Category: Uncategorized
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.
Governor Cuomo: Libertarian
NY State Governor Cuomo’s lifting of regulations to deal with the coronavirus emergency may be the most libertarian government document in a generation. Here are a few laws that have been suspended or modified:
Paragraph 1 of Section 6542 of the Education Law and Subdivisions (a) and (b) of Section 94.2 of Title 10 of the NYCRR to the extent necessary to permit a physician assistant to provide medical services appropriate to their education, training and experience without oversight from a supervising physician without civil or criminal penalty related to a lack of oversight by a supervising physician;
Notwithstanding any law or regulation to the contrary, health care providers are relieved of recordkeeping requirements to the extent necessary for health care providers to perform tasks as may be necessary to respond to the COVID-19 outbreak, including, but not limited to, requirements to maintain medical records that accurately reflect the evaluation and treatment of patients, or requirements to assign diagnostic codes or to create or maintain other records for billing purposes. Any person acting reasonably and in good faith under this provision shall be afforded absolute immunity from liability for any failure to comply with any recordkeeping requirement.
Subparagraph (ii) of paragraph (2) of subdivision (g) of 10 N.Y.C.R.R. section 405.4, to the extent necessary to allow graduates of foreign medical schools having at least one year of graduate medical education to provide patient care in hospitals, is modified so as to allow such graduates without licenses to provide patient care in hospitals if they have completed at least one year of graduate medical education;
Sections 3502 and 3505 of the Public Health Law and Part 89 of Title 10 of the NYCRR to the extent necessary to permit radiologic technologists licensed and in current good standing in any state in the United State to practice in New York State without civil or criminal penalty related to lack of licensure;
The only non-libertarian aspect is the word “temporary.”
Thursday assorted links
1. Less Wrong coronavirus database (now upgraded).
2. My 2017 video on The Great Reset. And David Wright podcast on how Covid hits the poor.
3. MIE: In Beijing restaurants “many delivery orders now often include cards listing the names and temperatures of all the staff involved in preparing your food.”
4. The limits of infrastructure stimulus. And the case against airline bailouts. And database of state quarantine regulations.
5. Paul Romer’s simulations for tests and targeted isolation. And more from Romer. And a third Paul Romer simulation: even an eighty percent false negative rate helps fight a pandemic. I’ll be writing more on this soon.
6. Health and pandemics econ working group. And Senegalese music video.
8. Cheap mechanical ventilators?
9. Someone wise once told me that you get into the most trouble/controversy making statements that (pretty much) everyone agrees with. Here is my Bloomberg column on university endowments, which endorses the policies of virtually all elite universities, and by extension their presidents and boards. Or for that matter virtually all businesses that have had to opt for lay-offs.
10. The problems of post-acute care.
11. During the shutdown, the creativity pours forth (Joseph’s Machines).
The coronavirus situation in Japan is probably much worse than you think
I have been corresponding with a working group regarding the covid-19 situation in Japan. They shared a draft of their white paper with me while attempting to circulate their revisionist conclusions in policy circles.
The speed premium is indeed increasing quickly. The white paper has not materially changed since when I first saw it. Since then, the Olympics were postponed and experts in Japan have described the outbreak as “rampant.” The working group feels that society needs to prepare, and that this outweighs the desire to wait for additional official confirmation.
The authors are an international team based in Tokyo. They cannot attach their identities to the white paper at present. They are not medical researchers. They have reviewed their conclusions with a medical researcher and others. You can weigh the evidence of their claims.
Here is the document (no, it is not malware), and here is the opening bit:
The governmental and media consensus is that Japan is weathering covid-19 well. This consensus is wrong. Japan’s true count of covid-19 cases is understated. It may be understated by a factor of 5X or more. Japan is likely seeing transmission rates similar to that experienced in peer nations, not the rates implied by the published infection counts. The cluster containment strategy has already failed. Japan is not presently materially intervening at a social level. Accordingly, Japan will face a national-scale public health crisis within a month, absent immediate and aggressive policy interventions.
There is a great deal of further detail, including the numbers, at the link. Sobering.
