Independence Day Celebration

As we listen carefully to the current criticisms of America, we should see them in the context of the wonderful features of our nation that continue to attract tens of thousands of the world’s best and brightest to become Americans and thus add to the material and cultural richness of our lives. We should not lose sight of, nor stop defending, the features of our society that have made us the Land of Opportunity even as we confront and strive to deal with our shortcomings. Those motivated by making more money and those motivated by serving and doing good to others enjoy the incentives for both in our free enterprise system. We make money by serving others, by creating better things and services for the benefit of our fellow man.

Our rights to make our own decisions and speak our minds are protected by our Constitution and its Bill of Rights. Our property and commitments (contracts) are protected by the Rule of Law. Indeed, our history is not without sin, far from it.  Slavery was practiced almost from the beginning of time, and our new nation shamefully participated in the practice for almost the first hundred years of its existence. Discriminatory laws and practices replaced slavery for many decades beyond the end of slavery.  Though all Americans now enjoy the equal protection of the law, the uninformed prejudices of some persevere. Our culture of mutual caring that is nurtured by our capitalist economic system and the values taught by all major religions, continue to make progress towards shrinking and isolating bigots. But we have a ways to go.  We have engaged in wars that are not justified by our defense and that are inconsistent with our values. In this area our economic incentives are perverse.

Our freedom to speak out when we see wrong and to praise what is good are critical to preserving what is good and fixing what is not.  The “cancel culture” crowd seem more intent on tearing America down than building it up by fixing its weaknesses.  The current cancerous attacks on our freedom to speak out and debate the important issues of our day in the name of political correctness risks undermining our progress:  “America’s Jacobin moment”.  This is not to say that we should not strive to address our fellow Americans politely “What is wrong with PC?”.  But if we become afraid to express our views and concerns honestly, we lose the ability to understand one another and build mutually satisfactory compromises. “Do we really need free speech?”.

So on this celebration of our Declaration of Independence and the birth of our nation let’s commit ourselves to preserving what has made us great, which includes the ability to freely criticize what is not so great, and to admit and learn from our mistakes and to work at becoming better still: freer, responsible for our own lives, and more compassionate toward others.

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George Floyd, RIP

How should we respond to the horrifying murder of George Floyd by Derek Chauvin, a bad cop with “18 complaints on his official record?” “A Minneapolis-police-chief-promised-change-george-floyd’s-death-shows-hurdles”  Finding a constructive answer is not easy.  While it is difficult to watch the horrible death of George Floyd at the hands of a bad cop as three fellow policemen looked on without becoming enraged, those setting fires, smashing windows, and looting are not looking for constructive answers (or if we are to be extremely generous are not being thoughtful about what measures would actually be constructive) and should be locked up.

For starters, in looking for answers we should acknowledge that the problem (racism–unequal treatment of black Americans as well as other ethnic minorities in the law, then by law enforcement and by many people) has existed in America since its founding. But we should also acknowledge that enormous progress has been made over time, especially in recent years. Slavery has been abolished. Racial minorities are no longer discriminated against in the law (as opposed to law enforcement).  Even policing has improved considerably, though being arrested for “driving while black or DWB” remains too prevalent. And then there remain too many Michael Brown, Jrs, an 18-year-old black man, who was killed by Darren Wilson, a 28-year-old white police officer in Ferguson, Missouri in 2014 and too many George Floyds. Any would be too many.

A great deal has been done since Michael Brown’s murder to improve police training. The details are impressive. Medaria Arrandondo, Minneapolis’s police Chief, is black and is committed to furthering the work of his predecessor, Janeé Harteau, to expunge racism from the force and to rebuild trust between the police and the communities they exist to keep safe. While considerable progress has been made, why does it remain so difficult to provide black Americans with the equal treatment under the law to which every American is constitutionally entitled?

Evolution has genetically predisposed us to trust family and distrust if not fear others. Civilization, in part, has required that we overcome or at least tame this primitive impulse with moral teachings and laws (“do unto others and you would have them do unto you”) that facilitate our ability to live together and build trading economies to our enormous benefit. We learn what is “right” from our families, schools, churches, and the varied people we hang out with. We learn from the words and behavior of community leaders that we respect (some have made more positive contributions than others!). Institutional structures are also very important. They should provide incentives for behavior to conform to our moral and legal principles. Police Chief Arrandondo, for example, has increased the transparency of the police force (complaint records, webcams, etc.) in efforts to hold officers more accountable for their behavior.

