The 1957 Asian Flu Pandemic killed around 70 to 100 thousand people in the United States (the 57 flu was not as infectious or deadly as COVID-19). In the last quarter of 1957 the growth rate (on an annualized basis) was -4% and in the first quarter of 1958, -10%, the largest such decline in post WWII history, bigger even than in the financial crisis. By the third and fourth quarters of 1958, however, the growth rate had surged back up to nearly 10% and for the year as a whole GDP declined by less than 1%–a bad recession, 3rd worst by depth in post WWII history, but not unprecedented.
Here’s what is interesting. Many sources don’t even list the pandemic as a cause of the recession (e.g. here, here, here, Wikipedia lists it as one among several causes). Indeed, the pandemic was soon forgotten. James Patterson’s Grand Expectations: The United States, 1945-1974 doesn’t even mention the pandemic or the recession, just the boom years of the 1950s. I am not entirely surely what to make of this. The recession was worldwide which makes me think it was the flu (deaths were low but many more people would have been sick) but this FED review from August of 1958 doesn’t mention the flu either.
Many people are calling for the President to use the Defense Productions Act (DPA) but the reality is that the DPA is neither especially useful nor necessary. The markets are already redirecting resources in a rapid and sophisticated manner. For the most part, the shortages were due to temporary increases in demand. The shelves are now filling. Food is plentiful. Hand sanitizer and soap is on the way or available. We are not going to run out of toilet paper. Now that the CDC and the FDA have gotten out of the way, we are producing more tests.
Honeywell and 3M are already ramping up production of N95 masks. We should arrange with China to buy more. The Federal Government is playing a useful role by buying surgical masks from companies like Hanes. Ironically, we will be importing them from Latin America.
Winston-Salem Journal: The company went from negotiating a contract with the federal government to beginning production in less than a week, according to the spokesman.
Using U.S.-grown cotton, the masks are being produced in Hanesbrands’ sewing factories in El Salvador, Honduras and the Dominican Republic.
These factories would normally be producing T-shirts, underwear, socks, sweatpants and sweatshirts.
(Note the stupid requirement to use American Cotton.)
A price is a signal wrapped up in an incentive, as Tyler and I write in Modern Principles. Compare the price system with command and control. We need ventilators. The federal government could order ventilator firms to make more but they are already doing so. The government could order other firms to get into the ventilator business but does the Federal government have a good idea which firms have the right technology or which firms have the right technology that could be repurposed to ventilator production at low cost, that is without causing shortages and disruption in other fields? Can they do better than a decentralized process in which millions of entrepreneurs respond to price signals. No.
A word here on “price gouging.” There are two kinds. The first, which has gotten some attention, is when the manufacturer/retailer holds the price constant despite increased demand and an enterprising fellow buys up stock to sell at the true market price–the ticket scalping model. “Ticket scalping” has some good features and I would not make it illegal but it has one big problem–the benefits of the increased price are not going to the producers. It would be better if the manufacturer and retailer raised their prices, the scalpers would then be eliminated and the benefits of the higher price would flow to producers giving them an incentive and resources to expand production. We shouldn’t worry too much about ticket scalping, however, because its temporary. Typically what happens is that the manufactures and retailers hold the price low for a short period of time to avoid consumer backlash, output ramps up, and then the price rises but given the increased supply by not as much as it would have in the short run. This also works fine. The bottom line is that it’s very important that manufacturer prices be allowed to rise to reflect true scarcities and to get resources flowing in the right direction. So far, we are doing that and the system is working well.
If all the trucks are fleeing from the front, we want the army to be able to requisition vehicles to move in the opposite direction. Private and social incentives do not always align and when time and certainty are of the essence command and control may be superior (as Tyler and I discuss in Modern Principles in the chapter on externalities). For the most part, however, that is not the situation we are in now. Private incentives are all pushing in the right direction of greater production. Let the market respond. The federal government is not good at command and control but it does have a role to play in redistribution for need.
America’s great strength is decentralization and markets, and right now we need our strength.
