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COvid-19 Coverage

We will be updating this strand of interviews, op-eds, arguments, & “punchlines” as the situation evolves.

The National Mall, bleak and lifeless, a few days after D.C. Mayor Bowser declared a state of emergency in late March. Photo Credit: Tiger Gao.

The National Mall, bleak and lifeless, a few days after D.C. Mayor Bowser declared a state of emergency in late March. Photo Credit: Tiger Gao.

Policy Digest:

Feedback for us & questions for our guests:

Feel free to tell us any question you have regarding the coronavirus outbreak using the form below, and we will try our best to incorporate your curiosity to an upcoming interview.

Policy Digest:

By Tiger Gao

The Policy Digest below contains Tiger’s personal thoughts on Coronavirus, its economics impacts & ethical implications, the justification & efficacy of our current measures, and plans going forward… Much of the work below is gathering & summarizing well-verified ideas & facts, and our team welcomes any criticism and challenges.

THE VIRUS ITSELF | Home

Punchline #1: Experts may disagree on the actual fatality rate, but the coronavirus is almost certain to be much deadlier than the flu.

NYTimes did a comparison piece between Covid-19 and the flu: On average, seasonal flu strains kill about 0.1 percent of people who become infected. The 1918 flu had an unusually high fatality rate, around 2 percent. Because it was so contagious, that flu killed tens of millions of people.

Estimates from China show a coronavirus fatality rate ofis around 2%; another report based on Chinesea data says it’s around 1.4%; director-general of the WHO says it’s 3.4% at least in the beginning stage of the outbreak in Wuhan… Experts may disagree on the exact figure, but we can roughly conclude that it’s somewhereat between 1-3% with the potential of going much higher if health systems are flooded with new patients, and the actual documented fatality rate in most places is comparablystill quite higher than seasonal flu. 

 

Punchline #2: The high fatality rate in the U.S. today is a result of a lack of testing, andyet the actual case count is likely to be drastically underestimated.

Italy and China are at the high end of the fatality rate range with 4.2% and 3.8%, respectively, whereas South Korea has a remarkably low CFR of only 0.6%, probablymuch due to its proactive approach to the outbreak (i.e. highly aggressively testing over 80,000 individuals suspected of infection about a month after confirming its first domestic case). The U.S. has had a relatively high case fatality rate of 5.2% as of March 10th, likelymuch due to a general lack of testing, soand this figure is expected to approach the mean (1-3% depending on response) as testing capacity ramps higher in the coming weeks. But to put it more pessimistically: the U.S. healthcare system is facing severe obstacles in testing for Covid-19, and the actual case count of infected patients is likely to be drastically underestimated.

Punchline #3: The U.S. will almost certainly have hundreds of thousands of confirmed cases and fatalities within the next few months.

As NYTimes reported last week, epidemiologists at the CDC recently prepared four scenarios. Their calculations showed a large range of possible fatalities in the U.S.: between 200,000 and 1.7 million Americans over the course of Covid-19, assuming minimal efforts to contain it. The governments in Britain and Germany are proceeding on the assumption that the virus may infect 60 percent to 70 percent of their populations. Deutsche Bank (DB) projects that there could be as many as 301k Americans infected with Covid-19 by June 1st even if we start taking appropriate measures now. NYTimes did an interesting interactive chart that shows: assuming an overall infection rate of 20% and fatality rate of 1.5% over the next year, there could be around 1,010,000 deaths in the U.S. alone.

Surely one can argue the fatalities are mostly among the elderlyold people, so it’s less reasonable to shut down schools etc. However, suppose there are 480,000 deaths from Covid-19, that would make coronavirus the 2nd most common cause of death among Americans in their 70s, but also the 5th most common cause of death among Americans in their 20s, if the current patterns in infections and deaths continue to hold. Also, kids Juul so much these days, who knows if thate may trigger severe complications… Of course, more importantly, failure to close schools now and stop groups of people from congregating in the same space will mean that these young people continue to spread the disease to those more vulnerable than they are, as we have seen.

One interesting thing to note is that so far, 40% of hospitalizations in the United States were of individuals aged 20-54, indicating that in this country at least young people have some level of vulnerability.