In the area of policing there are two interrelated institutional impediments to good policing that we should address. Policing can be difficult and can be dangerous. “In a series of decisions beginning in 1967, the Supreme Court gutted [the Civil Rights Act of 1871] by permitting police and other government agents to claim they acted in “good faith” when violating citizens’ rights…. The Supreme Court decided government officials deserved ‘qualified immunity.’”  “Cops-kill-because-we-gave-them-the-legal-framework-to-do-it”  This must end.

“‘Sen. Amy Klobuchar, a top contender for Vice President candidacy for Joe Biden, was the chief prosecutor for Hennepin County (including Minneapolis) from 1998 to 2006. Klobuchar, who was nicknamed “KloboCop” by detractors,  “declined to bring charges in more than two dozen cases in which people were killed in encounters with police” while she “aggressively prosecuted smaller offenses” by private citizens, the Washington Post noted. Her record was aptly summarized by a headline early this year from the Twin Cities Pioneer Press: “Klobuchar ramped up prosecutions, except in cases against police.” [see previous link] This must end.

“Since 2012 there have been more than 2,600 complaints filed against Minneapolis police officers by civilians, according to data provided by Dave Bicking, who was part of the city’s Office of Police Conduct Review. Of those, the data showed just 12 resulted in an officer being disciplined. Among those, eight received written warnings. The most severe penalty was a 40-hour suspension.” [see previous link and “My-fellow-brothers-sisters-blue-what-earth-are-you-doing/?”] This must end.

The other institutional impediment to good policing is the understandable but pernicious self interest of police unions in defending their members from charges of misconduct. “Lt. Robert Kroll, [has been] president of the Police Officers Federation of Minneapolis since 2015. Like his union counterparts across the country, Lt. Kroll has been a fierce advocate for greater autonomy for officers…  Lt. Kroll has criticized the Black Lives Matter movement as a terrorist organization.” “Minneapolis-police-chief-promised-change-george-floyds-death-shows-hurdles”

I am reminded of my mother’s complaint (she was a grammar school teacher) that the teachers’ union was the biggest impediment to improving the quality of education in California. Any monopoly (government, unions, monopoly firms) ultimately sacrifices the public interest for their own if allowed to. This must end.

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The Vaccine: Who gets it first?

For context, the common cold is caused by coronaviruses (with rhinoviruses being the most common virus) and there are no vaccines for colds. More seriously, because colds are rarely more than annoying, HIV, the virus that causes AIDS, has no vaccine despite almost 40 years of trying to develop one.  While AIDS was fatal for many years there are now treatments that hold it in check, but the vaccine remains elusive.

There is hope that an effective vaccine will be found soon for SARS-CoV-2, the virus that causes covid-19. In fact, six potential vaccines have entered phase one of human trails (the first of three required testing phases). Once a potential vaccine has been developed it must be tested first for its safety (side effects and who is at greatest risk of these side effects) and then for its effectiveness. On average it takes five to ten years to pass these hurdles and be approved for general use. Coronavirus-vaccine-here-are-the-steps-it-will-need-to-go-through-during-development

But the science has gotten better and the authorities have put great urgency on the development of a vaccine for this virus and seem willing to cut a few corners to speed up the testing and approval, though there are risks in doing so. Still “some of Mr. Trump’s top public health advisers have repeatedly cautioned that an effective vaccine might not be ready for widespread distribution for 18 months, and perhaps even longer. Mr. Trump ordered the creation of the Warp Speed program to try to speed that timeline.” Coronavirus-Trump-operation-warp-speed

Trump says the U.S. will have a vaccine by the end of the year (this year, 2020!!), which would indeed be a miracle. But even with a crash program to produce and administer it, it will take several years from approval before enough can be produced and distributed for everyone to be vaccinated. Thus, one important question is who gets it first. Lets-say-theres-a-covid-19-vaccine-who-gets-it-first

Answering that difficult question can be approached in several ways. One is to ask what would be fair. Is it fair to give everyone an equal chance at being first, second and third….? That would require a lottery and would mean that some who would benefit more and thus have a greater need for the vaccine (health care workers being an obvious example) would often be well down the line from say children less likely to get, or at least suffer from, covid-19 in the first place. So, an ethically more defensible criteria would be to establish medically which hierarchy of priorities would save the most lives in the long run.  Perhaps after healthcare workers and first defenders, children should be next so they can get on with their life-altering educations and avoid infecting their parents and grandparents, etc.

