Category: Uncategorized
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.
Let the Markets Work
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.
Monday assorted links
1. “Majority of NYC’s coronavirus cases are men between 18 and 49 years old.” After all, it is their city, isn’t it?
2. Rishabh Bhandari advocates “the hammer and the dance” to fight coronavirus.
4. Arnold Kling calibrates his anger. And “solvency later” from Arnold. And Ezra Klein on the economic seriousness of the moment.
5. Worries about the commercial real estate market.
6. “When fighting an outbreak such as #COVID19, we must be guided by solidarity, not stigma. The greatest enemy we face is not the virus itself; it’s the stigma that turns us against each other. We must stop stigma & hate!” That is from the head of the WHO, 2/16/2020.
7. Paul Romer and Alan Garber on how to prevent a depression (NYT). And two Paul Romer blog posts on the benefits of better tests.
8. Scott Gottlieb in today’s WSJ, very good piece.
Pooling to multiply SARS-CoV-2 testing throughput
Here is an email from Kevin Patrick Mahaffey, and I would like to hear your views on whether this makes sense:
One question I don’t hear being asked: Can we use pooling to repeatedly test the entire labor force at low cost with limited SARS-CoV-2 testing supplies?
Pooling is a technique used elsewhere in pathogen detection where multiple samples (e.g. nasal swabs) are combined (perhaps after the RNA extraction step of RT-qPCR) and run as one assay. A negative result confirms no infection of the entire pool, but a positive result indicates “one or more of the pool is infected.” If this is the case, then each individual in the pool can receive their own test (or, if we’re getting fancy [read: probably too hard to implement in the real world], perform an efficient search of the space using sub-pools).
To me, at least, the key questions seem to be:
– Are current assays sensitive enough to work? Technion researchers report yes in a pool as large as 60.
– Can we align limiting factors in testing cost/velocity with pooled steps? For example, if nasal swabs are the limiting reagent, then pooling doesn’t help; however if PCR primers and probes are limiting it’s great.
– Can we get a regulatory allowance for this? Perhaps the hardest step.Example (readers, please check my back-of-the-envelope math): If we assume base infection rate of the population is 1%, then pooling of 11 samples has a ~10% chance of coming out positive. If you run all positive pools through individual assays, the expected number of tests per person is 0.196 or a 5.1x multiple on testing throughput (and a 5.1x reduction in cost). This is a big deal.
If we look at this from the view of whole-population biosurveillance after the outbreak period is over and we have a 0.1% base infection rate, pools of 32 samples have an expected number of tests per person at 0.0628 or a 15.9x multiple on throughput/cost reduction.
Putting prices on this, an initial whole-US screen at 1% rate would require about 64M tests. Afterward, performing periodic biosurveillance to find hot spots requires about 21M tests per whole-population screen. At $10/assay (what some folks working on in-field RT-qPCR tests believe marginal cost could be), this is orders of magnitude less expensive than mitigations that deal with a closed economy for any extended period of time.
I’m neither a policy nor medical expert, so perhaps I’m missing something big here. Is there really $20 on the ground or [something something] efficient market?
By the way, Iceland is testing many people and trying to build up representative samples.
Sunday assorted links
1. David Perell autobio short essay about his early years in school and why they were terrible.
2. 35 predictions about the world after coronavirus, some of them terrible (in quality that is, I don’t mean terribly pessimistic).
4. Eli Dourado on accelerating vaccines.
5. Kevin Erdmann’s coronavirus home equity line of credit.
6. Auren Hoffman praises McDonalds.
7. Megan McArdle has a cooking blog.
8. Is the coronavirus squeezing Mexican gangs?
9. Chess in the time of corona. I liked this one.
10. Slavoj Žižek on coronavirus.
11. Will Saudi face a balance of payments crisis?
12. “Bogus stories of wild animals flourishing in quarantined cities gives false hope—and viral fame.”
13. “There’s plenty of competition, but most ineffective world leader responding to coronavirus right now goes to Brazil President Bolsonaro. This weekend he’s blasting governors taking lockdown measures. Will seriously damage his mandate.” Link here.
Bridge loans for economically troubled firms
Andrew Ross Sorkin explains (NYT):
The fix: The government could offer every American business, large and small, and every self-employed — and gig — worker a no-interest “bridge loan” guaranteed for the duration of the crisis to be paid back over a five-year period. The only condition of the loan to businesses would be that companies continue to employ at least 90 percent of their work force at the same wage that they did before the crisis. And it would be retroactive, so any workers who have been laid off in the past two weeks because of the crisis would be reinstated.
Strain and Hubbard call for $1.2 trillion in lending to smaller businesses (Bloomberg). John Cochrane considers a version of the plan. Here is Brunnermeier, Landau, Pagano, and Reis. I have been pondering the following points:
1. If you are an optimist about the cycle of recovery, this is very likely a good idea. If you let those companies fall apart, there is a significant loss of organizational capital and the matching problems in the labor markets have to be solved all over again. Recent experience on that front is not so encouraging.
2. If you are a pessimist about the cycle of recovery, I am less sure how well this will work. Let’s say a vaccine is difficult and there a few waves of the virus. Many of the smaller or even larger businesses may be going under anyway, as they cannot live off aid forever. In the meantime, you might actually want those resources to be reallocated to good transport, biomedical testing, and so on. If the wartime analogy is apt, you don’t want to freeze the previous capital structure into place, unless of course you get lucky and win the war early.