In a word, Covid-19 is not something to be taken lightly. It’s not scientifically rigorous or helpful to think of this as a normal flu, as its health effects are far more damaging.

IMPACTS ON THE HEALTHCARE SYSTEM | HOME


Punchline #1: The strain on the healthcare system will unleash exponentially worse outcomes on infection & fatality rates. 

Hoping for the best case scenario, let’s just say Coronavirus has a fatality rate of less than 1% and it’s far less detrimental than the normal flu, what does this change?  


First, it is a fact that places where a flood of sick patients overwhelming hospital capacity would have higher death rates than places where everyone who needs medical care can get it – which means that if the U.S. healthcare system no longer has the appropriate capacity to handle the incoming patients, the system will crash and more deaths will take place. The rate of infection and death will rise exponentially faster when resources are stretched. 


If one paid any attention to the situation in Wuhan, one would realize that the lack of medical resources quickly became a severe cause in exponentially increasing infectious cases, and as medical workers fell sick, you’ll be waiting for a humanitarian crisis to happen. NYTimes depicted the despair of people in those days:  

Weak with fever, An Jianhua waited in line for seven hours outside the hospital in the cold, hoping to get tested for the new coronavirus, which doctors suspected she had contracted… 

… In recent days, some say they have called 120, China’s equivalent of the emergency number 911, only to be told that there were already hundreds of people in the queue.


Another danger is that if the healthcare system is forced to be fully occupied with Covid-19 patients, patients in urging care that desperately need treatment for other illnesses will largely be ignored. As in the case of China, patients with diseases like AIDS or chronic illnesses will inevitably be pushed down on the priority ladder, even though their situations are just as dire. This is also not to mention other low-income households relying on social security paychecks. 

Punchline #2: The unknown and unpredictable properties of Covid-19 should lead us take more proactive and even somewhat extreme measures. We should not wait until the medical properties are better studied. 

On a more theoretical level, because the virus still has many unknown properties (such as the contagious rate for asymptomatic carriers, the frequency of the re-emergence of virus after being cured, and what long-term negative effects on health will be left on the cured), it only calls for more reasons to take more extreme measures. These uncertain properties of the virus, however, will have substantial impact on whether policies implemented are effective. Bottom line, the measured fatality rate is likely to be downward biased due to the lag between identified cases, deaths and reporting of those deaths, as well as given how global connectivity is at an all-time high.

 

Response strategies: MITIGATION or SUPPRESSION? | Home


Our team’s Arjun Mani brought up an interesting point much worthy of a long debate – would it be better to adopt a “mitigation” strategy that allows us to gradually develop herd immunity for the virus, rather than to adopt the current “suppression” policy response with national lockdowns that are clearly unsustainable in the long run? The debate between “mitigation” and “suppression” that Arjun refers to is highlighted in an Imperial College report on policy responses. 


The report finds that: 

… optimal mitigation policies (combining home isolation of suspect cases, home quarantine of those living in the same household as suspect cases, and social distancing of the elderly and others at most risk of severe disease) might reduce peak healthcare demand by 2/3 and deaths by half. However, the resulting mitigated epidemic would still likely result in hundreds of thousands of deaths and health systems (most notably intensive care units) being overwhelmed many times over. For countries able to achieve it, this leaves suppression as the preferred policy option. 


Suppression strategies are the ones that we have currently adopted, essentially closing down schools and restaurants and forcing people to stay at home, and the challenge is that it is unsustainable to last until we find a vaccine. A potentially dangerous outcome is that after we adopt the suppression strategy for two months, followed by warmer temperature in the summer, we will have indeed successfully contained the virus outbreak. However, after factories re-open and economic activities resume, the virus outbreak will be back as well. It will be back just as fiercely and hit us in fall and winter, when the medical system is especially vulnerable and other viruses also fly around. This probable scenario implies that we need to find an alternative to the suppression framework as soon as possible. Quite a brilliant argument. 


