A reader writes,
I’m seeing millions of people, primarily at the middle to lower end of the economic spectrum, who will be financially ruined by the response.
While remaining humane and just, is there a more cost effective approach to the problem, particularly since it seems concentrated in a rather narrow subset of the population (those with compromised immune systems and the 60+ cohort)? E.g. instead of isolating the entire population, why not just isolate those most at risk and compensate them accordingly? How do we weigh the ethical concerns of one group as against another? Why do such questions seem so out of bounds and antisocial?
1. I think that even the “low-risk” population, if they move about freely, are likely to overwhelm the health care system. I doubt that encouraging them to go about their business is the first-best strategy. But it might work out better than other approaches.
2. What we are doing now, which is lockdown-lite, is also not the first-best strategy. It may exacerbate economic pain while failing to do enough to stop the virus. It may be an instance of my two-weeks-behind hypothesis. Still, I think we ought to support the lockdown-lite approach–as you know, my wife and I adopted self-quarantining last Thursday. We ought to give it a chance.
3. I suspect that the first-best strategy is a total, nationwide lockdown for two weeks, enforced militarily. The intent would be to deprive the virus of hosts. Even then, in order to contain subsequent outbreaks, we would have to continue to encourage social distancing, require people to keep track of contacts, and do a lot of random testing of asymptomatic people.
Think of this as comparable to the Arab oil embargo. Probably the harder the adjustment we make sooner, the better it will be. The macroeconomic policies of that era made things worse, and I expect the same to happen today.
I cringe at all the talk of monetary and fiscal “stimulus.” What this means is that governments will use the crisis to enlarge their share of the economy, which will hurt the adjustment process, not help it. It will also “solve” the problem of debt collapse by piling on more debt.
> I suspect that the first-best strategy is a total, nationwide lockdown for two weeks, enforced militarily.
I’m not even sure where to go with that overreaction and the extraconstitutional authority grab. Also people starve. Believe it or not, many people have zero food in their house. I have not been to a grocery store nor cooked more than twice a year in twenty years. How exactly am I expected to eat in a lockdown?
The first-best strategy would have been for the government to do nothing outside maybe economic bailouts down the road including at the individual level while also incentivizing key positions to remain at work.
One of my proposals was “Subsidized Supplemental Insurance for Force Majeure.” “AFLAC for business revenues in a major emergency.” Fiscal smoothing that is automatically narrowly targeted at those who are hit the hardest, paid mostly out of premiums. For a while anyway, bills get paid, loans get serviced (without need for forbearance), and employees get wages. It buys a lot of time for recovery and recalculation without setting off a cascade of financial sector failures leading to an avoidable secondary crisis.
The simplest reason why I can explain why there is such an age divide in the Democratic Party (and population), is workers under 30 (or 32) have never experience an economic boom where they see capitalism working for them. (Even the last couple years had low unemployment and we only started seeing wage increases 2017 -2019.) They did not work in the Dotcom, Reagan Revolution or even Housing Boom years so they have not experienced capitalism working for them.
And now they are getting knock twice.
The optimal and highly resilient strategy is Cough Isolation with careful Contact Tracing and Transparent Communication.
For some reason which eludes me, Western society seems to be naturally resistant to this simple heuristic. Lockdown-Lite seems to the natural equilibrium once fear kicks in. The authoritarian aspects are just signalling, Lockdown-Lite emerges naturally but it works. Unfortunately it takes down the economy with it and the question will soon switch to how to jumpstart a panic stricken economy in Lockdown-Lite without calmly embracing Cough Isolation.
Lots of C’s so here is an attempt at sticky messaging.
The Four C’s of COVID-19: Coughs, Contacts, Communication, and Calm:
1. Cough Isolation: watch each new cough for 3 hours, isolate immediately for 14 days if persistent
2. Contact Tracing: Carefully trace your contacts from the moment of your first 3-hour persistent cough for the critically contagious first 5 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-Isolate 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.