The reality, however, is that whoever owns the vaccine will have the largest say in the determination of the priorities of who gets it. Without that incentive only government labs would be working to develop a vaccine and how dreadful that would be. Private pharmaceutical companies are spending multiple millions of dollars in the race to develop “the” vaccine first. Their profit reward will come not only in initial dollars and cents but in the boost to their reputations, which will also reflect how the public sees their pricing and allocation of their product. We are quite used to the fact that hot new products–think of the first iPhones–are relatively expensive and go to those willing to pay the most. As production expands and demand is more widely met, prices come down. Governments are major funders of the research and development going into the search for a vaccine and they will rightly consider themselves entitled to an owner’s reward (first priority). Coronavirus-vaccine-frontrunners-emerge-rollouts-weighed

Policy is further complicated by whether exclusive ownership or more social collaboration (the equivalent of open source code) will produce the best vaccine the quickest.  Governments might give large financial prizes to the best two or three vaccine ideas to those developing them rather than patents to encourage information sharing.  Moreover, there can be more than one winner. The first vaccine approved will not necessarily be the best in the long run. There is a strong case for going forward with several vaccines. This view is put forth in an article by Larry Corey of the Vaccine and Infectious Disease Division at Fred Hutchinson Cancer Center, John Mascola and Anthony Fauci of the National Institute of Allergy and Infectious Diseases, and Francis Collins, head of the National Institutes of Health. Science mag.org/content/early/2020/05/12/science.abc5312

But who gets it first is an unavoidable and potentially very contentious issue.  “After controversial comments by the CEO of a French pharmaceutical company, French Prime Minister Édouard Philippe took the opportunity on Thursday to say that equal access to any vaccine that is developed is “non-negotiable.” Paul Hudson, the head of Sanofi, told Bloomberg on Wednesday that the United States would get the “largest pre-order” of a successful vaccine because it was the first to fund the firm’s research—a statement he later walked back.” Coronavirus-pandemic-vaccine-Sanofi-France-United-States.  But to say that “equal access” is non-negotiable is both ignorant and meaningless, ignoring the obvious fact that production for hundreds of millions of people will take months if not years to distribute.

It would be best if all countries agreed in advance (in a philosophical veil of ignorance) on the principles that would guide the priority of distributing vaccines. The company and country of the winner(s) should get a significant share of the initial (and subsequent) supply and within all countries those most in need for the protection of the broader society should get first priority.

“Secretary of State Mike Pompeo told an Israeli journalist on Wednesday that, ‘We’ll figure out the model for distribution when the time comes.’” Nations-jockey-to-see-who-gets-coronavirus-vaccine-first  As is so often the case these days Secretary Pompeo is wrong. Or as the Economist magazine put it this week: “For a man acknowledged to be highly intelligent, Mike Pompeo has a long history of talking nonsense.”   Mike-Pompeos-politicisation-of-foreign-policy-is-unworthy-of-him

 

 

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The order to reopen–who gives it?

Like all of us, President Trump is eager to reopen the economy. Does he have the authority to do so or do state governors? Fortunately, neither can force us to start eating out again, or return to our offices. We remain a country where those decisions rest with each of us individually (or jointly with your boss with regard to returning to your office, shop or factory). That means that those parts of the economy that have shut down will get going again when the affected businesses have taken measures to protect their customers and employees sufficient to regain their customers’ trust that they are safe places to visit. But as I argued last month, that should always have been the basis of social interactions.  “Beating-covid-19: Compulsion-or-Persuasion-and-guidance”

The broad-based, blunt instrument of sheltering at home unless your activities are vital (says who?) is imposing staggering damage to the economy.  The best way to minimize that damage is to restore public trust as quickly as possible that those with it are being isolated and treated.  A blanket shut down of non-essential activities is not the best approach. Each of us in our personal situation can better determine where we feel safe to go than can a government agency.  However, some of us will not give sufficient weight to the dangers of exposing our friends and the general public to the disease if we might have it.  Public policy should educate the public to the dangers of covid-19 and how best to protect ourselves and should minimize the financial incentive to continue working when sick. State coercion (mandatory quarantines) should only be applied to those testing positive for the virus.  This approach will allow all firms and stores to operate whose employees and customers judge them to be safe and will give businesses maximum incentive to make themselves safe.