I would challenge Arjun’s view, though, because I believe the 2nd outbreak would likely to be much less severe, and the current suppression framework for the 1st wave of outbreak has bought us precious time to reflect on potential policy alternatives and more sustainable mitigation methods for this upcoming winter. The world’s eyes will be on China in the next two months as the country tries to restart its giant economic machinery without causing a 2nd outbreak. If it can successfully do so, it will disperse much of the skepticism and worry that Arjun has brought up. Not that I have much evidence to back my point up, but we’ll see whose prediction is right? 


From the pictures I got from friends in China, the heavy traffic is back on the streets of Beijing, and state media is reporting that over 80% of factories are resuming production activities and such. As the West scrambles to respond to Covid-19, China has somewhat completed the test and handed in the answer keys already. And chances are, it will eventually come out of this exam with a top grade. My prediction is that China will do everything it can to prevent a 2nd outbreak, and while it successfully does so, it will mitigate the “demand shock” from the West through heavy domestic stimulus packages. If it can eventually come out of this crisis in a few months without a 2nd outbreak and with a fully operational domestic economy whose growth will no longer be much reliant on the West, it will send a strong signal – marking validation for China’s political economy system, and hinting at further delineations between China and the West’s paths going forward. 

 

HELPFUL PROBABILITY FRAMEWORKS AND MISCONCEPTIONS | Home


Punchline #1: Stop comparing Covid-19 with car deaths… 

Nassim Nicholas Taleb & Yaneer Bar-Yam explained this point very, very brilliantly: Sure, the risk of dying of Coronavirus is much lower than that of many diseases and even than being hit by a car, but one should not compare Coronavirus with the other incidents because Covid-19 is systemic and the others are idiosyncratic events. This means that if individuals don’t act against their own probabilistic interests (which is to ignore the virus), they will actually help Covid-19 spread, and the more vulnerable others will die. 

Punchline #2: It may not be rational for individuals to panic, but it’s rational for the society to panic. 

For Covid-19, we are dealing with “an extreme fat-tailed process owing to an increased connectivity, which increases the spreading in a nonlinear way. Fat tailed processes have special attributes, making conventional risk-management approaches inadequate,” wrote Taleb, Bar-Yam, and Joseph Norman back in January as they warned the public. “While repeated risks can be taken by individuals with a limited life expectancy, ruin exposures must never be taken at the systemic and collective level.” In other words, it may not be rational for individuals to panic, but it’s absolutely rational for the society to panic. 

Punchline #3: Naive empiricism and pseudo-evidence are dangerous for our society’s thinking. 

Taleb calls it “naive empiricism” to just throw out these seemingly evidence-based comparisons between Covid-19 and others, which is exactly the mistake we made during the Ebola crisis and time and again… Basic probability theory tells us that we should not compare raw data that don’t have the same variances! Something that is exponentially growing like Covid-19 cannot be compared with something static like the heart disease! Sure, you can compare them at face value to see which is killing more Americans at the moment, but you should not proceed further in deriving more conclusions regarding how we may need to proactively respond or not respond to Covid-19. 


“Learning a bit of statistics [but not the deeper theoretical caveats behind] is very dangerous to society,” as Taleb explains the danger of pseudo-evidence. 

 

The ECONomic outlook | Home


Punchline #1: A severe recession is in sight. Watch the unemployment numbers. 

The three previous expansions in the U.S. lasted from 1982-1990, 1992-2000, 2001-08, and we haven’t had a decade without recession since 1776. Just a few months ago, the largest uncertainty for this current economic boom was the U.S.-China trade war. Now the consensus is largely flipped – we’re pretty much doomed for a recession, a quite severe one. 


Investors now have early evidence of the negative economic impacts on the Chinese economy, and the data have far exceeded most analysts’ initial projections in terms of the negative impacts and pessimistic outlook. DB now projects a severe global recession occurring in the first half of 2020, with aggregate demand plunging in China in Q1 and in East Asia and the U.S. in Q2. Those quarterly declines in GDP growth DB anticipates substantially exceed anything previously recorded going back to at least World War II. And lastly, unemployment will almost inevitably exceed 4% in the next few months without even more drastic measures, and if we look at recent economic history in America, every time unemployment rate raises by more than 1/3%, the next stop is that unemployment rate goes up by a lot, and eventually we go into a recession. 


Punchline #2: The Fed has used all the 2008 ammunition in one weekend this time. 

