has been fighting a defensive battle against this virus by attempting to flatten the curve.

Illustrating the global scope of relevant experience, Liberian Tolbert Nyenswah, who ran one of the most successful contact tracing efforts in Africa during the 2014-16 Ebola epidemic, said “All people are talking about right now is hospital beds, ventilators, testing, testing, testing. Yes, those are important, but they are all reactive. You are dealing with the symptoms and not the virus itself. You will never beat a virus like this one unless you get ahead of it. America must not just flatten the curve but get ahead of the curve.” A growing number of knowledgeable people have united around a test-trace-quarantine strategy, while we wait, hopefully, for an effective vaccine. Before a vaccine becomes available maybe by the end of next year, testing is the most essential tactic for managing the coronavirus.

The initial CDC-designed and assembled coronavirus test proved unreliable, due to its complexity and mis-fabrication (which it only admitted later). It failed to follow Occam’s razor with tragic consequences. The wheels of government always turn slowly: The Administration once promised that 27M tests would be available by the end of March. After this disastrous start, only 3.56M tests have been conducted through April 17.

There has been worthy, wide-spread criticism leveled at #45 and his obsequious associates for not definitively planning how to combat this coronaviral pandemic. His autarkical approach is doomed. I’m reminded of a well-known quote from #34, Dwight D. Eisenhower; “Plans are worthless, but planning is everything.” The current president doesn’t believe in either planning or plans. He’s an all-too-sterling member of the “Ostrich Alliance;” world leaders who have kept their heads firmly planted in the sand with respect to fighting the coronavirus. [FYI: The Ostrich Alliance also includes President Gurbanguly Berdymukhammedov of Turkmenistan; say his name just one time fast.]

We are all suffering because #45’s viral testing efforts are wholly insufficient. Such efforts are vital for reviving our comatose economy that he alleges to care about. Apparently, he’s decided to toss the testing “ball” into the states’ court of already-filled unfunded responsibilities rather than offer any real leadership or support. His decisions are senseless, reckless and irresponsible.

The viral policy contest between epidemiologists and economists has now become more heated. More than 22 million people have filed for unemployment benefits in the past month, 15% of our labor force. The coronavirus’ consequent economic turmoil is growing ever-larger. The US labor market is beyond black & blue. Which has amplified the calls for “opening up” the economy, that in turn has increased appeals/pleas for additional, much-needed federal funds for covid-19 and serology (antibody) testing, equipment and personnel. When is such fiscal relief coming? Astonishingly, the president hasn’t said. Congress should halt its politicking, and get dollars into the pockets of suffering people and businesses.

Economists predict the unemployment rate will rise to at least 15% by May, a level last seen 81 years ago. A gaggle of GDP forecasts for the second quarter range from dreadful (-8%) to disastrous (-15%), portraying an abysmal near-term future. Consumer spending, the single largest part of GDP, is also black & blue and expected to drop at least 14%. Macroeconomic policies are needed to bring our economy out of its coma. But no one knows when they should begin, without causing a second wave of deaths.

From an ivory-tower macroeconomic perspective, the sizeable federal funding that has already been provided, with more in the offing, is affording a tragic, real-time test of nascent Modern Monetary Theory (MMT). MMT posits there won’t be much if any inflationary consequence from the giant, supplementary monetary (and fiscal) policy expansions that have happened within the last three weeks. Many doubt the MMTers.

We are all debt-heads now. Every single dollar of expanded federal, state and local government expenditures that’s fighting the coronavirus is debt-financed. The federal government is expected to increase its deficit-financing by $4 trillion (T) dollars this year alone, a deficit that’s two times as big relative to GDP in any year since WWII ended. Business’ borrowing is also at record levels, and their credit lines are being depleted. Over the past decade households’ debt levels have also greatly increased. To counter this, the Federal Reserve has reduced interest rates to zero and provided more than $2T in loans to banks.

Total government, business and household debt is now 224% of our GDP, a worrying all-time high. Macroeconomic textbooks state in normal times such vastly-increased debt could create increased inflation and topple our economy’s now fragile house of cards. And, of course, these are not normal times at all.

The president’s shouts to immediately “liberate” states from the shackles of Sheltering-in-Place (ShiPing) orders demonstrate his total inability to properly lead our nation. His path will take us back to the past.

Economic and other policy-makers who value peoples’ well-being and public health strongly caution against suddenly stopping the states’ and localities’ mitigation efforts now, despite the economy’s strong recessionary drift. They aptly believe using data from broadly increased testing (at some point) should ultimately foretell when governors can more safely relax their ShiPing rules, and mitigate another covid-19 resurgence. This is the path back to the future.

