Category Archives: virus crisis

The virus in mid-July

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1. The 7-day average daily death rate was about 430 a couple of weeks ago, but it is up to about 830 now.

2. Holman Jenkins in the WSJ writes,

The Denver Post interviewed a couple in their 70s who were risking the virus to resume weekend junkets to Las Vegas. Their only concession to Covid-19 was a plan to quarantine for 10 days before seeing their grandkids again.

Wow. Not what I would do at all. Imagine if we lived in a country where either I could impose my lifestyle on them. Or they could impose their lifestyle on me. Unfortunately, we live in a country where so-called “public health experts” are being granted such power.

3. I think that as an individual I could calibrate virus risk more reasonably if I had two pieces of information. The goal would be to enable me to have a better sense of my risk of getting a severe case, which we might define as causing me problems for more than 30 days; alternatively, we could define a severe case as requiring more than 48 hours of hospitalization.

One of the numbers that I want is what I call a “personal safety factor.” The scale would go from zero to one hundred. It would be based on a statistical model that combines age with polygenic analysis. My thinking is that the polygenic statistical analysis would pick up the likelihood of known risk factors (such as a tendency toward obesity) as well as other factors that are not currently known. In order to know my personal safety factor, I would have to have a DNA test. A personal safety factor of 90 means that I am in the top 10 percent, so that I am relatively unlikely to get a severe case. A personal safety factor of 10 means that I am in the bottom 10 percent, which means I really want to try to avoid getting the virus. If it turns out that I have a low personal safety factor, then I want to be in the front of the line to get a vaccine. Otherwise, I probably would be happy to wait.

The other number that I want is a “community safety factor.” This would estimate the probability that if I am in the same room with 50 people at least one of them will have the virus. If that probability is more than 10 percent and my personal safety factor is less than 90, then I am not ready to try a live dance session. Somebody else might be more risk tolerant.

4. Victor Chernozhukov and others write,

Our counterfactual experiments suggest that nationally mandating face masks for employees on April 1st could have reduced the growth rate of cases and deaths by more than 10 percentage points in late April, and could have led to as much as 17 to 55 percent less deaths nationally by the end of May, which roughly translates into 17 to 55 thousand saved lives. Our estimates imply that removing non-essential business closures (while maintaining school closures, restrictions on movie theaters and restaurants) could have led to -20 to 60 percent more cases and deaths by the end of May. We also find that, without stay-at-home orders, cases would have been larger by 25 to 170 percent

I would note that the economic cost of people wearing masks is considerably less than the cost of staying at home.

Study of the PPP loan program

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Joao Granja and others write,

we do not find evidence that funds flowed to areas more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns. If anything, funds flowed to areas less hard hit. . . We do not find evidence that the PPP had a substantial effect on local economic outcomes—including declines in hours worked, business shutdowns, initial unemployment insurance claims, and small business revenues—during the first round of the program. Firms appear to use first round funds to build up savings and meet loan and other commitments, which points to possible medium-run impacts.

Your old world is rapidly agin’

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Ross Douthat writes,

even federal intervention probably won’t prevent small businesses from going under while bigger businesses ride things out, accelerating the pre-existing drift toward a less entrepreneurial, more monopolist America.

This is similar to a point that I made when I gave a talk on the virus economy over Zoom to a small group of friends and synagogue members last Sunday.

More controversially, he writes,

In politics, similarly, what was likely to be a slow-motion leftward shift, as the less-married, less-religious, more ethnically diverse younger generation gained more power, is being accelerated nationally by the catastrophes of the Trump administration

I think Ross needs to get out more, virtually if not physically. I doubt that the times are a-changin’ as fast as the Times is.

It does not seem to me that the younger generation is ready for power. The most visible young activists are too arrogant, tyrannical, and ideologically crazed to govern. Look at their performance in Seattle. What is the probability that the whole country gives way to that?

My guess is that whether Biden wins, loses, or draws in November, the young progressives will stir chaos. But their behavior will mostly serve to galvanize their opponents.

Higher ed is a Covinnovation good

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Bruce Wydick writes,

the distinction between purchases of what I’ll call “Snap-Back” goods and services and those that are “Gone Forever.” In the Snap-Back category are things that we couldn’t buy during the heaviest COVID lock-down period, but these purchases were simply delayed. There is good reason to think that as the economy begins to open up, purchases of these items might even be higher than normal due to pent-up demand. . .