The policy responses have been unprecedentedly drastic and swift. On the monetary side, the Fed and ECB, already low on ammunition due to issues like the zero lower bound, have gone pretty much all out in their responses, injecting tremendous amounts of liquidity into the money and credit markets in an effort to diminish any prospect for another major financial crisis. The Fed has moved rates to zero after cutting rates twice in a few days and reenacted some of the most aggressive policy measures since 2008. Except this time, wrote Neil Irwin, “instead of doing so over about 16 months, from late 2007 through early 2009, it announced versions of them in a single weekend, before solid evidence of economic damage even materialized.” This is how serious this economic crisis could be. 


Matt Levine wrote about some of the monetary facilities: Last week the market for U.S. Treasury bonds got scary, so the Fed announced hundreds of billions of dollars of repo funding: If you borrowed money to buy Treasuries, and your loan is due and you can’t borrow any more, now you can borrow from the Fed for cheap. This week as the crisis spread, the Fed announced a Commercial Paper Funding Facility to buy short-term debt, and a Primary Dealer Credit Facility to finance pretty much anything. “Credit extended to primary dealers under this facility may be collateralized by a broad range of investment grade debt securities, including commercial paper and municipal bonds, and a broad range of equity securities.” You have some American Airlines stock and need money? Sure, wave it in, the Fed will give you money at 0.25% interest.


Punchline #3: The fiscal authorities are ready to do whatever it takes.  On the fiscal side, the current set of packages proposed by the U.S. Treasury at around $850 billion is huge, though some, including Andrew Sorkin, argue it is not huge enough. The Treasury’s stimulus packages are estimated to amount to 6% of GDP on top of already significant automatic stabilizers. In Europe, the fiscal rules imposed on individual countries have been effectively suspended, and leaders across have pledged to spend “whatever it takes” – the same kind of rhetoric we heard from the ECB during the eurocrisis in 2011.


Punchline #4: The exogenous shock is much more severe this time. Neil Irwin wrote how this Coronavirus shock will be much more severe than the kind of exogenous shock like 9/11 on the restaurant & airlines industries: Consider restaurants. Americans spent $26.9 billion at restaurants and bars in August 2001, and $26.2 billion in September 2001, a mere 2.3 percent drop. By December of that year, sales were back above August levels (numbers adjusted for ordinary seasonal variations).The cumulative shortfall of restaurant sales that autumn compared with a world where they had held steady at August levels was about $1.2 billion, a trivial amount in what was then a $10.6 trillion economy. Employment in the food service sector reached a trough of 8.4 million jobs in October 2001, only about 16,000 below its August level.It seems improbable that the coronavirus shutdown will have such mild effects on that industry. There is a big difference between a slump in business because people are not in the mood to celebrate, and one mandated by citywide shutdowns or other restrictions on business activity.For weeks, as the novel coronavirus spread, a common line among economists was that it would cause a “supply shock,” limiting the availability of certain manufactured goods made in China.But huge swaths of the economy are starting to experience the biggest demand shock any of us have ever seen.

 

DEBATE BETWEEN OVERREACTING VS. UNDER-REACTING | Home


Punchline #1: I think it’s better to overreact than underreact, though the costs of incorrectly overreacting are potentially much larger than the costs of not responding appropriately to Covid-19. 

In terms of economic policy, I do think there is a valid debate on whether the negative effects on the economy induced by government lockdowns would actually end up causing more disruption in people’s livelihoods than the loss of lives caused by Covid-19 if we do not enact those extreme measures. In other words, with all the restaurant and hotel workers being laid off and small businesses being forced to shut down, chances are some of those people cannot make their next rent or healthcare copay because of unemployment, and they might lose their lives in the process. 


This kind of worry is different from ignorantly asking “more people get killed by car accidents each year anyways, so why are we being so dramatic about this virus?” As we’ve explained earlier, there are systemic vs. idiosyncratic, exponential vs. static event types that will warrant different magnitudes of responses, and arguably, having the government impose a set of policies that result in large-scale shutdowns will kick off a vicious downturn cycle that could be getting exponentially worse as it spirals off. Thus, here, we’re comparing two systemic events – government-induced economic recession vs. pandemic-induced fatalities. 