Covid-19 will be around for at least another year or two until an effective vaccine is available and then distributed to more than 60 percent of the world population. The most effective way to contain its spread in the interim is to undertake widespread, quick, and accurate testing and to quarantine those who test positive with efficient contact tracing.  Adding the newly available tests for antibodies indicating immunity to the virus will identify those who are no longer susceptible to acquiring or spreading the disease. They should be safe in public.  Other corona viruses have created immunity in those who have had them and SARS-CoV-2 is expected to do the same, though this has not yet been established.

The U.S. has belatedly increased its testing for the virus. Initially it impeded the development and supply of test kits. As of April 16, the U.S. has tested 10,266 people per million while Germany has tested twice that. The U.S. by that date had 105 deaths per million while Germany had less than half that.  The Food and Drug Administration (FDA) should get out of the way and allow profit seeking entrepreneurs to flood the market with test kits.  The government should focus its (our) money on a large increase in testing for the virus and quarantining those testing positive and those they contacted and should offer significant financial prizes for an effective vaccine and for the development (or discovery) of effective treatments. Unlike patents as an incentive, this will encourage collaboration and knowledge sharing among those attempting to develop treatments.

On April 16 President Trump outlined guidance for the phased reopening of closed businesses and activities that is consistent with the approach outline above.  The government’s traditional public health role is important. But much more discretion should be given to individual case by case judgements about risks and entrepreneurial initiatives about remedies rather than broad based government edicts.

We will not return and cannot be required to return to the public square until we believe it is safe to do so. Individual shops and firms have a financial incentive to find convincing approaches to being safe and will get there quicker than even the best-intentioned government official issuing instructions and mandates. The government has an important role to play in fighting this virus and facilitating our return to normal life, but it should remove impediments it often creates to the private sector’s management of the related risks and the huge and unnecessary damage it imposes on the economy.

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Econ 201: CARES Act–Who pays for it?

April 11, 2010

Congress has authorized over 2 trillion dollars (so far) to help those harmed by the partial shutdown of the economy undertaken to slow the spread of the SARS-CoV-2 virus, and to facilitate its rapid recovery when it is safe for people to return to work. The idea is that as the government has requested/mandated non-essential workers to stay home, and non-essential companies (restaurants, theaters, bars, hotels, etc.) have chosen to close temporarily or have been forced to by risk averse customers or government mandates, the government has an obligation to compensate them for their lost income. Above and beyond the requirements of fairness, such financial assistance should help prevent permanent damage to the economy from something that is meant to be a temporary interruption in its operation. No good economic purpose would be served, for example, by lenders foreclosing on mortgage and other loans to workers sheltered in place at home with no income with which to service them. Some of the increased spending quite rightly will go to improve our ability to deal with covid-19 directly (expanded hospital capacity, virus testing capacity, vaccine research and development, etc.)

Obviously, it will be impossible to prevent some amount of waste and corruption from such a huge increase in expenditures. Every rent seeker on the planet has been lobbying Congress to get a piece of the action. In the design of these support programs every effort should be made to carefully target them on the people and activities appropriate to the “above objectives, to remove them and their associated distortions of economic resource allocation when the crisis has passed (i.e., keep them temporary), and to provide watchdog oversight of their implementation. Unfortunately, President Trump is already undermining such oversight. “How-trump-is-sabotaging-the-coronavirus-rescue-plan”  Nonetheless, the objective of minimizing the economic damage of a temporary forced shutdown of a significant part of the economy is appropriate.

The question explored here is who will pay for it and how.  The entertainment output of the economy (restaurants, movie theaters, hotels, vacation travel) is to a large extent non-essential, at least for a few months. If those are shuttered, about 20 percent (my guess for purposes of this analysis) of our economic output and the incomes of those producing them will be lost for the duration of the shutdown. A central goal of the “Coronavirus Aid, Relief, and. Economic Security Act” (CARES Act) is to prevent this necessary shutdown from killing that part of the economy and from spilling over into others. The goal is to enable it to restart as quickly and easily as health conditions permit. Thus, idled workers who would not be able to pay their rent/mortgage, or electric bill, or buy food without help should not be evicted for temporary nonpayment etc. The government might pay them for their lost income directly (unemployment insurance) or it might pay their employer to continue paying their wages for non-work under one program or another, thus continuing their health insurance and other benefits. These details are important but not the subject of this note.  The simplest assumption is that they all receive cash payments sufficient to see them through the shutdown (universal basic income, guaranteed minimum income or whatever you want to call it).

The starting fact/assumption is that the economy’s output and thus income is 20 percent or so lower for the next few months than it was a few months ago. Everyone on average has 20 percent less income, but that average consists of those who continue working as before and those sitting at home earning nothing.  If those unemployed are to receive income support (UBI), those still working and those clipping investment coupons must pay for it.  Paying an income subsidy to the unemployed does not create income, it redistributes it.

