1. Flying blind. I have been complaining about two major unknowns.

(a) We don’t know the true prevalence of the virus. Random-sample testing could have addressed this.

(b) We don’t know the spread mechanisms. For example, we know that the virus can remain on a doorknob for a long time. But we don’t know how likely it is that one will become infected via a doorknob. We need the experiment.

I blame the CDC for continuing to fly blind.

2. Absence of masks. As Americans, we look at masks from a “what will it do for me?” perspective. Maybe if I wear a mask and I’mm around infected people who don’t wear masks, I won’t improve my chances much. But Asians look at it from more of a social perspective. If I wear a mask an I am unknowingly infected, it seems likely that I greatly reduce my chance of infecting other people. So if everybody wears a mask, my thinking is that we can mingle in public and hold the spread rate down. Not to zero, but enough so that we don’t need to cripple the economy with lockdowns.

When I see countries that are a lot closer to China with lower case loads and deaths, and I see lots of masks in use, that makes me think that masks might be sufficient. At least in some parts of the country.

Where is the CDC on this? On the one hand, they tell us that masks won’t work. On the other hand, they tell us that masks are precious and they must be reserved for front-line health care providers.

We should have had a gigantic strategic mask reserve before this crisis started. No, I never thought of that before. But it should have occurred to the CDC. As the saying goes, You Had One Job.

3. On macroeconomic policy, using the same measures that were used in the 2008 financial crisis. This ignores (a) the fact that those tools did not work very well then and (b) this is a different crisis. In particular, this is mostly a liquidity crisis in the nonfinancial sector. We could do without fiscal “stimulus.” We could do without the Fed expanding its balance sheet. We could help people get by with short-term loans. These would enable individuals and small businesses pay rent, utilities, and meet other financial obligations. And perhaps we could let people get back to work if we used the scarves and masks strategy.

I blame economists for falling back on the 2008 playbook.

From 2006, a talk by Robert Higgs. At minute 10, he talks about the ideology that sees government as the solution to crises.

Recommended for these times.

Do your think that your $1000 check is a big deal? Consider this:

Assuming that there are 130 million households, and each household gets $1000, that would amount to $130 billion. Yet the “stimulus” is $2 trillion, so that leaves a lot unaccounted for. Let’s assume that the bill contains $.02 trillion in funds for medical supplies along with $0.13 trillion in checks for households. That leaves $1.85 trillion for special interests.

I know that it’s too late to do anything about it. I should just shut up and move on. But I’m in a bitter mood today. Sorry.

UPDATE. It looks closer to $3000 per household. In that case, call it $0.4 trillion for households and $1.58 trillion for special interests.

On the macroeconomic policy response to the virus crisis. I start with the argument for having everyone cover their faces. Maybe if we did that to slow the spreading of the virus instead of hiding in our homes, we wouldn’t have such big economic problems.

Note that I compare the situation to the second World War, as does Tyler Cowen.

Two approaches to dealing with the combined public health crisis and economic crisis.

(1) Have people privately reduce mingling with one another PLUS have government order people to take steps to reduce mingling. Then try to deal with the economic consequences by increasing government spending by $2 trillion or more, with a share of that to be financed by money creation assuming the government is not going to be able to borrow that much on such short notice.

(2) Instruct people on how to tie a scarf over the nose and mouth.* Meanwhile, ramp up mask production, so that as soon as possible masks are widely available. Point out to everyone that wearing something over their nose and mouth is a public duty. It’s not (just) protecting yourself from infection, it protects other people from being infected unknowingly by you. If necessary, legislate fines and enforce them when people go out in public without wearing something over nose and mouth.

With either (1) or (2), you still need to isolate people who are coughing and who are known to have the virus. With either (1) or (2), you need to be supportive of health care workers, search for cures, search for a vaccine, and so on.

With either (1) or (2), there is an imposition on liberty. With (1), you tell people where they are allowed to go and tell businesses they have to shut down. With (2), you tell people that they can’t leave their noses and mouths naked.