But *when* will you favor a shift in coronavirus strategy? (no Straussians in a pandemic)
I agree with the numerous sentiments, for instance as expressed here by Ezra Klein, that we are not facing a dollars vs. lives trade-off, rather the better solutions will improve both variables. Also read this Tom Inglesby thread. Furthermore there is a concrete path forward toward general improvement, for instance read Zeke Emanuel (NYT, I don’t agree with every detail but the overall direction yes). And don’t forget these costs cited by Noah.
But we are economists, not mood affiliators, and so we must address the classic question of “at what margin?” At what margin would you favor an actual shift in strategy because the virus already had reached so many people? And yes, such a margin does exist. At that margin we would continue some of our defensive responses, but the overall approach would have to change away from the above links.
Let’s say everyone had been exposed to the coronavirus except yours truly. Should we shut all (non-take out) restaurants just to limit my personal risk? Clearly not. And likely I would end up getting exposed sooner or later in any case. Then you should “let it rip,” and let Tyler decide when he wishes to go outside or not (but of course offer him health care).
So what is the margin of bad outcomes where, after that point, a major change in strategy should set in? Has to set in? That is the question we all need to answer. And what should that strategy change be exactly?
We like to say “speed is of the essence,” but a less frequent spoken corollary of that is “at some point it is too late to stage the defense we had been hoping for.”
What if we made no further progress against Covid-19 after two more weeks? Three more weeks? How about a bit of progress on testing across the next month and a modest increase in mask capacity? How much longer is the cut-off? Given how rapidly the virus spreads, it can’t be that long from now. It cannot honestly be “four months from now.”
(For the record, I am still optimistic, but not at p = 0.8, so this eventuality is by no means purely hypothetical. And it is perfectly correct to note that Trump’s own incompetence is to some extent making the whole dilemma come true, and that itself is deeply unsettling. Agree! We should have “gone Singapore” months ago. But the dilemma is now here nonetheless, noting that we are hardly the only country in this bucket. You can’t just condemn Trump and stop thinking about it.)
Or what if New York and seven other regions are hopeless but the rest of the country is not?
I am fine if you agree with me, Ezra, Tom Inglesby, Zeke Emanuel, and many others, including most of the Democratic Party public health establishment. We all favor “speed is of the essence.”
But the next part of the message never quite gets delivered. And no one wants to talk about what the next strategic stage — if we fail — should look like.
It is imperative that you consider where your line lies — if only mentally — when you would jump ship and indeed…confess a significant degree of defeat and then formulate and push for a new strategy.
Addendum: Straussian Tyler is not entirely comfortable with this post, as he, like his brother Tyrone, prefers to tell the Noble Lie and maintain the illusion that the preexisting struggle must continue across all margins and at all times. But perhaps, these days, there are no Straussians in foxholes. So pick your “no return” point, write it down, and then get back to me. The honesty of our policy response requires this, yes? I’m not even making you say it out loud.
And don’t you find it strange that no one has been willing to raise this point before? Could it be that we are not being told the entire truth? Or are people not telling the entire truth to themselves? Isn’t that the same mistake we’ve been making all along?
Quarantine markets in everything and stimulus at that
As countries in Asia impose stricter entry requirements on foreign visitors amid a new wave of imported coronavirus infections, hotels in the region are seeing unexpected opportunities as quarantine lodgings for travelers and workers seeking self-isolation venues.
Industry players say the unusual proposal of repurposing hotels as quarantine quarters is one way the battered hospitality sector could fill up some rooms and get much-needed revenue during such tough times, while lending a hand to the most affected sectors or communities amid the escalating situation worldwide.
And:
These full-board packages are targeted at Thais or residents who wish to isolate themselves for 14 days. Meals are delivered to the rooms on trolleys, while dishes, cutlery and bedsheets used by guests in self-isolation will be separated for special handling.
A special team will provide daily housekeeping services and help monitor the conditions of the guests under quarantine. Should any of these guests become unwell or develop any coronavirus symptoms during their stay at the hotel, they will immediately be sent to the several hospitals located in the vicinity of the hotel, according to Shah.
