There are no good outcomes from here. Many people will die prematurely. Many will lose their jobs. Many businesses will go under. Many people will suffer bereavement, loneliness and despair, even if they dodge the virus. The only question is how many in each case. We are about to find out how robust civilisation is. The hardships ahead are like nothing we’ve known.
As difficult as it is to accept this, I think we have to. As a disruptive event, the virus crisis will not be as bad as World War II. But it will be worse than pretty much everything since.
Consider the Arab oil embargo that began late in 1973, which might be the most relevant precedent. It disrupted the economy by raising energy costs. The government’s attempt to reduce the disruption by using price controls probably made matters worse, because rationing by government bureaucracy was less efficient than rationing by price.
As I recall, gasoline rationing made the most significant impact. People drove a lot less, so that businesses that depended on automobile travel were hit hard. The American automobile industry went into a long period of decline, as demand for its low-quality gas guzzlers fell off and Japanese car manufacturers captured a large share of the market.
The virus crisis affects more activities and more industries. The adjustment problems may prove to be more challenging.
The 9/11 terrorist attack was a punch that knocked us down for a little while, but we got up from it quickly.
The financial crisis of 2008 was centered on financial institutions that had taken on too much mortgage risk. That sector now seems narrow and limited compared with all of the financial exposures that we have today. All sorts of companies are way over-levered, and no one knows what sort of cascading bankruptcies might be looming. The financial triage operation that is about to occur will dwarf the one that the government undertook in 2008.
Do you remember when the government took over Freddie Mac and Fannie Mae? It was getting ready to re-privatize them only recently, and now that may be in doubt. This time around, will we see airlines nationalized? Hotel chains? How about Uber, Lyft and airbnb? Won’t they need government assistance to survive?
Some people wish that the government would stop telling people to stay home. Would it help to encourage people to go back to restaurants and bars? This WSJ story, looking at health care providers on the front lines, should raise doubts about that idea. Notably,
several coronavirus patients under 40, including a few in their 20s, were on ventilators in the intensive-care unit as of Thursday. All were healthy before getting the virus
People keep talking about the “trade-off” between fighting the virus and preserving economic activity. They want to see “cost-benefit analysis” of this “trade-off.”
But maybe there is no trade-off, and there is not economic benefit to trying to go easy on lockdowns. Perhaps the worst economic outcome would result from encouraging people to go about their normal business. A society filled with sick people who cannot be treated is not going to orderly and well-behaved. Allow trust and social cohesion to break down, and you will see economic devastation that goes beyond what we will suffer from lockdowns.
New York is Wuhan with mega-city-wide uncontrolled COVID-19 spread. By Monday March 23, 2020 it should be clear that we are facing world economic collapse.
I listened to the Peter Attia podcast with Dr. Peter Hotez with second-hand health system anecdotes that represent a clear signal of doom. The NY city health system is collapsing.
Economics no longer matters unless it is linked to this fight. This battle must be fought and won. Every day, we are three weeks away from controlling the spread but everyone must pull together to get it done.
The Four C’s of COVID-19: Coughs, Contacts, Communication, and Calm:
1. Cough Isolation: watch each new cough for 3 hours, Self-Isolate immediately for 14 days and Self-Monitor if persistent. Keep a journal and track the date and time of each entry (e.g. body temperature for fever) and especially the first cough.
2. Contact Tracing: Carefully trace your contacts from the moment of your first 3-hour persistent cough for the critically contagious first 7 days, and for a cautious full 14 days to make sure.
3. Communicate Transparently: phone your public health officials, tell your close contacts of your Self-Isolation, and tell anyone in your Contact-Tracing list to Self-Quarantine as a precaution.
4. Calm: very few people get very sick but the true danger is people ignoring the first three C’s and causing undetected Community Transmission. Even with widespread Community Transmission, following the first three C’s will first slow then stop the spread.
This advice is not perfect but it is good enough. Trust the plan. Trust the people that trust the plan. Social Distancing without effective public health Testing and Tracing doesn’t work. Don’t be Korean Case 31. Be safe. Build your circle of trust.
Core Assumptions:
1. Cough Droplets are the primary transmission vector of COVID-19.
2. Treating all coughs as if they are COVID-19 is a simple heuristic.
3. The strategy is decentralized and does not require a scalable health system for virus testing or contact tracing, though both assist with feedback and trust.
4. The strategy depends fully on hospitals for the cases that result in respiratory distress. When hospitals collapse, triage rules apply.
