Month: March 2020

Sunday assorted links

1. Margaret Atwood on public health in the 1940s.

2. 250 things an architect should know, recommended, Michael Sorkin RIP.

3. Sign up for curated videos from The Browser.

4. The enforcement culture that is Britain: “”We are getting calls from people who say ‘I think my neighbour is going out on a second run – I want you to come and arrest them’.”

5. Why are airlines pricing tickets so very low even below marginal cost?

6. Health and Pandemics, Econ Working Group, now with virtual seminars.

7. Tape of the Neil Ferguson parliamentary testimony.  And here are Ben Yeoh notes on the presentation.

8. Do we have the personnel infrastructure to support test and trace?

9. “Here we propose that national differences in COVID-19 impact could be partially explained by the different national policies respect to Bacillus Calmette-Guerin (BCG) childhood vaccination.

10. Christopher Balding’s full take.  Chris makes many good points, but two comments.  First, on the policy side he is far too quick to dismiss “test and trace,” which seems to be working in South Korea and Singapore.  Second, I would like to see more comparative attention to the regions where we know things are going very, very badly.

11. Why previous attempts to build a new ventilator fleet failed (NYT).

12. RIP Krzysztof Penderecki.

Sicken Thy Neighbor Trade Policy

A number of countries have imposed export bans on medical equipment. This is a natural, knee-jerk, reaction but a mistake for two reasons. First, no country in the world produces everything it needs. An export ban imposed by one country benefits that country but when all countries ban exports, it’s likely that no country is better off and all are worse off. A prisoner’s dilemma.

The prisoner’s dilemma is even worse than the basic analysis indicates because supply chains are globalized so it’s not even that one country produces ventilators and another produces masks and they are better off trading. Rather, it’s that both ventilator and mask production rely on inputs from other countries. What this means is that export bans make it more difficult for anyone to produce anything. Reuters gives an example:

Swissinfo has reported that production in Hamilton Medical, a major Swiss manufacturer of hospital ventilators, has slowed because Romania banned exports of a critical input that Hamilton was sourcing. The lesson is that any EU export restriction puts at risk other EU imports also needed to fight COVID-19. If the product definitions covered by the EU policy are so broad that they also restrict exports of parts and components, the EU may end up losing access to other supplies of equipment it seeks to import.

And here is Stefan Dräger, head of German ventilator manufacturer Drägerwerk:

DER SPIEGEL: When will a shortage begin developing for filters, tubes and other components for the ventilators?

Dräger: It already has….The parts come from all over the world, including from Turkey. I very much hope that the supply chains remain intact despite the protectionism. If someone decides to disrupt them, there will no longer be any ventilators, for anyone.

Disrupting sophisticated global supply chains is likely to create dis-coordination.

For want of a nail the shoe was lost;
For want of a shoe the horse was lost;
For want of a horse the battle was lost;
For the failure of battle the kingdom was lost—
All for the want of a horse-shoe nail.

For want of a ventilator part the life was lost.

The second reason why export bans are a mistake is that when there are economies of scale banning exports can decrease local consumption. A company that knows that it cannot export will be less willing to invest in building new plant and infrastructure, for example. We see exactly this phenomena in the brain drain “paradox”. Brain drain proponents argue that developing countries need to ban exports of human capital (i.e. don’t let people leave) to keep skilled workers at home. But in fact places like the Philippines, which export a lot of nurses, also have more domestic nurses. As Clemens and McKenzie write:

Enormous numbers of skilled workers from developing countries have been induced to acquire their skills by the opportunity of high earnings abroad. This is why the Philippines, which sends more nurses abroad than any other developing country, still has more nurses per capita at home than Britain does. Recent research has also shown that a sudden, large increase in skilled emigration from a developing country to a skill-selective destination can cause a corresponding sudden increase in skill acquisition in the source country.

The premise of export bans–in this time of need, we need to keep our resources at home–is natural but the virus is a worldwide challenge that needs a worldwide response. We is everyone in the world. We have a lot to gain by cooperation, especially as some countries are being hit at different points in time. Germany, for example, sold ventilators to China as the crisis hit China and China can (re)sell to Germany as China recovers. Our best strategy is a united front where we learn from other countries and reallocate resources around the world.