There are two problems, even internal contradictions, with segregating the elderly and letting others return to work. The first is fairly well known. When you run the numbers, as the British did, you find that a lot of young people would die. If we return to work too quickly it could easily happen that 20-40% of the US population gets COVID-19. Suppose 20% of the population gets it–that’s 66 million people. And let’s suppose the death rate is on the low end because healthy, young people get it rather than the elderly, say half of one percent, .005, then we have 330,000 deaths of healthy, young people.
Moreover, the numbers I just gave are conservative and don’t make a lot of sense because if 330,000 die then the hospital system is going to be overwhelmed and the death rate will be higher than .005. An internal contradiction.
The second internal contradiction is less well known. We probably can’t segregate the elderly because the more young people get COVID-19 the less realistic protecting a subset of the population becomes. In other words, the premise of the segregation argument is that we can protect the elderly but that premise becomes less plausible the more COVID-19 spreads but allowing it to spread is why we were locking down the elderly. An internal contradiction.
Are there some scenarios where all this works out? Probably but I wouldn’t bet on hitting the trifecta. The lesson of COVID-19 is that like it or not we are all in this together.
In our textbook, Modern Principles of Economics, Tyler and I explain the benefits of free trade and show why some common arguments against free trade are mistaken. Our goal, however, is to teach students how to think like economists and so we also explain the costs of free trade. In particular, we indicate the strongest arguments against free trade and explore when those arguments best apply. Here’s one of the better arguments against free trade, straight from the book:
If a good is vital for national security but domestic producers have higher costs than foreign producers, it can make sense for the government to tax imports or subsidize the production of the domestic industry. It may make sense, for example, to support a domestic vaccine industry. In 1918, more than a quarter of the U.S. population got sick with the flu and more than 500,000 died, sometimes within hours of being infected. The young were especially hard-hit and, as a result, life expectancy in the United States dropped by 10 years. No place in the world was safe, as between 2.5% and 5% of the entire world population died from the flu between 1918 and 1920. Producing flu vaccine requires an elaborate process in which robots inject hundreds of millions of eggs with flu viruses. In an ordinary year, there are few problems with buying vaccine produced in another country, but if something like the 1918 flu swept the world again, it would be wise to have significant vaccine production capacity in the United States.
If I may be permitted to advertise a bit (more). In Modern Principles, we explain the concept of externalities using flu shots. In macroeconomics, we deal with both real shocks and demand shocks and we list pandemics as one example of a real shock. We also explain how shocks are amplified and can create dis-coordination. These relevant, real world examples in Modern Principles are not an accident. There are different styles of textbooks. Some are written in a vanilla style so they don’t need to be updated or revised very often. In contrast, we wanted Modern Principles to have modern examples and to be relevant to the times. Sometimes, however, we’d like it to be a little less relevant.
What is the scenario for going back to work? Testing and tracing. In fact, two types of tests. First, the test for COVID-19 which says if an individual is infected. After deadly delays caused by the FDA and CDC we unleashed the private labs and the states and are now ramping up the number of tests. As of today, we have run about 80 thousand but we need many more and with every positive test we need to isolate and contact trace. Test, isolate, and trace. Health care workers need daily testing. We don’t need to test everyone but we do need to test enough to get the number of new cases down to a level that people feel comfortable returning to work, to shop, to eat. In China yesterday there were no new local infections. We can get there.
The second test is for COVID-19 antibodies which indicate that the person was infected and recovered and may thus have some immunity. An antibody test was just announced. The test looks only at one antibody and this doesn’t guarantee immunity. Nevertheless, people who have been infected and recovered are valuable. The blood of recovered individuals may be useful as a treatment. (N.B. The NIH Vaccine Research Center is looking for otherwise healthy recovered COVID-19 patients who are willing to donate their blood for study. Please contact.) In addition, recovered individuals have a kind of superpower and would be highly desirable workers. Recovered individuals are better able to help the sick at lower risk, for example (David Balan made this point in an unpublished piece). Moreover, a non-infected person would be very willing to work with a recovered person so the effect on labor supply is amplified.
As with the financial crisis, there are some bad risks out there but no one knows where and so every borrower/worker is suspect and no one is lending/working. With more information we can separate out the bad risks and get the majority of people working again.