5. The strategy addresses the “Epidemic YoYo” phenomena.
Very clear presentation. You are betting a lot on (1), as opposed to the view that there is some transmission vector that occurs among asymptomatic people. I find your arguments for (1) at least somewhat persuasive, yet I keep coming across epidemiologists who believe in asymptomatic transmission. So I am not ready to put all of my chips on (1).
Arnold, your skepticism is warranted and I wish I was more on the ball and captured the signals better. I had no previous interest in this topic, my presentation is based on the same kind of research you are doing. Your Self-Quarantine strategy is a good one but it is not scalable nor sustainable (IMHO). When lockdown orders happen then people scatter. Sometime over the next few days, New Yorkers will scatter and American highways will be equivalent to what Canadian international air routes have been for the last few months; each car passenger a potential new vector of spread.
The top public health officials for each Canadian province (Ontario, British Columbia, Alberta, Saskatchewan, and Manitoba… Quebec is in french) have been repeating this message on their daily Updates but the message is being lost in the noise. Look at the videos on CPAC – Cable Public Affairs Channel that include a “Dr.” in the description. I wish there were transcripts. The journalists are asking the wrong questions. From what I gather, each one of these officials is a lifelong epidemiologist. A social media “influencer” needs to make a YouTube video that pulls out these critical sub-messages and share them.
They could be wrong but Toronto has been dealing with this since January and Dr. David Williams made it clear that through December, January, and February, Ontario was seeing 5000 passengers per month from Wuhan. That wave was contained. The next wave from Iran/S.E-Asia was contained. The current wave from Europe and the U.S. is stretching the Test and Trace capacity. Yesterday, Dr. Williams estimated that Ontario has about 200K-500K international travellers that returned recently and need to self-isolate. He mentioned an outstanding request for information from the Canadian Border Services. This should have been in place months ago.
British Columbia has been dealing with undetected Long Term Care facility outbreaks. Montreal is rightly concerned about religious groups that ignored both the Self-Isolation orders and Social Distancing orders. Despite this, none of the 10% or so “pending” Community transmission cases have resulted in a sustained cluster (yet) and this includes health workers and others that have not Self-Isolated properly.
The authoritarian approach in S. Korea and elsewhere is focused on Self-Isolation violations. People that are aware enough to Self-Quarantine are the least of our worries.
By Monday March 23, 2020 it should be clear that we are facing world economic collapse.
I am willing to take the other side of that. I will bet that by 5PM Eastern on Monday 3/23 that the world’s economy will not be collapsing, as measured by copper prices.
I so hope you are right. I don’t know what economic measures best reflect economic collapse in this scenario but your point is well taken. Technically I mean “world socio-economic collapse” based on the assumption that the U.S. is central to the world system.
And to be clear, I agree with you that what is happening in NYC is probably the most worrisome thing right now; unfortunately good data seems hard to come by; we don’t know if the increase in cases is due to more testing; i.e. we don’t know the denominator like Arnold has said before.
I can’t seem to find RT data on hospital admissions; this would be a good indicator that takes into account both breadth and severity of COVID-19 cases.
Sightline, I am making a Fermi Estimate based on the Peter Attia podcast. These two medical doctors were discussing their discussions and data (chest x-ray) with NYC hospital frontline health workers and they indicated a loss of trust in the system. What Attia and Hotez are describing is health system collapse. I think I’m being as fair and truthful in that assessment.
Transparency matters. The fact that I’m telling you this information is a sad reflection of miscommunication by officials and the journalists in this historic moment.
Battle of the Atlantic. By Mon Mar 23 I think New York city’s health system will have fully collapsed. By Thurs Mar 26 it should be clear what parts of Canada will succeed in their Suppression strategy. Canada’s role during The Battle of the Atlantic was as the source of food and materials that sustained the U.K. during WWII.
Canada has enacted something like war measures to source its local medical supplies. Yesterday I thought this was silly. Today I realize that this effort must scale-up to meet the needs of its southern neighbor. By Mon Mar 30 I think we will be BFFs. Every three weeks will be a new Battle of the Atlantic until we collectively slow then stop the growth. Canadian medical supplies will soon be crucial to American responders. We have to keep the supply lines safe. Canada can not isolate itself from an American economic meltdown. America must stop the spread of COVID-19. We are all in this together.
Perhaps you would like to define “fully collapsed?”
Perhaps you mean: “The Governor of New York orders all hospitals, ERs, and clinics within 20 miles of NYC closed to new patients until further notice. The risk of going is too high, the benefit too low.”