The $2 trillion plus authorized by Congress for these purposes will be debt financed, i.e. the government will borrow the money (adding to its deficit of $1 trillion for 2020 already budgeted).  So, to examine who pays for this program we must start by asking who will buy this additional debt?  In the past the Chinese and Germans funded an important part of our debts (via their trade surpluses with the US.  “Who-pays-uncle-sam’s-deficits”  China’s current account surplus with the U.S. is now negligible and it and most every other country in the world will have the financing of their own covid-19 expenditures to worry about. Those purchasing the additional Treasury bonds will thus be largely Americans who must shift their spending from other things (other investments or consumption) to the bonds and thus to the incomes of the unemployed these programs are supposed to be helping.  To the extent that new bond buyers are diverting their spending on other financial instruments interest rates on such instruments will tend to rise.

At this point very little money has been disbursed under CARES and no new government bonds to finance it have been issued. As individuals and firms miss rent and debt service payments, their lenders are being squeezed for the funds with which they must service those financing them (this is why we call banks financial intermediaries). Utility companies faced with nonpayments by their customers must borrow to continue paying their own employees, etc.  Scrambling for such funds would drive up interest rates in funding markets where it not for the Federal Reserve’s willingness to provide the needed liquidity. Similarly, with regard to the supply of funds to financial markets (the other side of bank’s balance sheets), normal investors are interrupting or even withdrawing funding in order to cover their own income shortfalls. This again squeezes financial sector liquidity and the flow of funds from lenders to borrowers needed to finance the remaining economic activity.

Enter the Federal Reserve.  In order to supply the missing funds–the missing rent and debt service payments–needed to keep the financial system flowing and in balance–the Fed has supplied almost $2 trillion to banks over the last 6 weeks, largely by outright purchases of treasury securities, though it has also opened a number of lending facilities. Bank reserve deposits at the Fed increased about $1 trillion over this period and M2 grew by about the same amount. On April 9, the Fed announced that it was opening or expanding facilities to support CARES Act objectives with up to another $2.3 trillion (leveraged by Treasury financial support to cover losses on any Fed loans provided in support of the CARES Act).  Federal Reserve Press Releases  This includes support for lending by the Small Business Administration (refinancing of SBA loans), the Main Street Lending Program administered by banks, Primary and Secondary Market Corporate Credit Facilities, and the Municipal Liquidity Facility. These are dramatic expansions of Fed credit operations and the details of eligibility of borrowers and of the facilities’ administration are critically important. Ensuring that this massive government intervention in the economy creates the right incentives for a quick rebound in the economy when it can reopen and that these interventions are indeed temporary will be difficult and is very important. But the question I want to address here is whether this monetary financing on such a huge scale will be inflationary.

Simplifying and reviewing, if economic output/income falls by, say 20 percent, and the loss is shared by those working with those temporarily laid off (or idle) by workers lending money to those idled, the Fed need not be involved. However, as is often the case with fiscal policy, it is simply beyond the administrative capacity of the government to launch and coordinate such a redistribution of income quickly and smoothly enough to avoid the disruptions of credit flows described above. Instead, the Fed has printed the money paid to those idled by shuttering 20 percent of the economy. As a result, the idled workers have their regular income (more or less) from newly printed money, and the rest have their regular incomes, but the economy is producing 80 less for them to buy. The “excess” income constitutes the inflationary potential. If this income is voluntarily saved (i.e. a temporary increase in the demand for money), the increased saving would be indirectly financing the spending of the unemployed. It is not unreasonable to expect this to reflect actual behavior for a shutdown of a month or two. But should it drag on for many months the extra saving held in anticipation of a reopening of restaurants and theaters, etc. will seek other consumption outlets and prices will begin to rise.

With luck, the economy will begin to return to “normal” after a few months and the Fed will begin to withdraw its monetary injection as loans and payment delinquencies are paid off from increased output/income. The artificially preserved incomes will increasingly be spent on restored output without significant inflationary consequences.