To be clear, things are going to get worse but there is a reasonable scenario for recovery. Social distancing, including all the shutdowns, will start to show an effect in a week or two. With luck and effort we may stop SFO, Seattle and NYC from going critical and we can then start to bend the curve nationally. If we greatly expand testing, it’s possible that we can get people back to work in one or two months. That will not end the crisis–a fall rebound is possible and we can expect outbreaks. But if we test quickly and widely at the first sign of an outbreak, outbreaks can be contained. A vaccine is also possible and perhaps faster than most people think. Treatments will also improve. Testing and tracing buys us time.
We can get the economy back on track. Testing, isolating and tracing will do it much faster and cheaper than dealing with a prolonged recession.
Under the America COMPETES Reauthorization Act of 2010, US agencies have the authority and significant funds (up to $50 million, which may be pooled) to create prizes. Section 24 permits any agency head to “carry out a program to award prizes competitively to stimulate innovation that has the potential to advance the mission of the respective agency.” The European Commission has also used prizes to combat antimicrobial resistance and to pursue other goals. Thus, there is significant authority and knowledge in place to implement prizes quickly. A billion-dollar prize or series of prizes is also well within the capabilities of a number of individuals and private organizations throughout the world.
I suggest some best practices and write about implementation issues. This point is somewhat under recognized:
A prize need not be lump sum but could be tied to usage. For example, a $1 billion prize for a vaccine plus a $5 payment for every person vaccinated would tie innovation incentives even more closely to social incentives. The Advance Market Commitment for vaccines is a successful example. A prize tied to usage combines the best aspects of a prize and a patent. The prize helps to align incentives with public good production; the usage (patent-like) aspect helps to align incentives with market demand. A related advantage of tying the prize to usage is that less needs to be done up front in specifying the characteristics of the solution. For example, in the Advance Market Commitment, the vaccine had to satisfy certain properties, such as being shelf stable and administrable in developing countries. These details can be key in deciding what satisfies the prize conditions but are less necessary to the extent that the prize is tied to usage.
Here are the Emergent Venture Prizes to Combat COVID-19.
In a piece on conservative liberalism, Dan Klein looks at the response of conservatives like Smith, Hume and Burke to crises. For example, when the harvest was poor it was common for England to adopt free trade to import grain. Adam Smith argued that what was good in bad times was good in good times:
The distress which, in years of scarcity, the strict execution of those laws might have brought upon the people, would probably have been very great. But, upon such occasions, its execution was generally suspended by temporary statutes, which permitted, for a limited time, the importation of foreign corn. The necessity of these temporary statutes sufficiently demonstrates the impropriety of this general one. (WN 536.34)
I was reminded of some modern examples:
MedEcon: The federal government will now allow all physicians and other medical personnel to practice across state lines in order to battle the coronavirus (COVID-19) outbreak.
KXXV: Governor Greg Abbott has waived state laws that prohibit trucks from the alcohol industry from delivering supplies to grocery stores.
He says this will provide grocers with another private-sector option to keep their shelves stocked during the coronavirus pandemic.
Or how about this “hilarious” headline from the FDA
FDA: FDA Provides More Regulatory Relief During Outbreak, Continues to Help Expedite Availability of Diagnostics
I wrote last year:
Despite never having built a working product, Theranos accumulated hundreds of patents. These patents are now the only thing of value left but the patents aren’t valuable because of breakthrough science, the patents are valuable because they can be used to force people who do breakthrough science to cough up part of their return.
Now, just as I predicted, some of these bullshit patents are being used to prevent a company that is working on Covid-19 tests. The logic is evil but impeccable. Sue a firm when time is of the essence. Moreover, you won’t be surprised that just about everyone involved is scraped from the bottom of the barrel. Theranos sold the patents which were bought by a patent troll owned by Softbank, the firm bankrolling the notorious WeWork disaster, and the law firm involved, Irell & Manella, once took a monkey for a client (literally, although PETA paid) in an infamously stupid copyright infringement dispute.
Mike Masnick who broke the story names the guilty and writes:
Honestly, I’m used to all sorts of awfulness, but this one piles awfulness upon awfulness, and takes it to a level of pure evil….I wonder how they sleep at night.
….I understand the need for zealous representation of a client in court, but this seems even more despicable than your every day patent trolling, and people should associate these lawyers names with the truly despicable behavior on display here. Similarly, it should be a reminder of why its a good thing that the Supreme Court decided a decade and a half ago that injunctions are often inappropriate in patent cases.