I am not trying to be alarmist in this time of constant alarms, but I can’t see how we get through this in any way without a near total financial meltdown.
1. The developed world is a service economy, most of us just service each other.
2. We just demanded that half of all service people globally no longer work, and that all people quit buying services from these folks. Indefinitely.
3. A sizable fraction of those not in services or in unaffected services are (trying to) sell things to those who effectively no longer work. Thus many of them are no longer needed. This self amplifies.
4. The businesses delivering these services and those selling goods are going to lose a lot of money real fast.
5. The government service pensions which depend on the market and tax revenues off sales and profits are now bankrupt. The pensioners in California and Illinois are in a serious mess.
6. In the frenzy of a financial meltdown, everyone else quits buying anything discretionary. No cars, no homes, no luxury goods, and no jobs making these things. Again, feedback effects amplify the slowdown.
I am not an economist, but I do not see how this set of spirals can be reversed before a near total meltdown. After all, people aren’t going to start going to restaurants in sizable numbers next month.
The economy is a complex adaptive system where everybody serves everyone else in a giant network of supply and demand. We are effectively tearing the network apart for the admittedly noble goal of saving people from contagion.
The best case scenario is we immediately discover a vaccine, and that the initial self quarantine actions work better than expected. That perhaps along with a short term government supplied guaranteed income of a thousand dollars a month for every person in the developed world until recovery.
Please reassure me that I am overthinking this….
The closest modern equivalent is the global travel shutdown that occurred in response to 9/11. The initial response was appropriate given the unknowns. Once enough information is know then a set of rough strategies and tactics are implemented and refined in response.
We have enough information to control the spread. The American economy is the last and the largest that is at the critical juncture where the spread can be contained and brought down to zero homegrown Close Contact cases. One day at a time. One incubation period (5 days) at a time. One month (six incubation periods and two full illness lifecycles) should be just enough to know when you have the spread under control.
This is serious but it is containable and recoverable. If/when the U.S. is on a clear downward slope of infection spread, the financial recovery planning can get under way led by fine advice by economists like Arnold Kling.
Well, I certainly hope you are right. That said, I don’t feel that eliminating a significant portion of service jobs for weeks or months at a time before slowly going back to normal is any way comparable to anything we saw in 2001 or 2008. This is orders of magnitude worse domestically in a world where everyplace else has it just as bad or worse.
I suspect economists and politicians are underestimating the dangers (to the economy, that is).
Or, stated more explicitly:
1) how much are we spending per live saved vs. the next best alternative
2) how to weigh the costs of one group vs. another
These seem like basic economic questions, but yet, the economics profession seems like they don’t want to touch these issues. Like it’s the economic equivalent of a third rail discussion.
Paging Bjørn Lomborg. Please pick up a white courtesy telephone.
Nonsense, it is the wrong question at the wrong time. The best way to save lives is also the cheapest, Cough Isolation. The question of economic recovery spending comes after the virus spread is controlled.
This will be a true test of controlling Animal Spirits; the irrational fears that temporarily cloud people’s judgement during times of extreme uncertainty. Yours is an Animal Spirits response. In hindsight I think that will become obvious. Set a reminder for two weeks to revisit this comment.
“Nonsense, it is the wrong question at the wrong time.”
Please provide some evidence for this. These seem like basic utilitarian arguments to me. Are we no longer allowed to argue ethics at this time?
RAD, it might well be that your plan of Cough Isolation is optimal.
It does sound reasonable to me.
But it is NOT being followed. And I don’t see Trump or any Dems arguing in favor of it, so it seems very unlikely to be implemented soon.
Therefore, it seems quite appropriate to discuss other alternatives, as well as analysis of what is actually being followed.
Cost per life saved seems a reasonable metric. It will seem even more reasonable after this is over. It might even lead to the idea that different costs per lives at different ages should be considered.