But the CARES Act provides for the forgiveness of loans by firms that kept or that rehire their workers promptly. As the Fed sells its treasuries back to the public (or allows them to mature without replacing them), the Treasury will be issuing the additional debt needed to fund the $2 trillion plus of CARES Act expenditures, including the forgiveness of debt described above. In short, to avoid the inflationary consequences that would normally flow from the Fed’s massive increase in the money supply, the monetary financing must be replaced with fiscal debt financing.  It is hard to see where the money will come from to buy such a large increase debt (some, but not much, will probably come from the foreign financing implicit in an increase in our balance of payments deficits, but the rest of the world is now being saturated with its own debt) without an increase in market interest rates, potentially a significant increase in such interest rates. To the extent that financing remains monetary and pushes up prices, the rising inflation rate will be added to nominal market interest rates compounding the pressure of expanding real debt.  The long looming US fiscal debt problem may be near.

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Econ 101: covid-19 resource priorities

U.S. cases of covid-19 (those testing positive for the virus that causes it) continue their exponential growth exceeding 333,000 on April 5 with over 9,500 associated deaths. In a few days some hospitals will run out of the protective equipment and ventilators needed by their staff and patients.  How should the existing stock of these items be allocated to the most urgent and/or “worthy” uses and how should the inadequate supply be most effectively augmented?  Should a central authority (the “government”) choose who gets them or should the highest bidder in the market?  Should new supplies be demanded by the government employing the Defense Production Act of 1950, or should producers respond to the profits of higher prices? Should we follow the socialist or the capitalist approach?

In normal times (which these are not) the demand for hospital supplies is met by a competitive market of producers in response to prices offered by hospitals. In a well-functioning economy these prices reflect the cost of producing them and a modest profit sufficient to attract the desired supply. In this way scarce resources (the supply of any resource, starting with labor time, is limited) are allocated to their most valued uses as measured by what people are willing to pay for them. Because of the rapid and dramatic increase in the need for face masks (N95), and other protective gear needed by doctors and nurses the current supply does not satisfy the demand. This includes both emergency stocks and the flow of newly produced supplies.  Unbelievably some hospitals are preventing doctors from wearing appropriate protective gear at the detriment of their own safety and the future supply of doctors. “Doctors-say-hospitals-are-stopping-them-from-wearing-masks”  In Italy the shortage of ventilators is already causing doctors to deny them to those most likely to die in order to make them available to those more likely to live with their assistance (triage).

How should this inadequate stock of equipment be allocated among those demanding it, all of whom cannot be satisfied?  The two broad classes of approaches to allocating the existing supply until it can be increased are for a government body to determine who needs it most according to some politically accepted criteria or for market suppliers to allocate it to the highest bidders. Many books have been written to document why market allocation (capitalism) has dramatically outperformed government allocation (socialism) thus lifting most of the world’s population out of dire poverty (over 90% by 2009). But what about the emergency situation we are now in with the exponential spread of a new virus that is about ten times as deadly as the annual flu?

“The governors of New York, Texas, Illinois and other states have said they are competing with the federal government and other states in a mad scramble for lifesaving supplies such as surgical masks, N95 respirators, isolation gowns and ventilators that are widely drained or out of stock.” .” “Gouged-prices-middlemen-medical-supply-chaos-why-governors-are-so-upset-with-trump”

The oversight of healthcare delivery in the U.S. resides in the states and municipalities rather than the Federal government. However, the Federal government does support medical research and provides health guidance to the states.  Of the approximately 5,100 hospitals in the United States the Federal government owns about 200, primarily for its military and veterans. It also maintains its own emergency stockpile of medical equipment for its hospitals and to backstop shortages in state and private hospitals. In principle the Federal government could set standards for which of these non-Federal hospitals would benefit most from being allocated ventilators and other equipment from the Federal stockpile if their own supplies become inadequate. It might even dictate how private market supply would be allocated in the event of shortages.

Government allocation carries a larger risk of political and personal corruption factors influencing resource allocation than does market allocation. While the private market is not without corrupt players, the bottom line of needing to attract and satisfy customers who have other options in order to make a profit to stay in business disciplines private suppliers and tends to weed out crooks. A company’s reputation for honesty and product quality is a critical part of its staying in business. Poorly performing companies go out of business, while poorly performing and/or corrupt governments rarely do. New York governor Andrew Cuomo’s request to President Trump for help with its shortage of ventilators and other medical supplies met with pandemic expert Jared Kushner’s rebuttal that the governor was over estimating New York’s needs and that more ventilators should be allocated elsewhere.  Nothing political here. Move along.

Another and potentially more damaging potential of government allocation concerns the U.S. government’s “competition” with other countries for the scare supplies. “The White House late Thursday ordered Minnesota mask manufacturer 3M to prioritize U.S. orders over foreign demand, using its authority under the Defense Production Act, or DPA, to try to ease critical shortages of N95 masks at U.S. hospitals.