Beggar thy neighbor trade policy, such as the infamous Smoot-Hawley tariff, lengthened the Great Depression. We don’t want sicken thy neighbor trade policy to length the great pandemic.

Hat tip: anonymous.

Where does all the heterogeneity come from?

Here is a Christopher Balding tweet storm, excerpt:

Iceland has done almost 14k tests on an island of 360k so more than 3% of the total population…They have more than 800 confirmed cases, 10k people in quarantine, 800 in isolation, 18 hospitalizations, 6 in ICU, and 2 dead…About how many people SHOULD have corona if the spread etc numbers are accurate. As of March 27, Iceland would be expected to have more than 46k people that have corona. Emphasis this is on an island of 360k and 800 confirmed cases.

What is going on in the Icelandic numbers?  What accounts for this apparent heterogeneity?  Dosage?  Is it that Icelandic clustering is mostly in one easy to control central city and the rest already is “socially distanced,” even in the best of times?

I know there are some MR readers in Iceland, and presumably they read the Icelandic press.  Can anyone shed light on why the death rate is not higher in Iceland?  Is it that the death rate is about to burst a week from now?  Alternatively, you might think the Icelanders have kept their hospitals up and running — important for sure — but that doesn’t explain what seems to be a quite low rate of reported cases.  Or is it that Iceland’s second largest city is so tiny — Akureyri at 18,925 inhabitants — that the virus doesn’t have many easy chances to recirculate once cut off for a while?

Similarly, Sweden hasn’t restricted public life very much and they do not seem to be falling apart?

How much better is Staten Island (less dense) doing than Manhattan (more dense)?

Some reports indicate that in hard-hit Westchester County,. NY, the rate of hospitalization is about one percent (8-10 percent in some other places).  Alternatively, here is serious talk that the death toll in Wuhan is 20x official figures.

How much of the heterogeneity results from the kind of mixing you get?  One account of the low German death rate is the young and the old were never pushed together so much by the policy response.  One account of the high Italian death and hospitalization rate is that the initial quarantine was only regional and thus it spread very dangerous forms of mixing throughout the larger country.

It is possible that Cambodia, Thailand, and Vietnam still will be hit hard, but so far the signs do not indicate as such.  Warm weather may play a positive role, though that remains speculative.  The latest weather paper appears credible and indicates some modestly positive results.  Of course weather won’t explain the relative Icelandic and Swedish success, if indeed those are truly successes.

By the way, on the “everyone already has it” theory, a semi-random sample of 645 from Colorado showed zero positives.

So where is all this heterogeneity coming from?  Is it all just bad data?  That seems hard to believe at this point, and Iceland seems like a plausible source of reasonably good data.

As for concrete conclusions, these heterogeneities should make us more skeptical about any models of the situation.  But it would be wrong to conclude that we should do less, arguably risk-aversion could induce us to wish to do more, including on the lock downs front.

It is also worth pondering which heterogeneities are “baked in,” such as heat and age structure of the population, and which heterogeneities can be altered at the margin, such as forms of social mingling.  It is at least possible that studying these heterogeneities could make policy far more potent.

Overall, I do not see enough people asking these questions.

Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu

That is a new paper by Sergio Correia, Stephan Luck, and Emil Verner, I have not read it, here is the abstract:

What are the economic consequences of an influenza pandemic? And given the pandemic, what are the economic costs and benefits of non-pharmaceutical interventions (NPI)? Using geographic variation in mortality during the 1918 Flu Pandemic in the U.S., we find that more exposed areas experience a sharp and persistent decline in economic activity. The estimates imply that the pandemic reduced manufacturing output by 18%. The downturn is driven by both supply and demand-side channels. Further, building on findings from the epidemiology literature establishing that NPIs decrease influenza mortality, we use variation in the timing and intensity of NPIs across U.S. cities to study their economic effects. We find that cities that intervened earlier and more aggressively do not perform worse and, if anything, grow faster after the pandemic is over. Our findings thus indicate that NPIs not only lower mortality; they also mitigate the adverse economic consequences of a pandemic.