I saving a 21 year-old life’s as valuable, more or less valuable, as that of an 81 year old? I read that the avg age of those who died in Italy is 81. Not sure where.
It might well be the wrong time to ask this question, even if it’s a good question. No politician can afford to be honest and say what the economic costs of saving 100 or 1000 lives “should” be.
Tom, I watched several press conferences today by Canadian Public Health officials. The journalist are finally asking questions about the data that I’ve been bothered by and some of the detailed answers have been quite revealing. My Cough Isolation strategy as a single core message seems to exist in my weird brain alone but the underlying assumptions are all being emphasized by these officials. The main vector is cough droplets that don’t spread easily but our “it’s only a cough” behavior is a tough habit to break. There are mixed messages about Community Spread but it turns out that these statements are speculative when obvious travel or close contact history is not present BUT they don’t have the capacity to do the required Contact Tracing in these cases. When these potential community spread cases play out the expected new cases don’t materialize.
Again, it only takes one uncontrolled community spread case to make a mess of things but the Ontario data today looks like a clear inflection point. The problem is that there is too much lag in the reported data, especially the Contact Tracing, yet no one is recommending that people self track so officials don’t have to do it later. It may turn out that the day emergency measures were enacted will retrospectively be the turning point for travel cases without any home grown community spread materializing. The Canadian cases are probably reflective of the best case scenario for the U.S.
Given that we seem to be clueless about the best tactics to use, never mind the efficacy of such interventions, it seems premature to be making ROI calculations except as an excuse to ride one’s favourite hobby horse.
These remain tentative. Thus, I will revise them as further evidence becomes available. In the meantime, please feel free to push back or poke holes or provide other insights.
1) The vast majority who are infected by the virus will experience mild to moderately uncomfortable symptoms somewhat similar to the common flu, but will emerge completely unscathed.
2) Those healthy people who contract the virus are not likely to overwhelm or place undue burdens on the healthcare system.
3) For those with compromised immune systems and those the 60+ cohort, things will be much much worse.
4) We have an obligation to protect those who are most vulnerable.
5) Is shutting down the entire economy the best way to approach this or are there less intrusive measures? Please show your work.
6) Until you have taken a stab at 5) or 2), I’m going to ignore you.
Any response other than maximum prevention has, by definition, a Higher Likelihood of so many acute infections that, like in Italy, they will overwhelm the health care system.
No other response can be shown to have a lower likelihood of the health system overwhelming.
What is NOT being quantified are these likelihoods: 10%? 1%? 0.1%? 0.01%?
Arnold has a bad feeling about all this:
I cringe at all the talk of monetary and fiscal “stimulus.” What this means is that governments will use the crisis to enlarge their share of the economy, which will hurt the adjustment process, not help it.
Monetary stimulus thru lower interest rates doesn’t enlarge the gov’t share of the economy.
Fiscal stimulus thru tax cuts, and possibly even thru helicopter money drop, doesn’t enlarge the gov’t share.
Gov’t debt, yes, that goes up.
You … better get used to the idea. Republicans who want to get elected will remain only mildly against too much debt, probably until it’s too late to avoid a big collapse, or until Dems, also, are against too much debt. Better complain to Krugman and other Dem supporting economists and get them to be complaining about the debt.
If it’s not worth Dems complaining about, it’s not worth Reps losing elections over (being too stingy, greedy, unwilling to do the “good thing” promised).
Ya, and Venezuela’s collapse was democratically voted for by silly folk wanting too much gov’t, and too much debt — like the US Dems now. With most US colleges continuing to secretly discriminate against Reps.
Trump moving, strongly, to get private companies involved is likely among the least bad Big Gov’t responses.
I don’t like Trump and Big Spending on the debt. But I like more debt and tax cuts far more than ever increasing taxes, plus more debt, and much lower econ growth. Dem control of colleges has intellectually castrated the low-gov’t, smaller debt side.