“The Trump administration has asked 3M to stop exporting the masks to Canada and Latin America, and to import more from 3M’s factories in China, the company said Friday…. At the same time, officials in Berlin criticized the United States on Friday over what they said was the diversion of 200,000 masks that were en route from China…. These are things that Americans rely on,” Trudeau said, “and it would be a mistake to create blockages or reduce the amount of back-and-forth trade of essential goods and services, including medical goods, across our border.” “White-House-scrambles-scoop-up-medical-supplies-angering-canada-germany”

“Canadian Prime Minister Justin Trudeau said his government has been ‘forcefully’ reminding American counterparts that trade ‘goes both ways across the border.’  Thousands of nurses in Windsor, Ontario, he noted, travel to Detroit each day to work in hospitals there. Several of them have since tested positive for covid-19.” These steps are incredibly short-sighted as is Trump’s trade policy in general. As the biggest and strongest country in the word, the U.S. should be engaging with the rest of the world to lead a cooperative approach to fighting covid-19 rather than throwing its weight around because, at the moment, it still can. These are the sorts of behavior that can lead to war.

Following quickly on the heels of allocating the existing stockpile of equipment, is the closely related question of how to increase and allocate the supply going forward as quickly as possible.  Market allocation of the existing stock prioritizes those willing to pay the most as an indication of the intensity of their need (or who has more money to spend, but the wealthy always have a greater impact on allocation whether through government or the market). Established firms aim to maximize their profit over time and will take into account their long run relationship with regular customers when agreeing on prices for the existing supply. This limits so called “price gouging”, but the prospect of higher prices accelerates the market’s supply response. Many governors instead “pleaded for the White House to invoke the Defense Production Act, the legislation that would compel American companies to make critical supplies.” “Gouged-prices-middlemen-medical-supply-chaos-why-governors-are-so-upset-with-trump”

While history clearly demonstrates that market allocation is superior to government command of the economy, it struggles in current emergency circumstances even if or when government interference is removed (such as the government’s interference with market development and supply of covid-19 test kits).  Knowledge is essential for good decision making.  A virtue of market allocation is that knowledge that is impossible  to properly centralize in socialist economies can be exploited in decentralized individual decision making in response to market generated prices that match supply with demand (See F. A. Hayek’s “The_Fatal_Conceit”).  Markets rely on trust that is built in various ways from experience. The Internet reports reviews of products by users. Uber drivers are rated by riders. Company reputations are carefully built and protected.

In the current sudden surge in demand for certain medical supplies the system is overloaded, and hospitals search beyond their usual suppliers. New marketers emerge to help hospitals find new suppliers. The reliability and quality of the supplied products lack market experience and feedback.  Governments can play a supportive role by requiring transparency about product contents and/or performance but can also get in the way if regulations are more costly than their benefits.  “’The dynamic of the market is very weird at this point,’ said Andrew Stroup, a co-founder of Project N95, a nonprofit clearinghouse working to connect hospitals with suppliers. The group has received more than 2,000 requests from health-care institutions searching for more than 110 million pieces of personal protective equipment.”   “Gouged-prices-middlemen-medical-supply-chaos-why-governors-are-so-upset-with-trump”

In the imperfect world we all live in we would do best to maximize the role of private entrepreneurs and firms to develop and supply the best possible products, limiting the government’s role to protecting private property and contract enforcement, and establishing standards that help promote consumer confidence and trust in suppliers. Private, profit motivated producers maximize their profits by best surviving and satisfying the desires of their customers.

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Beating covid-19: Compulsion or Persuasion and Guidance

March 31, 2019

The number of deaths in the U.S. from covid-19 have doubled every three days over the last 22 days amounting to 3,141 by the end of March 30. At that point there were 163,788 confirmed cases (those testing positive for the virus).  https://www.ft.com/coronavirus-latest  The actual number of cases is thought to be considerably larger but remains undetected because of limited viral testing.  America’s overall strategy for containing the virus is to isolate those infected in order to stop or slow its spread until a vaccine can be developed, tested for safety and effectiveness, manufactured and administered (one to two years after the discovery of the vaccine, with luck) or until enough of the population has acquired immunity as the result of surviving from the disease (herd immunization), i.e., almost everyone who gets it. The details of the approach vary from community to community.