With either (1) or (2), there will continue to be new cases of the virus. The goal is to reduce the spread of the virus down to a level that will keep hospital emergency rooms from getting overwhelmed. Both (1) and (2) leave gaps. For example, under (1) there will be some mingling, either by people breaking the rules or people who are exceptions to the rules. But even though there are gaps, it seems plausible that either approach could greatly reduce the spread rate.

With (1), a lot of economic activity is curtailed. With (2), some people will still be leery of getting onto planes or going on cruises. Eating in restaurants will be awkward, and many people will put off doing so. But more businesses will feel ok about opening their offices. And more individuals will feel ok about getting haircuts, shopping in stores, and going to sporting events–provided that they see everyone around them wearing masks (which should turn out to be the case, if social pressure and law enforcement are effective).

With (1), government finance will be shaky. I don’t know why more people aren’t worried about this. If there is no down side to increasing spending by 10 percent of GDP, why doesn’t the government do so all the time? I think that the answer is that eventually you turn into Zimbabwe, with hyperinflation. Hyperinflation is like a virus, in that by the time you can see it, it’s too late to stop it. Hyperinflation destroys the social fabric. It’s something to fear.

Finally, I wonder how charitable I should be about the health advisers, economic pundits, and political leaders who are committed to (1). Those poobahs will be more important if we implement (1) instead of (2). I hope that is not what tips the decision.

Thanks to Russ Roberts for a helpful conversation.

UPDATE: *We would also need to instruct people on sanitary use of a scarf. Best not to reverse it, not to touch it while wearing it, and also to wash it or heat treat it frequently. I would like to thank Dallas Weaver for pointing this out. He has some advice on the use of masks. In an email, he writes “I assume you have noticed that all the countries that are under control use masks.”

Scott Alexander looks into the question of whether a surgical mask can help keep you from getting infected by others. Short answer: very few reliable studies, but the answer seems to be “yes.”

But he says that this is reliable:

As far as I can tell, both sides agree on some points. They agree that surgical masks help prevent sick people from infecting others.

Well, that’s it then! What’s the purpose of social distancing? To keep sick people from infecting others. But it seems like you could accomplish the same thing by having everyone where a mask. That would settle the issue of “asymptomatic spreading.” Nobody could be a spreader. In that case, masks are an alternative to killing the economy.

The government could do this:

1. Have the taxpayers pay manufacturers to produce a zillion surgical masks. Maybe gloves also.
2. Dispense the masks, paid for by taxpayers.
3. Tell people they can mingle in public, but only if they wear masks–otherwise they are subject to fines. Maybe encourage the use of gloves, also.

It seems like a policy that is at least worth trying in some locations, to see if it works.

A story in Time Magazine Asia says,

Nearly everyone on Hong Kong’s streets, trains and buses has been wearing a mask for weeks—since news emerged of mysterious viral pneumonia in Wuhan, China

. . .Yet, in the U.S., wearing a face mask when healthy has become discouraged to the point of becoming socially unacceptable. The U.S. government, in line with World Health Organization recommendations, says only those who are sick, or their caregivers, should wear masks.

Are the official experts at WHO and in the U.S. idiots? Or am I the idiot? I am curious to know.

The WSJ reports,

The White House is discussing easing social-distancing guidelines as early as next week amid a broader debate over how much economic loss the country can bear to save an unknowable number of lives threatened by the novel coronavirus pandemic.

President Trump has told people that he wants to reopen the economy as soon as possible but his interest runs counter to the advice of public health experts, including in the administration, who have warned that the guidelines remain necessary.

Here are two imaginary conversations, one with a traditional health adviser named Suit, and one with an analytical health adviser named Geek.

—–1—–

President: I want to lift the social-distancing guidelines by the end of next week.

Suit: You can’t do that! The virus will spread! People will die!

President: But we’re killing the economy. I’m going to do it anyway.

Suit: I resign!

—–2—–

President: I want to lift the social-distancing guidelines by the end of next week.

Geek: You can’t do that! We need to first test a random sample in each of several geographical areas to see the distribution of the virus in the population. And we also need to run the experiment, probably a few times to get robust results. And we need to agree on benchmarks for the results that would have to be met in order to lift the guidelines.

President: What’s the point?