Between the two, I would rather err on the side of mistakenly causing a recession than letting millions die. I am not just arguing it from a normative perspective, but also from the perspective of pragmatism – it is much more predictable of how many people will lose their jobs because of the restaurants shutting down than how many could die from this novel virus that we know little about. The asymmetric uncertainty here should trump us to be cautious when dismissing the potential magnitude of economic disaster caused by Covid-19 if we don’t try to get ahead of it. 


I think the central banks’ extreme reactions are largely justified. Not that I know much about central banking, but I conjure that aside from the actual prospect for a recession itself, another reason that allows for the current set of measures is that our economy still has extremely low inflation. If the virus shock passes by quickly and the easy monetary policy turns out to be too much, what we’ll have is just slightly more inflation. That’s gonna be a much better outcome than being wrong and having the U.S. plunging into a severe recession, by which point people will blame the Fed for not further easing the monetary policy. What could the Fed say then? Because we believe the equities markets will automatically stop the free fall after a reasonable 20% correction? Because we were worried about some prospect of inflation that’s not really present? None of these are very convincing excuses. For Covid-19, we have to get ahead of it in order to stop it, and just from a policy perspective, the Fed would probably rather be blamed for overreacting than underreacting. 


And what if we actually go into a global recession starting in Q2? As drastic as those policy responses may be, it doesn’t seem to me that the stability of the financial system is really of key concern here. Global equity markets are down 15-20% over the last month, and though nobody really saw this coming, investors have long recognized that the market valuations are around 20-30% overvalued, and a “healthy” correction that doesn’t threaten the banking sector’s liquidity like the case in 2008 was largely anticipated at some point down the road. 


This pandemic originated outside of the financial system and is truly an exogenous shock, and I don’t think there’s any significant evidence indicating that the overall global financial system has been fundamentally undermined. Sure, credits are strained; investors’ short-term sentiment is at an all-time low; market volatility is at an all-time high; and very weirdly, bond prices and stock prices moved together last week, not in opposite directions as they usually do (on Wednesday and Thursday, as the S&P 500 was down 14%, the benchmark 10-year Treasury bond yield rose by about 0.10%). But these aren’t problems we cannot quickly address. The Fed’s facilities will be well equipped to deal with the constrained credits; market volatility is projected to have an overall downward trend; and the weird bond and stock price movements can be explained by the possibility that major financial players were experiencing a cash crunch, selling whatever they can as a result – again, something the Fed understands quite well and can easily address as the lender of last resort.  


I think the markets will be marked by a period of daily “zig-zag” movements in the next few weeks and even months, bouncing between investors becoming more skittish (deciding to sell off) and markets regaining slight confidence over some forward-guidance announcement by the government. We’ve already seen many of those trading days in the past two weeks, as stocks generally picked back up for a few percentage points after one of the worst performing days in financial history. This is just a phenomenon of increasing volatility, though, and will unlikely to be overshadowed by something fundamentally problematic that engulfs and upends the system like we saw in previous financial crises or global recessions.

 

PROJECTIONS & IMPLICATIONS | Home


Punchline #1: I don’t think our summer internships will be taking place on time… lol

China has just achieved the milestone of zero new local infections on March 18, which is already more than 2 months since the city of Wuhan announced lockdown back in January. The next step for the city is to remain in lockdown for another 14 days, and if there’s still no new cases, the lockdown will be lifted. This implies that even with the most stringent and draconian measures, we would need at least 2.5 months for a city to come down from the peak and return to a relative normal state. 


The U.S. is around 10-14 days behind the development of Italy, which had gone into a national lockdown on March 9 and has still not yet reached its peak for the outbreak. It’s likely that the U.S. will go into a full national lockdown within the next week or two depending on the efficacy of the current measures, and given the current projections as to when the U.S. will hit peak, there is little possibility that the U.S. will “unlock” the country by early or mid June. The federal government plan we recently saw even warned policymakers that this pandemic “will last 18 months or longer” and could include “multiple waves,” resulting in widespread shortages that would strain consumers and the nation’s health care system.


So… I don’t think it’s unreasonable to say that some summer internships will inevitably be delayed or even canceled.