“Gone Forever” goods and services, in contrast, are just like the term suggests: gone forever. Like me, you may have foregone several haircuts during shelter-in-place because you didn’t want to get (or give) coronavirus to your barber. But when it becomes safe to go back to the barber chair, you’ll still only get one haircut.

Pointer from Tyler Cowen, who seems unsure whether to agree with Wydick that higher education is a Snap-Back good.

I think that higher education is in a third category, which might be termed Covinnovation Goods. That is because the virus forces suppliers to innovate to deliver the goods, and some of the innovations will stick. When fear of the virus subsides, consumers will choose the best blend of pre-virus and virus-adapted practices.

I will say how higher education fits in the Covinnovation categorey. But first, let me use the example of Israeli dancing. Continue reading →

Predicting the virus one month ahead

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A commenter asks where I think we will be one month from now. I think we will be in the dark, or at least I will be.

Recall that I prefer to track death rates. What I finally settled on as an indicator was the 7-day average death rate, using this data. This average held at around 1500 through the dark days of April and the first third of May, and then it finally began to trend lower after that, down to less than 600 in the third week in June. Then on one day, June 25, there were 2500 deaths, sending the seven-day average to over 800.

It is not that 2500 people died of the virus on the 25th. But that was the day that New Jersey included over 2000 previously unreported deaths from April and May. I am afraid that we have not seen the last of this “death harvesting.” I came across an article the other day, which I forgot to bookmark, that said that analysts are suspicious about the high rate of deaths reportedly caused by Alzheimer’s this year. So perhaps 10,000 more deaths will be re-stated as Covid deaths.

The data I wish I had is data on serious cases. I would define a serious case as a case that deprives the victim of normal activities for more than 30 days. Death obviously counts. Quibble with my definition all you want, but my point is that in order to calibrate my fear of the virus, I would like to know the prevalence of serious cases.

Virus science catches up?

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From a UPI story.

The first, published June 5 by the journal Photochemistry and Photobiology, found that sunlight — specially ultraviolet solar radiation — kills SARS-CoV-2 in 30 minutes.

The second, published by JAMA Network Open on June 11, suggested that climates with warmer temperatures and higher humidity — like much of the United States during the summer — might slow the spread of the virus.

. . .The authors of both studies argue that people might be safer outdoors. This runs counter to many of the lockdown and social distancing measures implemented across much of the country in March, the researchers told UPI.

I posted What I Have Come to Believe on April 23. I said,

A fresh-air lifestyle is good for you. I am struck by the low death rate among homeless people and in India. Those populations ought to be at high risk, and the only story I can come up with is that they don’t spend as much time as we do indoors with HVAC.

I did not have much to go on. But I think what I said holds up. You are better off outside. The problem with hot weather in the U.S. is that it drives many people indoors for the air conditioning. UPDATE: According to Tyler Cowen, Nate Silver agrees on this point.

In fact, pretty much everything in that post holds up. I think that if you go back to March and April, I out-performed the professional health care experts in drawing inferences about the virus.

The virus and the labor market

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Erik Hurst and others write,

employment declines were disproportionately concentrated among lower-wage workers. Segmenting workers into wage quintiles, we find that more than 35 percent of all workers in the bottom quintile of the wage distribution lost their job—at least temporarily—through mid-April. The comparable number for workers in the top quintile was only 9 percent. Through mid-May, bottom quintile workers still had employment declines of 30 percent relative to February levels but some workers have been re-called to their prior employer. We also find that employment declines were about 4 percentage points larger for women relative to men. Very little of the differences across wage groups or gender can be explained by business characteristics such as firm size or industry. Finally, we show that employment losses were larger in U.S. states with more per-capita COVID-19 cases and that states that re-opened earlier had larger employment gains in the re-opening sectors.

The massive decline in employment at the lower end of the wage distribution implies meaningful selection effects when interpreting aggregate data. For example, we document that average wages of employed workers rose sharply—by over six percent—between February and April in the United States, consistent with official data.4 However, all of this increase is due to the changing composition of the workforce

Note that the most interesting empirical work in macro these days is using non-governmental data sources. In this case, data from a payroll processor.

What do you work with?

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Do you work with symbols, things, or people? The answer determines how you were affected by the virus crisis.