Via Jason Furman.

Saturday assorted links

The Defense Production Act

In my post, Let the Markets Work, I argued that the Defense Production Act was “neither especially useful nor necessary.” The earlier post focused on how markets were working to address the crisis. Today, we can see the flip side, how the government is working to address the crisis.

The NYTimes reported on Thursday that the government was balking on a deal to buy ventilators

The White House had been preparing to reveal on Wednesday a joint venture between General Motors and Ventec Life Systems that would allow for the production of as many as 80,000 desperately needed ventilators to respond to an escalating pandemic when word suddenly came down that the announcement was off.

The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency said it needed more time to assess whether the estimated cost was prohibitive. That price tag was more than $1 billion, with several hundred million dollars to be paid upfront to General Motors to retool a car parts plant in Kokomo, Ind., where the ventilators would be made with Ventec’s technology.

At $1.2-$1.5 billion that’s $15,000-$18,750 per ventilator which is well below the standard price of $25,000-$50,000 (maybe these ventilators would be simpler or less fancy.) Seems like a bargain to me but maybe GM wasn’t the best producer. I think we could buy more pretty quickly from China, as Elon Musk did. In anycase, I’ll give the government the benefit of the doubt on the bargaining. Note that even as they were haggling over the price, GM and Ventec were continuing to work towards production. The market for ventilators is growing.

The President, however, then went on Hannity to say that he didn’t think we needed 30-40 thousand ventilators and also insulted GM CEO Mary Barra in a series of tweets. This was clearly some kind of clever bargaining strategy. Surprise! It failed. Yesterday in a pique, the President invoked the DPA.

CNN: President Donald Trump invoked the Defense Production Act on Friday to require General Motors to produce more ventilators to deal with increased hospitalizations due to the spread of the novel coronavirus in the United States.

But it’s unclear what practical, immediate effect the order will have.

…Trump also named Peter Navarro as the national Defense Production Act policy coordinator for the federal government. Trump said Navarro has been doing that job over the past few weeks but announced him as the coordinator for the first time on Friday.

Trump decided to invoke the act because he was irked by news reports that an agreement between GM and the administration had stalled, a person familiar told CNN.

So what have we gained by using the DPA? Will the ventilators be produced any faster? Will the ventilators be any cheaper? Will other companies be so quick to enter into negotiations with the government? Will Peter Navarro direct production more efficiently and fairly than market prices? No.

My 2009 health care policy recommendations

8. Invest more in pandemic preparation.  By now it should be obvious how critical this is.  It’s fine to say “Obama is already working on this issue” but the fiscal constraint apparently binds and at the margin this should get more attention than jerry rigging all the subsidies and mandates and the like.

Here is the full post, much broader and mainly about best alternatives to Obamacare.  Also in 2009 I wrote this (pointer via Dave Pote):

I say think probabilistically…A one percent chance of one hundred million deaths is, in expected value terms, one million deaths and that is a big deal.  Probably the United States is less vulnerable than it was in 1918, but how many people would die in China, India and many other locales?  How much disruption to trade, travel, and the world economy would take place?  Even in the United States, our public health systems would break down quickly and render many modern medical advances useless (e.g., when would the Tamiflu run out?).  Having lots of living space is wonderful, but it pays off only if people stay home from work and that means dealing with massive absenteeism.  Not pretty.  Better safe than sorry.

Oddly Stephens never mentions that we are living in a raging epidemic now, namely AIDS, which has run for several decades.  For all the virtues of retrovirals, the modern world was quite slow in combating or even checking the disease and still many people, including U.S. citizens, engage in very risky behavior.  Our collective response was not terribly impressive.  Greater wealth does help, but greater wealth also means we should spend more to limit the problem…

The main thing we should do — invest in public health infrastructure — is in any case a good idea with many possible payoffs, whether a pandemic comes or not.  It is a better investment of money than pursuing the ideal of universal health insurance coverage.  I might add that one of the better arguments for universal coverage is simply that it could lead to better monitoring of some public health issues.

See also my text with Alex.  And here is me on pandemics and local public health infrastructure, November 2018.  And here are my earlier writings on avian flu.