I do hope a sensible judge punishes this abuse.
Hat tip; Michael Pettengill.
A simple and medically feasible strategy is available now for treating COVID-19 patients, transfuse blood plasma from recovered patients. The idea is that the antibodies from the recovered patients will help the infected patients. The idea is an old one and has been used before with some success. Here is Robert Kruse from Johns Hopkins (who also makes other suggestions):
A simple but potentially very effective tool that can be used in infectious outbreaks is to use the serum of patients who have recovered from the virus to treat patients who contract the virus in the future. Patients with resolved viral infection will develop a polyclonal antibody immune response to different viral antigens of 2019-nCoV. Some of these polyclonal anti-bodies will likely neutralize the virus and prevent new rounds of infection, and the patients with resolved infection should produce 2019-nCoV antibodies in high titer.Patients with resolved cases of 2019-nCoV can simply donate plasma, and then this plasma can be transfused into infected patients. Given that plasma donation is well established, and the transfusion of plasma is also routine medical care, this proposal does not need any new science or medical approvals in order to be put into place. Indeed, the same rationale was used in the treatment of several Ebola patients with convalescent serum during the outbreak in 2014–2015, including two American healthcare workers who became infected.
As the outbreak continues, more patients who survived infection will become available to serve as donors to make antisera for 2019-nCoV, and a sizeable stock of antisera could be developed to serve as a treatment for the sickest patients.
Kruse worries that the exponential growth of the pandemic will be too fast but I think he makes a mistake. The number of recovered patients will far exceed the number of hospitalized patients so the supply of plasma will rise more quickly than the demand.
Convalescent blood therapy was used to treat people during the 1918 flu pandemic and appeared to be useful (see here for references to papers from that time.) A recent meta-analysis of patients treated with blood therapy during the 1918 flu found good results (noting, of course, that data from a hundred years ago wasn’t ideal) :
Patients with Spanish influenza pneumonia who received influenza-convalescent human blood products may have experienced a clinically important reduction in the risk for death. Convalescent human H5N1 plasma could be an effective, timely, and widely available treatment that should be studied in clinical trials.
Blood therapy has also been used periodically since that time to treat Ebola patients, MERS patients, Junin patients and others but under non-ideal conditions where lots of things were being tried at the same time and controls were not ideal. Results have been mostly positive or non-negative, e.g. this study on 84 Ebola patients found few benefits but also small costs. Blood therapy has also been used for animals.
To implement we need a database of recovered patients. The recovered patients then needed to be tested to find those with the most antibodies. It is probably best to use recovered patients from the same location to maximize overlap although the Chinese brought plasma from China to Italy. Most of the dangers from blood transfusion such as passing on another disease are well understood and should be manageable with testing and knowledge of donors. In rare cases such as Dengue it can bad to stimulate the immune system (see discussion here).
Plasma therapy is not difficult and there are firms with expertise in the field including Takeda and Regenernon the latter of whom developed a blood based treatment for Ebola. Thus, CBP seems worthy of consideration.
Hat tip: Monique van Hoek.
Sick pay pays sick people to stay home but to defeat the virus we also want lots of healthy people to stay home. We also want to support people who are at home because they can’t find work. We can accomplish these goals by subsidizing work using services like Upwork or Mechanical Turk. Jobs on platforms like Upwork are the shovel-ready work of the 21st century. A 21st century jobs program would pay people to stay home and isolate, support people without work, and produce some useful output all at the same time.
More generally, how about paying people to take online courses? i.e. an income support program and a human capital investment program at the same time. Of course, not everyone would do well and people would cheat but think of these programs as a combination of paying people to isolate, maintaining aggregate demand and providing a source of income when low-wage restaurant and other service-jobs are declining but with a work requirement.
Many universities are moving rapidly to teach online. Tyler and I and the entire team at MRU want to do everything we can to help make the process as successful as possible not just to improve education but to help to reduce the threat from COVID-19.
First, we have created a Resources Page on Teaching Online at that page you can also find a Facebook Community Page where educators are providing lots of tips and resources not just on videos but on how to use Zoom and other tools. Here, for example, is an excellent twitter thread on teaching online from Luke Stein that covers hardware, software, and techniques.