Hospital Collapse: ICU is full, ventilators are full, beds are full, health workers are unable to meet demand without staff that is contagious, patients are all considered exposed, triage decisions are made for every life threatening case.
Not sure if it was an efficiency issue with Carter’s rationing program. The real problem, aside from not having any gas or having long lines was the lack of incentive Carter’s forced below market prices gave people to drill more wells or sell any reserves. I know I was there. I had a summer job at the time working as a roustabout on an offshore oil rig, living in Galveston and debating whether it was best to buy a gas saving small car (about the only think available was crappy Vega’s or VW’s) or get a great deal on some sort of large Detroit made boat. My summer roomate bought his dream used VW station wagon for an extravagant price and I bought a very reliable used, large, fast & reliable Ford boat for next to nothing. And I got more dates on the beach that summer, too.
I think people should greatly fear the consequences when Trump, Mitch and Nancy are all smiling at the same time over getting there very own almost unlimited mutually approved “stimulus” packages. Talk about overreach? Watch out folks. It will be much worse than a little virus or a little economic miss management by Jimmy Carter.
Carter did though do some great things like deregulating railroads and airlines. A few years later while in the south I flew from Houston to New Orleans to see oil patch friends for $25 each way on Southwest.
“As a disruptive event, the virus crisis will not be as bad as World War II.”
This is obviously true for countries that were bombed, overrun by armies, and had some significant percentage of their population killed in WW2. But if the regime of social distancing and travel bans persists for a significant length of time, as it seems likely, I don’t think it will be true at all for the U.S.
The U.S. in WW2 was safe from any threat on its home soil, and its productive capacity in just about all areas was enormous compared to any other country. It could afford to fight a global war — cranking out enough ships, aircraft, tanks, and guns to overwhelm the world — while sacrificing only a fraction of its wealth and maintaining a high standard of living and a state of general normalcy for its population. (Other than those drafted, of course, but the strategic situation was also such that other countries bore the brunt of the carnage, so that draft and war casualties were on the whole not such a terrible economic shock either.)
In comparison, the current shock seems far more severe. Whole industries are being forcibly shut down indefinitely, others are facing huge disruption being forced to switch to remote work, and most are facing collapsing demand as people’s patterns of daily life and social interaction are unraveling en masse. Certainly for the average American in WW2 other than those drafted, and arguably even for a good portion of the latter, life was far closer to normalcy than what’s happening now. (And, needless to say, in strictly economic terms the impact on both demand and supply side is now far higher.)
Therefore, one could argue that there is no historical precedent at all, and with the current events, the American economy is experiencing its first truly devastating exogenous shock since the Civil War. (I would in fact go so far as to argue that in the Northern States, it’s the first one ever. Perhaps, if you’re wiling to go back far enough, the first one since King Philip’s War.)
(Which might explain the puzzling blindness of the financial markets to the unfolding problem that had persisted even long after the present situation had become easily predictable with high probability. I never would have believed it until I saw it happen, but it does look like even the bulk of smart money in the financial markets was — and perhaps still is? — lacking the ability to conceive of the possibility of a truly severe exogenous shock and incorporate it into their decisions.)
As a counter-argument, one could point out that there have been much worse epidemics in the past, like the Spanish Flu. The difference is that in the past the medical system, politics, and media were all very different. An uncontainable epidemic would be, more or less, simply allowed to run its course, there not being much that could be done for those affected in any case. There was also nothing like the modern-day mass media in 1918, with horrifying scenes on TV making it politically imperative to undertake drastic measures at any cost.
Nowadays, there is the expectation of everyone severely ill getting scarce medical attention, and the medical system remaining available and functional. People recoil in horror from the scenes such as those unfolding in Italy, with overwhelmed hospitals turning away dying patients and the medical system ceasing to function for pretty much everything but fighting the epidemic. Without even getting into any moral questions, allowing this to happen is politically impossible.
So the only politically possible alternative is the enforcement of social distancing, with the accompanying economic devastation. Whose scale, I think, Americans haven’t even begun to comprehend. Frankly, I think a serious regime of social distancing and travel bans enforced over the next several months in today’s American service-centered economy could easily have consequences that would make the Great Depression pale in comparison. (I certainly hope I’m wrong about this!)
(And if you really want to be pessimistic, consider the very plausible scenario discussed recently by Tyler Cowen: https://marginalrevolution.com/marginalrevolution/2020/03/herd-immunity-time-consistency-and-the-epidemic-yoyo.html )