TOILET PAPER, CHICKS AND GOLD BARS

I’m not counting any chickens. ~ Jeff Bridges  

How’s your Sheltering-in Place (Sh-i-P) coming along? We’ve been at it since Monday, March 16, which seems like... The SF Bay Area counties now have extended their Sh-i-P orders through May 3. Further extensions, with masks, are only a matter of time.

Don’t worry, this blog doesn’t get within 6 feet (or should it be 27 feet, see here) of casting judgement on how rigorously any of us are following our Sh-i-P rules. It is only semi-virus-related so I consider it mildly other-worldly, since covid-19 occupies 110% of the public’s conscious attention, or so the media presumes.

Instead, this blog centers on toilet paper (TP) and chicks 🐥 (not the Dixie kind) that have flown off stores’ shelves, just like TP. For more fiscally-focused folks, I also consider gold, a precious metal that humans have valued through innumerable crises of every sort, including ones like this one.

It’s an understatement to say many aspects of people’s behavior have been changed over the past several months, during this initial chapter of covid-19. Countless folks’ expectations have become frenzied by Sh-i-Ping, the Administration’s pinballing, sometimes deceptive messaging and the media’s ceaseless proliferation of coronaviral stories – letting us know for example when Papua New Guinea registered its first coronavirus case. Such untethered expectations change personal consumption patterns, create panicked, feverish purchasing and subsequent emptied shelves. Voila, resulting scarcities of toilet paper, chicks, and glass gem popcorn seeds, among other items.

Toilet Paper: (FYI, the use of the colon as part of this subsection title is purposeful.) What is it with TP anyway? Normally it is an ordinary, inexpensive consumer product that sells for $0.67 per roll at Costco, when it’s in stock. That’s very different than TP’s price in Venezuela, where hyper hyperinflation has taken its toll. A roll of TP in Caracas costs at least 2,600,000 bolivars. Yet another of the multitude of reasons to not live there.

Toilet paper has been around for a good long time. The first documented human use of TP happened in China during the 6th century AD – 15 centuries ago. In Ancient Rome, a sponge on a stick was often used, and, after use, placed back in a pail of vinegar. In other locales, wealthy people wiped themselves with wool, lace or hemp. Less wealthy folks used rags, wood shavings, leaves, grass, moss, water, snow, seashells, or corncobs. The rise of publishing in the 18th century led to the use of newspapers and cheap, popular books’ pages for cleansing.

However, actual rolls of TP didn’t accompany toilets until more recent times. Commercial toilet paper began in the mid-19th century, with a patent for roll-based dispensers filed in 1883. Indoor plumbing first started to be placed in American homes in the mid-1800s. In 1940 nearly one-half of US houses lacked hot piped water, a bathtub or shower, or a flush toilet. Toilet paper dispensed from rolls was first popularized in 1890 when the Scott Paper Company began selling it, coinciding with mounting use of indoor, flush toilets. Now more than seven billion rolls of toilet paper are sold yearly in the US. Over time, deflation has struck the rolls. The size of a general single sheet of TP has shrunk 26% since 2000. Nothing’s sacred.

Today’s TP scarcities recall another shortage when Johnny Carson joked in his December 19, 1973 Tonight Show monologue that “there is an acute shortage of toilet paper.” There really wasn’t any shortage; on stage, he verbally made it up.

The first OPEC oil embargo also was happening when Johnny joked and created large amounts of public anxiety as well as blocks-long queues at gas stations. Carson’s audience apparently found his jest more frightening than funny. His “news” sent large numbers of shoppers into grocery stores to buy and hoard toilet paper. Thus an actual shortage was born. The Scott Paper Company urged people to stop panic-buying their product. Nevertheless for several months, TP was in short supply or actually absent from store shelves. TP was bartered for, traded, and even sold on the black market.

 That was then, the present-day TP shortage, shown above, arose from consumers’ anxiety-driven purchases, but not from a misplaced joke. It has been happening not just in the US, but in Australia, New Zealand, Hong Kong and Japan. Why? Perhaps shoppers fearful of coronavirus quarantine measures have stockpiled essential supplies to last out a week or two (or more) of isolation. In Hong Kong, ambitious thieves actually held up a supermarket to steal a TP delivery.

Buying TP is a relatively cheap action and satisfies people’s need to think they are “doing something” when they feel at risk. Also, customers may sense that buying TP is part of their crucial “preparation process” for Sh-i-P. Finally, TP is utterly non-perishable, has few straightforward substitutes and is one of the rare products someone can buy in larger-than-normal quantities that is guaranteed to be eventually used before it goes bad. Hence, large expanses of emptied-out TP shelves exist here, as displayed above. Not to worry; breathe deeply, it’s hopefully temporary.