Second, If you are using Modern Principles, our textbook, and want to move online, Macmillan will do that for you for free, very rapidly, and including online tests, homework etc. If you want to move online from a different book, send Tyler or myself an email and we can discuss the best ways to do that.
Third, MRU has hundreds of videos which are free for anyone to use. Most notably our courses on Principles of Microeconomics and Principles of Macroeconomics but a lot more as well. You can search for MRU videos here. Here is a “greatest hits” list.
MRU is, of course, not the only source of excellent teaching material. Here are some others:
- Mary McGlasson has a micro playlist (54 videos) and macro playlist (38 videos). These are great and can be used in both university/high school.
- The St. Louis Fed provides a variety of great resources, including 14 videos on popular micro and macro topics.
- If you’re looking for pop culture references to embed into an econ class, check out https://econ.video/, http://www.bazinganomics.com/ (Big Bang Theory clips), https://breakingbadecon.com/.
- Jacob Clifford is a popular option among AP Econ teachers. He has micro playlists (93 videos) and macro playlists (85 videos).
- Planet Money Shorts also has good material.
One place to begin might be to explain to your students the mathematics of why universities and schools are closing despite relatively few deaths to date in the United States. As always, this 3Blue1Brown video is excellent.
Addendum: See also Tyler’s important announcement on EV Prizes.
…So how has the United States’ response been?
“Our response is much, much worse than almost any other country that’s been affected,” Jha says.
He uses the words “stunning,” “fiasco” and “mind-blowing” to describe how bad it is.
“And I don’t understand it,” he says incredulously. “I still don’t understand why we don’t have extensive testing. Vietnam! Vietnam has tested more people than America has.” (He’s citing data from earlier this week. The U.S. has since started testing more widely, although exact figures still aren’t available at a national level.)
…Jha believes that the weekslong delay in deploying tests — at a time when numerous other tests were available around the world — has completely hampered the U.S. response to this crisis.
“Without testing, you have no idea how extensive the infection is. You can’t isolate people. You can’t do anything,” he says. “And so then we’re left with a completely different set of choices. We have to shut schools, events and everything down, because that’s the only tool available to us until we get testing back up. It’s been stunning to me how bad the federal response has been.”
I too am stunned .
The mathematics for calculating the probability of exposure given the number of carriers in a population and group size aren’t difficult but they can be surprising. Even a low number of carriers can generate a relatively high probability for reasonably sized groups. For example, assume you run a firm of 1000 people in the San Francisco Bay Area (population 8 million.) Let’s suppose that there are just 500 carriers in the area. In this case, assuming random draws, the probability that at least one of your employees is a carrier is 6%. You can run your own calculations at Wolfram Alpha following this format:
p=8000000, c=500, g=1000, 1-1(1-c/p)^g //N
where p is the population size, c is the number of carriers, g is the group size and the //N at the end isn’t a division but a command to Wolfram Alpha to give you a numerical answer.
Joshua Weitz on twitter put together this graphic using the same calculations but for the United States as a whole (population 330 million). It says, for example, that if there are 20,000 carriers in the United States then at a small concert of 1000 people there is a 5.9% chance of at least one carrier attending. At the March Madness final in Atlanta with 100,000 attendees there is a greater than 99% chance that at least one attendee is a carrier.
Now here is the most important point. It’s the size of the group, not the number of carriers that most drives the result. For example, suppose our estimate of the number of carriers if off by a factor of 10–that is instead of 20,000 there are just 2000 carriers in the United States. In this case, the probability of at least one carrier at a big event of 100,000 drops not by a factor of ten but just to 45%. In other words, large events are a bad idea even in scenarios with just a small number of carriers.
[I’ve never put a trigger warning on a post before but given the current situation the information here is potential upsetting to anyone expecting a child. I do not think that the current pandemic will be as bad as the 1918. I am also hopeful that the weather will work in our favor and that, as Tyler argued, America will start to work. Do also read my post, What Worked in 1918-1919 for a more positive message.]