Real wages are flexible now

The restaurant used to pay you $13 an hour, now they pay you “$13 an hour plus p = ?? of Covid-19.”  That new wage is a lower real wage.

Of course some workers are quitting, others are trying to shift back to disability, and so on.  Those are movements along labor supply curves, not proof of sticky wages.

Plus other employers are taking unprecedented latitude in shifting around work hours, demanding new levels of commitment, asking workers to scrub down surfaces more and wear masks, and above all offering weaker promotion ladders, etc. — all cuts in the real wage.

I expect unemployment levels to rise to new and scary heights, and yes I do think the government should do something about that.  But if you are analyzing the status quo with “a sticky wage model,” that assumption is probably wrong.  Even though it is usually correct.

Of course at some point in the future I expect wages to become sticky again.  Perhaps that is how we will know things have stabilized.

“Flexible wages on the downside, sticky wages on the upside” is perhaps the best assumption at the moment.

A further lesson is that sticky wages are not the only driver of unemployment, and the “fixed cost of working” models of Richard Rogerson and others have been underrated for a long time (to oversimplify a bit, given fixed costs it is not worth everyone coming in to work at some levels of demand/productivity).

What is the marginal risk of getting Covid-19?

This suggests that COVID-19 very roughly contributes a year’s worth of risk. There is a simple reality check on this figure. Every year around 600,000 people die in the UK. The Imperial College team estimates that if the virus went completely unchallenged, around 80% of people would be infected and there would be around 510,000 deaths.

So, roughly speaking, we might say that getting COVID-19 is like packing a year’s worth of risk into a week or two. Which is why it’s important to spread out the infections to avoid the NHS being overwhelmed.

Here is more from David Spiegelhalter, with some interesting graphics.  For the pointer I thank H.

Friday assorted links

Are many more people infected than we think?

Here is the Clive Cookson FT piece (with an irresponsible headline).  Here is the Lourenco new Oxford study, only a few pp.  Miles Kimball offers analysis and numerous references.

Here is the Bendavid and Bhattacharya WSJ piece that perhaps has had the biggest popular influence.  They argue that many more people have had Covid-19 than we think, the number of asymptotic cases is very large, and the fatality of the virus is much lower than we think, perhaps not much worse than the flu.  But their required rate of asymptomatic cases is implausibly high.

The best evidence (FT) for asymptomatic cases ranges from 8 to 59 percent, and that is based on a number of samples from China and Italy, albeit imperfect ones.  Icelandic data — they are trying to sample a significant percentage of their population — suggest an asymptomatic rate of about 50 percent.  To be clear, none of those results are conclusive and they all might be wrong.  (And we should work much harder on producing better data.)  But so far there is no particular reason to think those estimates are wrong, other than general uncertainty.  You would have to argue that the asymptomatic cases usually test as negative, and while that is possible again there is no particular reason to expect that.  It should not be your default view.

Marc Lipitsch put it bluntly:

The idea that covid is less severe than seasonal flu is inconsistent with data and with the fact that an epidemic just gathering steam can overwhelm ICU capacity in a rich country like Italy or China.

Furthermore, the “optimistic” view implies a much faster spread for Covid-19 than would fit our data from previous viral episodes, which tend to come in waves and do not usually infect so many people so quickly.

So I give this scenario of a very low fatality rate some chance of being true, but again you ought not to believe it.  The positive evidence for it isn’t that strong, and you have to believe a very specific and indeed unverified claim about the asymptomatic cases testing negative, and also about current spread being unprecedentedly rapid.

Here is Tim Harford’s take (FT) on all this, he and I more or less agree.

By the way, Neil Ferguson didn’t walk back his predictions.  That was fake news.

So we still need to be acting with the presumption that the relatively pessimistic account of the risks is indeed true.  Subject to revision, as always.

Minimum wage hikes are a much worse idea now

For one thing, the marginal product of labor is much lower, at least for a good while.  But there is a deeper problem.  Under the status quo ex ante, minimum hike proponents argued that the highest wages would be taken out of, say, the economic rents of restaurants.

But now those rents are largely gone!  Especially for the small restaurants.  The result will be that, if the minimum wage is raised, more laborers are laid off.  At the very least there should be no minimum wage, or a much lower minimum wage, for small businesses.