Chicks. Everyone loves baby chicks, especially at Easter-time. Demand for new chicks is off the charts this year. Flocks of people have been rushing to raise backyard chickens amid their coronavirus concerns and egg shortages. Hatcheries report an increased demand for baby hens as more people want to grow chickens for eggs, meat and companionship. Baby chicks are certainly cute, as shown below, and look great under the Easter bush.

 The USDA reported last week that the national inventory of shell eggs decreased 10% for the second consecutive week and the nation-wide supply of Large eggs declined 14%, characterizing the current run on chicken eggs across the nation. As a consequence, wholesale prices for shell eggs continue to show sharp daily increases, rising to levels not seen since March 2018. In some areas, wholesale prices of eggs have tripled during the past three weeks, which has spurred more panic buying of eggs and chicks.

This year, Cackle Hatchery, based in Missouri, has seen its chick sales rise 100%. It’s been so hectic at McMurray’s Hatchery in Iowa that callers wanting to order chicks have been put on long holds. The hatchery is nearly sold out of chicks for the next month. McMurray’s has seen a rise in “homesteader types” and others who want to raise their own chickens. A growing number are first-time, wanabe chicken farmers.

“This has to do with the perceived hoarding that is going on,” Bud Wood, McMurray’s owner and president, said of the surge. “People are afraid they won’t be able to buy eggs and chickens in the grocery store, and they don’t want to have to go to the store and possibly be infected.” “They’re panic-buying chickens, like they did toilet paper,” stated Tom Watkins, McMurray’s Vice President.

My daughter Lindsay and her family have already raised backyard chickens several times, and are about to start anew. As a veteran chicken-raiser she offers the following observations. Newly-hatched chicks are fragile creatures that first take careful indoor tending, including the use of heat lamps to keep them warm. Her kids have likened them to little-dinosaurs. Once they’re living outside, you must keep your chickens safe from predators. One of their chickens was picked off by a dive-bombing hawk while they were still young, and several others met their demise by racoons. Be prepared for the long-haul; it takes six to nine months for them to mature enough to produce eggs. Once they’re big enough, letting them free-range in a large run during the day means your yard’s bug population will surely decline because of their constant search for food, as well as have more nutrient-rich eggs and happier chickens. Remembering that they’re farm animals is key; they’ll poop everywhere and their cage needs to be cleaned out regularly. However, you can use their composted droppings as a high-nitrogen fertilizer in your newly-created virus “victory” garden. (Don't use fresh chicken manure, it'll burn the plants.) Finally, if you add a bit of cayenne pepper to their food, you’ll get really gorgeous orange-yolked eggs, that aren’t spicy. Yum.

Gold. Given the deep drops in stock prices and increased market volatility, demand for gold is rising, even for 400 troy ounce (27.4 lb.) bars similar to those in Ft. Knox’s vaults. There are over 368,000 golden bars at Ft. Knox which used to “back” our dollar until 1971. Thank goodness the market for gold and gold bars isn’t closed like your favorite local bar is. You’ll want that quarantini for home delivery, right? So let’s take a shallow dive into gold, where unlike TP and chicks, shortages don’t exist, yet.

 Gold is a precious metal that has been used for coinage, jewelry, and other arts throughout recorded human history. The first precious metal coins, made of electrum an alloy of gold and silver, were used as money around 600-500 BC in several places around the ancient world; in China’s Yellow River valley, in India’s Ganges River valley and by the king of Lydia in western Asia Minor (modern Turkey). The Lydian coins weighed anything from a slender 0.006 troy ounces up to half an ounce, varying by value. These coins were stamped with animal heads, such as lions and rams to discourage counterfeiters.

The world’s largest gold producer is China, by a large margin. The US, the fourth biggest producer, supplied 253 tonnes in 2019. About one-half of all gold produced is used in jewelry, 40% in investments and 10% in industry. Overall, there is about one ounce of refined gold in the world for every person. Being a mature commodity, the world supply of gold increases at approximately the same pace as population growth. The several gold crowns that I “wear” in my mouth thus have accounted for an infinitesimally miniscule portion of “industrial” gold usage.

Many investors look to gold in periods of market turmoil because they believe it holds value through recessions better than other assets. And guess what is now coming to an economy and stock market near you, a recession. Over 10 million Americans filed for unemployment benefits in March. Precious metals like gold have often served as a hedge against market volatility, political instability, currency weakness, and economic collapse. Demonstrating this increased demand, the price of gold has recently risen, as shown below.

GOLD SPOT PRICE, March 19 to April 3, 2020 

Will investors turn to gold as covid-19 continues its horrific assault on our health? Or will it be fools’ gold? If the nastiest predictions about the economy’s second quarter performance become valid, it’s certainly possible gold will be good. Will it be another golden age? Exceedingly unlikely.

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