“We hope to get at least some customers with these quarantine packages, as standard tourists will not come during this time,” Shah remarked. These packages are priced very competitively with rates slashed by 20 percent, he added.
With the Singapore government making it mandatory for anyone entering the country since March 20, 11.59 p.m. to undergo a 14-day stay-at-home notice, Park Hotel Group Executive Director Shin Hui Tan has already seen an uptick in enquiries from returning residents wanting to check themselves into hotels during the two-week period.
Here is the full story, via Air Genius Gary Leff.
Wednesday assorted links
1. “Variation in skill can explain 44 percent of the variation in diagnostic decisions, and policies that improve skill perform better than uniform decision guidelines.” Not a Covid-19 paper, but relevant of course, link here.
2. Which states are practicing social distancing the most? (NYT)
3. Human challenge studies to accelerate a vaccine.
4. My Bloomberg column on how the macroeconomics of Covid-19 do and do not resemble WWII. Oops, correct link here.
5. The idea of “group testing” actually came from economist Robert Dorfman of Harvard (who taught me history of economic thought way back when). And more on pooled tests. And Nebraska is doing pooling.
6. “Use Surplus Federal Real Property to Expand Medical and Quarantine Capacity for COVID-19.”
7. Why scaling up testing is so hard (New Yorker).
8. We still don’t know the CFR for H1N1.
9. “Overlooked is the possibility that beauty can influence college admissions.” But not for Chinese it seems.
10. Mullainathan and Thaler with some deregulatory suggestions (NYT).
12. Benjamin Yeoh on early vaccine use.
13. James Stock: “The most important conclusion from this exercise is that policy hinges critically on a key unknown
parameter, the fraction of infected who are asymptomatic. Evidence on this parameter is scanty, however
it could readily be estimated by randomized testing.”
14. Two elite factions in tension with each other (nasty stuff, please do not read).
The Speed Premium in an exponentially growing pandemic world
I’ve blogged a few times in the past about the importance of speed, and speed as an input into productivity and innovation. What many people do not realize is that “the speed premium” is vastly higher when a deadly virus is doubling in reach every five to seven days.
An economic or epidemiological plan from a week ago might be worthless or even misleading today. For instance, some scientists have told me that at some point, if the virus is widespread enough, there is no choice but to let it burn its way through the population (not saying we are there yet, probably not according to the consensus of experts I am seeing).
Have you perused recent newspapers and mentally noted how many of the articles — such as reviews of art exhibitions — obviously were written and planned in The Time Before (can I call it that?). Those articles are now largely worthless, though a few of them may have nostalgia value.
If you are writing commentary, the value is being there is the morning, not the evening. The “commentary cycle” used to stretch at least a day or two, occasionally a full week.
The corporate value of being prepared early with a good telework plan has been especially high.
Ben Thompson writes: “…on January 23, the day that China locked down Wuhan, Taiwan had the capability of producing 2.44 million masks a day; this week Taiwan is expected to exceed 13 million masks a day, a sufficient number for not only medical workers but also the general public.”
If you are seeking to start a business, to deal with the third party vendors that Amazon is (temporarily) abandoning, you cannot just wait a month or two. You have to start now.
The Chinese system has its flaws from an anti-pandemic point of view, most of all low transparency. But their typical rapid speed of response has been astonishing — setting up that hospital in six days — and it is a big reason why they are on a (partial) rebound.
If you are giving philanthropic grants, you have to be ready to give them now. If you give them three months from now, you may well miss the boat in terms of expected impact.
Are you ready for a world where the speed premium is so insanely high?
I wish to thank Daniel Gross for a conversation related to this blog post. We spoke at 3.5x.
Shruti Rajagopalan on India and the coronavirus
Overall, a lockdown in India is a good idea. Its healthcare infrastructure cannot handle even the flattest of curves, so social distancing not only flattens the curve but buys the government and private sector three weeks to increase capacity. In developed countries like the US, where capacity is high, the economic cost of shutdown is also high. But in India, the economic cost of a shutdown is lower, and the cost of a collapse in healthcare capacity because of premature stress is very high. So a lockdown in India makes sense for its conditions.