If your value comes from working with symbols (words, computer code), then you are more likely now to work from home. Otherwise, your work was not heavily disrupted.

If your value comes from working with things, then if those things were “essential” you kept working. In fact, work to deliver things actually increased. If you made things that were not so essential, you may have experienced a short-term layoff.

If your value comes from working with people, then you have had to shut down or operate in a greatly altered environment. Think of a restaurant server, a hair stylist, a teacher, or the proprietor of a small shop.

The virus crisis is going to exacerbate some of the class differences that Joel Kotkin talks about. The class least adversely affected includes those who were already separating themselves as an upper crust. The class most adversely affected includes those who already were suffering declines in status and relative economic strength.

The case for PSST

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If you listen to Raj Chetty at Princeton, one implication is that the economy is not well described as a GDP factory. Most of the talk is about heterogeneities in the economy. Affluent consumers behave differently from low-income consumers. Small service businesses were impacted differently from other firms. And above all, the patterns of specialization and trade that were broken are not likely to come back quickly.

As a result, the “stimulus” largely missed its target. In order to be able to see this, Chetty and his collaborators are using new data sources, rather than the standard government statistics that were designed for the Keynesian paradigm.

But to make the most sense of what he finds, it helps to read Economics after the Virus, my latest essay. I had already anticipated most of Chetty’s empirical results when I wrote,

In a typical recession, households reduce spending involuntarily, since they have lost income. In this case, household members have deliberately chosen not to shop or travel or seek entertainment outside their homes, even if they can afford to do so. . .In a typical recession, construction and durable-goods manufacturing experience the sharpest declines, while service industries stay relatively stable. In this case, in-person services have been among the hardest hit sectors of the economy. In a typical recession, nearly every industry can look past the immediate troubles and foresee something close to a return to normal. In this case, retail stores, restaurants, entertainment venues, institutions of higher education, hotels, and the like foresee drastic changes even if the economy were to revive rapidly.

It is one of my most important essays. Academic economists, including Chetty, should be reading it in something like the American Economic Review, in order to have perspective on Chetty’s findings. But the PSST story is too “soft” to sell to an academic journal. George Akerlof explains the methodological bias.

it has become all-but-uncontestable that new theories need to generate testable predictions. This belief may seem innocuous; but, in point of fact, it involves rejecting softer tests of theories, such as those that evaluate models based upon the quality of their assumptions as well as the quality of their conclusions. It especially entails exclusion of evidence from case studies, whose detailed evidence can be highly informative regarding context and motivation. While harder tests with statistical data may be a gold standard, restricting the set of permissible tests reduces—perhaps greatly—the ability to test theories. Hence, bias toward the hard makes us too accepting of existing theory and insufficiently willing to be self-critical as a profession.

Pointer from Tyler Cowen.

Economic scenarios

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Here is how I think about economic prospects for the next few years.

One driver will be fear of the virus. Fear will be short-lived if the virus goes away this summer and does not come back, or if there is a vaccine, or if a treatment protocol makes it much less lethal in vulnerable populations. But if the virus comes back in the fall and still threatens lives, then fear of the virus will affect activities for a long time.

Another driver will be what we might call business shakeout. Some industries have been ripe for transformation by the Internet since before the virus: brick-and-mortar retail; higher education; high-cost health care. To what extent will the virus accelerate this shakeout?

Put these possibilities into a matrix.

light shakeout heavy shakeout
fear fades Europe’s hope stock market’s hope
fear lasts stagnation unrest

Europe has a low tolerance for shakeouts. Its policies are geared toward that. European governments tend to channel transfer payments through employers. So you have zombie companies paying zombie workers.

The stock market is expecting a lot of shakeout. The tech leaders are worth more now than they were before the virus. But if virus fears persist, economic activity overall will take a long time to recover, and the tech giants will be getting a larger share of a small pie. The stock market must be expecting the fear to fade even as the big shakeout takes place.

I think that there is at least a 25 percent chance that virus fears persist and continue to curtail economic activity. In that case, the European approach, which the U.S. also may attempt, will be to try to freeze the economy in place by subsidizing legacy businesses. The result will be stagnation. But if governments do not have the money or the capability to keep zombie businesses going in a high-fear environment, then the shakeout will destroy the way of life for many households. That is a recipe for a lot of social turmoil.