3. If you a pessimist about the solvency of banks (have you ever seen a stress test for 30% unemployment?), you have not gotten the government out of the business of capital allocation.
4. The bridge loans might work especially poorly for start-ups. Yes, StubHub or some company like that is around for the long run, and if the bridge loans can keep them up and running until concerts return, so much the better. But what about the eighty wanna-bees next in line, most of whom are likely to fail? Do they too get bridge loans? (Do note the ecosystem as a whole is yielding positive value.) The market itself chose the venture capital financing form for those entities, not debt. And yet now the government is stepping in and propping them up with debt, even though we know virtually all of them are likely to fail (even pre-coronavirus that was the case). You might think “well, we will know not to do that.” But on what legal basis would those other “likely to fail start-ups” be excluded from the bridge loans?
4b. Is it all about “banks decide”? How do we stop banks from simply hoarding the new money? (The Fed already has flooded the banking system with liquidity.) Just loaning the money to super-safe firms for de facto negative rates? What exactly are the regulatory requirements here? To the extent the loans are de facto guaranteed, won’t banks lend to a large number of lemons? What do the interest rates and collateral requirements look like on these loans and how are those set in what is now a non-competitive setting?
5. Overall my sense is that American policy, if only for cultural reasons, has to proceed on an optimistic basis. It is not clear what the relevant alternative is, and I do not oppose bridge loans. Nonetheless I am seeing too many people jump uncritically at bridge loans with a “throw everything at the wall” approach and not thinking hard enough about their possible downsides. At the very least, being critical about bridge loans will help us make bridge loans better.
6. No, I don’t favor governmental bridge loans for non-profits. De facto, that this means this is a huge relative shift of resources away from non-profits and toward businesses. YMMV.
7. I have received numerous reader emails telling me how bad, slow, and cumbersome is the Small Business Administration process for getting loans. Will this new regime do better?
8. It is the same government that could not organize testing and mask production that we are expecting to run what might amount to a $1 trillion plus bridge loans program.
Have a nice day.
The macroeconomics of pandemics
By Eichenbaum, Rebelo, and Trabandt:
We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the e§ect of their economic decisions on the spread of the virus. In our benchmark scenario, the optimal containment policy increases the severity of the recession but saves roughly 0.6 million lives in the U.S.
I would add this: if you hold the timing and uncertainty of deaths constant, death and output tend to move together. That is, curing people and developing remedies and a vaccine will do wonders for gdp, through the usual channels. The tricky trade-off is between output and the timing of deaths. Whatever number of people are going to die, it is better to “get that over with” and clear up the uncertainty. Policy is thus in the tricky position of wishing to both minimize the number of deaths and yet also to speed them along. Good luck with that! In terms of an optimum, might it be possible that some of the victims do not…get infected and die quickly enough? Might that be the more significant market failure?
Via Harold Uhlig. In any case, kudos to the authors for focusing their energies on this critical problem.
Angela Merkel’s German deficit spending
Angela Merkel’s cabinet is meeting on Monday to approve new borrowing of €356bn — equivalent to nearly 10 per cent of Germany’s gross domestic product — marking a new era in fiscal policy and a radical departure from Berlin’s long-held aversion to debt.
Here is the FT piece, but this is being covered everywhere. (Imagine a day where this isn’t even necessarily the biggest story, and here we are.) Of course the content of the spending matters a great deal, but this is in principle the right thing to do. But here is the catch: out on social media, and in the old days of the blogosphere, there was so much Merkel hatred: “the austerity queen who killed thousands,” etc. But now she has been vindicated. We all can agree that a government should (on average) run surpluses in good times and deficits in bad times. Well…2011-2012…those were the good times. Yikes.
Merkel goes up in status with this, big time. And of course it is no surprise that a bunch of Germans would have a better sense of what the bad times really can look like.
The three ideas you all are writing me the most about
1. Segregating old people, and letting others go about their regular business. Given how many older people now work (and vote), and how many employees in nursing homes are young, I’ve yet to see a good version of this plan, but if you favor it please do try to write one up. One of you suggested taking everyone over the age of 65 and encasing them in bubble wrap, or something.
2. Tracking and surveillance by smart phones. Here is one story, here is another. Here is an Oxford project. Singapore is using related ideas, China has too.
3. Testing as many Americans as possible, or at least a representative sample, to get data.
I hope to analyze these more in the future.
Saturday assorted links
1. A thread on the economics of Covid vaccines. Good stuff.
2. The cultural foundations of democracy. Not about Covid, but interesting.
3. Philosophical resources on pandemics.
5. Ben Domenech predictions for post-corona life.
6. Alec Stapp on what exactly went wrong with testing. “There have been three major regulatory barriers so far to scaling up testing by public labs and private companies: 1) obtaining an Emergency Use Authorization (EUA); 2) being certified to perform high-complexity testing consistent with requirements under Clinical Laboratory Improvement Amendments (CLIA); and 3) complying with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule and the Common Rule related to the protection of human research subjects.”
7. New data source for estimating the number of U.S. tests.
8. Jaron Lanier and Glen Weyl on the Taiwanese success.
9. European nations are mobilizing their medical students.
10. Should a positive Covid-19 test be an OSHA-recordable illness? (No.)
11. New calibrated estimates, possibly important, no paper but with NYT graphics. One implication is that already far more people have it than we had thought.