There are a few things to keep in mind to make this lockdown a success.
First, the Indian government needs to rely on its private sector healthcare infrastructure, which is many times larger in capacity and services than the government provided free/subsidized healthcare. There are 10 times more doctors in India working in the private sector than government hospitals. Especially in urban areas – where the initial outbreaks are most expected and feared – private healthcare functions very well. The government should pay for the testing and treatment of the poor and those who cannot afford, and allow those who can pay to directly get those services. During emergencies, there is a temptation to requisition private capacity, which in this case will only impose stress on the healthcare infrastructure. The government should pump a lot of funds into the health sector, but allow the private sector to provision and increase the number of beds, health workers, ventilators, masks etc. The current allocation of 150 billion rupees (about 2 billion USD) announced by Modi is too little. It’s about $1.5 per Indian. This amount needs to be increased many times over. The returns in terms of saving lives immediately, and improving healthcare infrastructure will be worth it in the long term.
Second, the government must resist the temptation to impose price controls and quantity controls and let the markets work. India has very local supply chains and all essential goods, mainly food and dairy, will be available easily. Price controls during a lockdown will only exacerbate the problem. A price is a signal wrapped up in an incentive. It signals shortages and surpluses and it also incentivizes buyers and sellers to adjust their behavior. Government imposed price controls must be avoided completely. India has banned exports of medical essentials like masks and ventilators, which is currently justified and sufficient. Indian entrepreneurs will respond to the emergency if prices are allowed to function and the dreaded Essential Commodities Act, which has significantly distorted prices in the past, and unintentionally prevented essential goods from reaching people, is kept at bay.
Third, India has lifted hundreds of millions out of poverty, but still has about 275 million living below the poverty line i.e. less than $1.25 a day. In addition to these, another 300 million are highly vulnerable to economic stress. 70% of Indians work in the informal sector, on short contracts, usually daily or weekly wage, and will have no income with a 21-day lockdown. Even after the lockdown is lifted, sectors like construction may not revive immediately. India needs to announce some kind of quasi universal income, or subsidy that is not means tested, for at least 700 million of
its 1.35 billion population. A minimum of at least Rs 2,500 a month (which is the Indian poverty line) to keep these Indians at home, and not desperate, is essential. If this has to be continued for three months, it would amount to ~2.6% of GDP. This is a stimulus which India can, under these circumstances, afford, and without which millions of poor may die because of the lockdown and not the pandemic. Without this, the chances of the success of the lockdown is low. It will also soften the aggregate demand contraction which is inevitable during a 21 day lockdown.
Finally, assume goodwill. There is a tendency to pass draconian measures in an emergency to punish the few hoarders and scamsters in any situation. The problem with bad laws that are only designed to prevent scamsters, whether it is for hospital funding, UBI-like subsidies, or removing price controls, is that it creates bad incentives for others, and discourages provisioning of goods and services by others, mostly operating on good faith. And the cost of punishing the scamsters in this emergency is too high. Assume some small percentage of people will take advantage of all this, and carry on.
The lockdown is the first step. But India must not squander the next 21 days, and prepare on a war footing to increase its healthcare infrastructure.
Tuesday assorted links and non-links
1. Some mask production is being deregulated.
4. Automated contact tracing without giving up privacy? And explanation.
5. What the SuperForecasters think.
6. A useful thread on mutation.
8. “People exhibit overconfidence in their ability to calculate exponential growth.”
9. The Spanish flu rebellion against masks. And how the Spanish flu shaped trust. And 1919 Science piece on the lessons of the Spanish flu.
10. From my email: “One major issue for SMBs is that many owners are on the hook *personally* for lines of credit and other business loans and also for business credit cards. For example, my business has a line of credit that I had to personally guarantee and it is with the same major bank that holds my mortgage. Bankruptcy would probably mean I discharge the line of credit AND lose my house at the same time. I suspect other SMB owners are in similar situations.”