A further effect is that higher contagion risk (extending into the future too, now that pandemics are salient) may encourage more employers to automate, including in kitchens, theme parks, etc.  A higher elasticity of automation also militates against a minimum wage increase, because capital-for-labor substitution is now more likely, again indicating larger negative employment effects.

In essence, most of the previous empirical literature on this topic has to be significantly downgraded in relevance.  Whatever you thought of them to begin with, the pieces by Dube and the like just don’t apply any more.

Most likely, we should lower current minimum wages.  And that is all the more true, the more you have been worrying about coronavirus risk and Trump’s poor performance in response.

These are all very simple points, I am tempted to say they are “not even Econ 101.”

And note that in the very early stages of a lock down you might want a much higher minimum wage, precisely to keep people away from work, if somehow you cannot keep the customers away.  The much higher minimum wage would force the employer to decide which are the truly important workers, and send the other into non-infectious activities, as Brian Slesinsky suggested to me.

This is all related to my earlier post The Meaning of Death, from an economist’s point of view.

The world is running a disturbing psychometric test

Put aside the people with small (and not so small) children at home, and observe whether the pandemic has boosted or destroyed their productivity.  That is one measure for how they handle stress, and whether you might wish to trust them with a start-up or some other major project requiring quick adaptation and performance under duress.  It may or may not be a measure for their ordinary performance on the job.

Consider the now-cancelled Candidates’ chess tournament in Russia.  Ding Liren was one of the two clear favorites (with Caruana), and he lost three games in the first half of the tournament.  That is evidence he does not play well under an extreme degree of stress.  Yet he still is rated #3 in the world, from a career playing under conditions of “not a pandemic level of stress but still world-class levels of competitive stress.”

Grischuk had been saying the tournament should be called off, even in midstream.  Probably he was right, but if play had continued would you have predicted him to come in first?  Caruana, the American, was worried he may not be able to get home after the tournament.  His play was OK but subpar, at least for a world-ranked number two.  The non-favored but sturdy Nepomniachtchi was up three games, before unwisely playing a Winawer defense with the black pieces, but still he was the clear leader.  How should we now revise our opinions of him?

A friend of mine writes to me:

I have submitted 4 papers in 2 weeks. Two R and Rs [revise and resubmits] done and sent back and two new papers sent out. Very close on 2 more. Then I guess I’ll start freaking out or something. Working is keeping me less stressed and more sane.  You can really see the divide on Twitter between people getting shit done and people spending all their time hyperventilating.

David Brooks (NYT) considers how you have been living your life.

The psychometric stress test is being run, including on our institutions, regions, and nations.  We’ll see how it goes.

Longer-run economic consequences of pandemics

How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 12 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts resulting in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater
precautionary savings.

That is a new paper by Òscar Jordà, Sanjay R. Singh, and Alan M. Taylor.  And here is the tweet storm.  It should be noted, of course, that the Spanish flu did not give rise to a comparable economic stagnation.

Via Evan Soltas.

From the comments, more about Maurice Hilleman

By Hochreiter:

“Finally, Hilleman took a step that seems unbelievable in the bureaucratically hardened, litigious society of today. He bypassed the Department of Health, Education and Welfare’s (HEW) Division of Biologic Standards and contacted the heads of the six U.S. vaccine manufacturers directly. His message was simple. “Don’t kill your roosters.” As a farm boy growing up in Montana, Hilleman had learned that farmers sell their roosters for stewing pots at the end of the spring hatching season. Because of his years working with the influenza virus, he knew that vaccine manufacturers produce their vaccine in fertilized chicken eggs. To produce vaccine on the scale Hilleman was envisioning would require a massive amount of fertilized chicken eggs. Manufacturers would need every rooster they could get. Recognizing that time was of the essence, Hilleman followed up his phone calls by shipping samples of this new strain to each of the six manufacturers for vaccine production on 22 May 1957. Initially dubbed “Far East influenza,” the virus was later named the Asian Flu.”

From *Influenza* by George Dehner.  Here is the previous post about Maurice Hilleman.