The 1918 influenza pandemic struck the United States with most ferocity in October of 1918 and then over the next four months killed more people than all the US combat deaths of the 20th century. The sudden nature of the pandemic meant that children born just months apart experienced very different conditions in utero. In particular, children born in 1919 were much more exposed to influenza in utero than children born in 1918 or 1920. The sudden differential to the 1918 flu lets Douglas Almond test for long-term effects in Is the 1918 Influenza Pandemic Over?
Almond finds large effects many decades after exposure.
Fetal health is found to affect nearly every socioeconomic outcome recorded in the 1960, 1970, and 1980 Censuses. Men and women show large and discontinuous reductions in educational attainment if they had been in utero during the pandemic. The children of infected mothers were up to 15 percent less likely to graduate from high school. Wages of men were 5–9 percent lower because of infection. Socioeconomic status…was substantially reduced, and the likelihood of being poor rose as much as 15 percent compared with other cohorts. Public entitlement spending was also increased.
At right, for example, are male disability rates in 1980, i.e. for males around the age of 60, by year and quarter of birth. Cohorts born between January and September of 1919 “were in utero at the height of the pandemic and are estimated to have 20 percent higher disability rates at age 61…”.
Figure 3 at right shows average years of schooling in 1960; once again the decline is clear for those born in 1918 and note that not all pregnant women contracted influenza so the actual effects of influenza exposure are larger, about a 5 month decline in education, mostly coming through lower graduate rates.
Higher disability and lower education translate into greater government payments as show in the final figure below. Almond labels these welfare payments which might be slightly misleading–these are Social Security Disability payments in 1970. Here’s Almond:
Average payments to women and nonwhites in 1970 are plotted in figure 8. The average welfare payment was 12 percent higher for both women and nonwhites born in 1919, or approximately one-third higher for children of mothers who contracted influenza. When we focus on quarter of birth, it is apparent that these increased payments are generated by high payments to those born between April and June of 1919.
Note that men and women who were especially disabled could have died before 1970 and so these are lower bounds on the disability impact.
Fetal exposure seems to be the key as Almond tests for and rejects other possibilities. The 1918 kids, for example, seem about the same as the 1920 kids so it’s not that the flu killed off the weak kids in 1918.
Almond was interested in the 1918 pandemic not simply as a historical episode but to make the case that infant health and infant health programs have high benefit to cost ratios, a still relevant lesson.
Hat tip: Wojtek Kopczuk.
The failure of the FDA/CDC to adequately prepare for coronavirus, despite weeks of advance notice from China is one of the most shocking and serious examples of government failure that I have seen in my lifetime. After being prevented from doing so, private laboratories are now allowed to offer coronavirus tests and Bill and Melinda Gates’s Foundation is working on an at home swab and test.
But what happens when people get sick? What drugs will patients be allowed to try given that there is no standard treatment available? One experimental antiviral, Remdesivir, was given to the first US patient who was on a downward spiral but seemed to recover after receiving the drug. Gilead, the manufacturer says:
Remdesivir is not yet licensed or approved anywhere globally and has not been demonstrated to be safe or effective for any use. At the request of treating physicians, and with the support of local regulatory agencies, who have weighed the risks and benefits of providing an experimental drug with no data in 2019-nCoV, Gilead has provided remdesivir for use in a small number of patients with 2019-nCoV for emergency treatment in the absence of any approved treatment options.
If Gilead is willing to supply, should patients have a right to try? This seems like a good case for the dual tracking approach proposed by Bartley Madden–let patients try unapproved drugs but collect all information in a public database for analysis. Clinical trials for Remdesivir and other potential drugs are currently underway in China.
Chloroquine, might also be useful against Covid-19. Chloroquine was approved long ago to treat malaria and physicians are allowed to prescribe old drugs for new uses. New uses for old drugs are discovered all the time and they do not have to go through long and costly FDA approval procedures before being prescribed for the new uses. Since chloroquine has never been tested for efficacy against coronovirus, allowing physicians to prescribe it is similar to allowing physicians to prescribe an unapproved drug like Remdesivir. The difference in how new drugs and old drugs for new uses are treated is something of a regulatory anomaly but a fortunate one as I argue in my paper on off-label prescribing.
I suspect that my arguments for less FDA regulation will be relatively well received during the current climate of fear. Bear in mind, however, that for the patient who is dying it’s always an emergency.