11. Aurlus Mabele, coronavirus victim (NYT) obit), RIP (music video here). And Manu Dibango too.
12. “Based on the proposed methodological procedure, we estimated that the actual cumulative number of exposed cases in the total population in Lombardy on March 8 was of the order of 15 times the confirmed cumulative number of infected cases. According to this scenario, the DAY-ZERO for the outbreak in Lombardy was the 21st of January 2020. The effective per-day disease transmission rate for the period until March 8 was found to be 0.779 (90% CI: 0.777-0.781), while the “effective” per-day mortality rate was found to be 0.0173 (90% CI: 0.0154-0.0192). Based on these values, the basic reproduction rate R0 was found to be 4.04 (90% CI: 4.03-4.05). Importantly, by reducing the transmission rate by 90% on March 8 to reflect the suspension of almost all activities in Italy, we run the simulator to forecast the fade out of the epidemic. Simulations show that if the measures continue, the complete fade out of the outbreak in Lombardy is expected to occur by the end of May 2020.” Paper here.
13. Why Germany is not doing as well as you think. It is about the exponential function, yet again.
The Forgotten 1957 Pandemic and Recession
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.
Lessons from the “Spanish Flu” for the Coronavirus’s Potential Effects on Mortality and Economic Activity
That is the subtitle of a new paper by Robert J. Barro, José F. Ursúa, and Joanna Weng, here is the abstract:
Mortality and economic contraction during the 1918-1920 Great Influenza Pandemic provide plausible upper bounds for outcomes under the coronavirus (COVID-19). Data for 43 countries imply flu-related deaths in 1918-1920 of 39 million, 2.0 percent of world population, implying 150 million deaths when applied to current population. Regressions with annual information on flu deaths 1918-1920 and war deaths during WWI imply flu-generated economic declines for GDP and consumption in the typical country of 6 and 8 percent, respectively. There is also some evidence that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills.
I wonder if the economic cost isn’t higher today because we know more about how to limit pandemic spread and we also value human lives more, relative to economic output?
Kudos to the authors for such swift work.
Also from NBER here is Andrew Atkeson on the dynamics of disease progression, depending on the percentage of the population with the disease. Here is an excerpt from the paper:
Even under severe social distancing scenarios, it is likely that the health system will be overwhelmed, which is indicated to happen when the portion of the U.S. population actively infected and suffering from the disease reaches 1% (about 3.3 million current cases).7 More severe mitigation efforts do push the date at which this happens back from 6 months from now to 12 months from now or more, perhaps allowing time to invest heavily in the resources needed to care for the sick. It is clear that to avoid a health care catastrophe as is currently being experienced in Italy, prolonged severe social distancing measures will need to be combined with a massive investment in health care capacity.
Under almost all of the scenarios considered, at the peak of the disease progression, between 10% and 20% of the population (33 – 66 million people) suffers from an active infection at the same time.
A not entirely cheery prognosis.
Joshua Angrist has written a tribute to Alan Krueger
Alan Krueger died a year ago this week. I think of him often, and would like to mark the anniversary of his death by sharing a story of my time with Alan. Alan and I had a lot in common. First, we were both born in the third quarter; that is, we’re QOB3s. In fact, Alan was only one day older than me. We used to joke that this explains his relative success: it’s an age effect!
There is much more at the link, moving throughout. And here is the Joshua Angrist introduction to econometrics course on Marginal Revolution University.
Ex post social insurance
Greg Mankiw has an idea:
Let’s send every person a check for X dollars every month for the next N months. In addition, levy a surtax in 2020 (due in April 2021) equal to N*X*(Y2020/Y2019), where Y2020 is a person’s earnings in 2020 and Y2019 is a person’s earnings in 2019.
Under this plan, a person whose earnings fall to zero this year returns none of the social insurance payments. A person whose earnings fall by half keeps half of the payments. A person whose earnings remain the same returns everything: They will have just gotten a short-term loan. And those lucky few whose earnings rise this year will return more than they got.
Of course, there is an implicit marginal tax rate in this scheme. Every dollar of earnings in 2020 faces an additional marginal tax rate of N*X/Y2019.
There is more at the link.