Geek: The random sample will tell us the prevalence of asymptomatic infected people in various geographic areas. The experiment will tell us how dangerous those people are, meaning how likely it is that they will infect others while asymptomatic.

If the experiment finds that the doorknob infection rate is less than 5 percent and the in-person infection rate for asymptomatic virus carriers is less than 5 percent, then we can safely lift many of the restrictions. Continue to encourage disinfecting and handwashing, and avoid large gatherings, but open up businesses.

If the experiment finds a result of more than 20 percent for either the doorknob infection rate or the in-person infection rate, then we should not lift the social-distancing guidelines. We would need to first meet benchmarks for treatment capacity. That might require training and equipping more health care workers, or better yet finding a reliable pharmaceutical treatment.

Suppose the experiment finds a result between 5 and 20 percent for either the doorknob infection rate or the in-person infection rate. Then decide differently for each region. If the prevalence of asymptomatic infection in a region is either very low (less than 5 percent) or very high (over 30 percent), you can lift the guidelines in those regions.

If the prevalence is currently low, then lifting the guidelines will cause the virus to spread in that region, but starting from a low baseline. So in several weeks you may have to recommend restoring restrictions in that region.

If the prevalence is high, then the people with the virus will already have encountered most of the people that they might infect (social interactions are not random). The spread rate going forward is likely to be low, as long as people stay stick to normal routines and avoid interactions with strangers or unfamiliar places.

———
Note: The numbers in the conversation are purely illustrative. I have not thought carefully about what the actual numbers ought to be.

1. You asked for cost-benefit analysis? Here is Luigi Zingales.

we are talking about roughly $9 million per lost life, which, multiplied by the 7.2 million extra deaths, yields $65 trillion.

Thus, even the simplest cost-benefit analysis suggests that the US government should be willing to spend up to $65 trillion to avoid extra deaths. Since $65 trillion is 3 times the US GDP, the United States should be willing to stop production for up to 3 years in order to eliminate the extra deaths.

Satisfied? I’m not. Forget the wild assumptions (7.2 million extra deaths). We need to be careful about thinking on the margin.

Consider three scenarios:

a) zero social distancing
b) social distancing decisions made entirely by the private sector
c) social distancing imposed by the government

Scenario (a) is irrelevant, but people tend to forget that. But relative to (a), (b) is going to both reduce deaths and impose economic costs.

The relevant policy choice is between (b) and (c). The economic case for (c) is that when I go to work I calculate the risk to myself, but I do not include the risk I impose on the people who ride mass transit with me. But describing the externality is not enough. We need to guess how much social benefit comes from moving from (b) to (c) and compare it to the cost.

My own view is that, to a first approximation, moving from (b) to (c) imposes no economic cost, because I think that if the death rate soars under (b) the economic cost will be enormous, also. That’s just my intuition, based on what I think is the importance of social capital, which in turn I think depends on people feeling that their fellow citizens care about them. So it’s a very soft concept, not something I can put a hard number to.

What I would like to better estimate is how many deaths (c) saves relative to (b). But you know how frustrated I am with the inability to do reliable analytics on something like this. Meanwhile, I am willing to assume that the marginal life savings are high.

2. Greg Mankiw writes,

Under this plan, a person whose earnings fall to zero this year keeps all of the social insurance payments and does not pay the surtax. A person whose earnings fall by half keeps half of the payments and returns half. A person whose earnings remain the same (or increase) returns everything: They will have just gotten a short-term loan.

The specifics are at the link. This is clever. Maybe too clever. Any scheme like this invites gaming. For example, suppose my earnings go up, so I should not get to keep any of the money. In that case, I just sell some stock, take the capital losses, and as far as the IRS is concerned my income did not increase. It is always somewhat advantageous to me to take losses, but this would produce a proportionately larger payoff from doing that.

Still, Mankiw’s idea is far better than what I’m guessing what Congress will come up with.

Honestly, I don’t know what everyone is worried about with all this stimulus stuff. In 1945, we had just been through four years of war, and the economy bounced back way more quickly than the Keynesians thought possible (please click on the link). I’d give it a chance to bounce back on its own after a war against a virus that has fewer casualties and shorter duration.