The virus that causes covid-19 is spread from person to person. It can be picked up from surfaces touched by a sick person, coughed or sneezed into the air within six or so feet or by direct contact, but it can only enter one’s body via the month, nose or eyes.  “Prevent-getting-sick/how-covid-spreads”  “Protecting-yourself-from-coronavirus”  Thus those who test positive for the virus should be isolated from the rest of us (quarantined) and the rest of us should self-isolate

if we experience symptoms of the disease. To protect ourselves from picking up the virus and bringing it to our faces we can reduce our social interactions (work from home, avoid public gatherings such as religious services, and restaurants, bars and public entertainment). Two measures are more important than any others: test as many people as possible in order to detect and isolate those with the virus and wash our hands with soap frequently.  The President’s coronavirus-guidelines for American

These measures can be imposed by government decree and enforcement by the state or can be urged by public education and voluntary individual actions. On March 17 the Governor of Virginia explained why he had not ordered restaurants and bars to close. “Northam said too many Virginia residents rely on restaurants for their meals to justify ordering they shut down.”  “Northam-adopts-10-person-standard-opposes-closing-restaurants”  For the United States as a whole and for most communities (public health services are administered by cities and states) the restrictions on our activities are voluntary. The specific guidance or rules are determined locally, thus providing useful data on which approaches work best.

As in Singapore, S. Korea, Japan, Hong Kong, Sweden and a few other countries, business closures in the U.S. have generally been voluntary until March 30. But unlike these countries, which have successfully kept death rates relatively low, the U.S. failed to undertake significant testing for the virus for more than two months after the outbreak of the disease in Wuhan, China. After the tenth death, the death rate from covid-19 in the U.S. has doubled every three days and passed the number of 9/11 deaths on March 30. On March 30, the Governor of Maryland, followed by the Governor of Virginia and the Mayor of the District of Columbia, made shelter in place mandatory: “We Are No Longer Asking Or Suggesting That Marylanders Stay Home, We Are Directing Them To Do So.” “As-covid-19-crisis-escalates-in-capital-region-governor-hogan-issues-stay-at-home-order-effective-tonight”

There is general agreement that testing should be pursued vigorously and those testing positive should be quarantined and their contacts tested, etc. This buys time to better prepare for the increased demand for medical care that will be needed and to develop treatments and vaccines. Though many will die needlessly in the U.S. because of a several months late start with such a program, the question remains which policy to follow for everyone else going forward.  Should it be government mandates to shut most things down and keep everyone home (or at least try to), or should we rely on the choices of each individual for how best to protect themselves and their loved ones while carrying on with their lives? What are the matrixes by which that choice should be judged? “This-pro-trump-coastal-community-in-florida-hit-early-by-virus-sits-at-emotional-nexus-of-national-debate-over-reopening-economy-amid-health-crisis”

In my opinion maximizing individual choices about how to respond to the epidemic is both more effective and more in keeping with America’s freedom loving culture. By more effective I mean that it will best slow the spread of the disease with minimal damage to the economy and the quality of our lives. We each have a strong incentive to protect ourselves from contracting the virus. We also care about protecting others from exposure (most strongly our families and loved ones) but can be deterred from that goal by the loss of income if we stay home. The CARES Acted signed into law a few days ago is meant to compensate firms that shut down temporarily and workers who stay home temporarily and thus to better align the incentives to protect others with the financial consequences.

We protect ourselves and others by diligently adhering to enhanced hygiene practices (frequent hand washing) and by reducing unnecessary social contacts (no hand shaking etc.). As with most everything else in life we are each better able to determine how best to balance the risks of social interactions (whether to work from home or in the office) with safer isolation, than are government officials making general rules for everyone.  The countries that have adopted this approach have left their citizens free to go to work or restaurants but undertaken extensive educational programs on the best practices to protect against transmission of the virus. “South-korea-keeps-covid-19-at-bay-without-a-total-lockdown”

South Korea, Singapore, Taiwan and other countries taking this approach provide their citizens with honest information needed by them to evaluate the risks of different choices. This includes information on who is infected and identifying infection hot spots. In the U.S. a person’s health status is private. But when a person carries a contagious disease into the public, his/her condition should be made known to those who risk exposure.  “Coronavirus-data-privacy”

Government mandates to shelter in place or cease many business activity will become increasingly difficult to enforce (have you watched the “Steven Soderbergh movie Contagion”). Persuading the public to adjust their behavior in ways that slow the virus’s spread and providing helpful guidance on how best to do so until a vaccine is found or most of the population becomes immune would be both more effective and more politically popular.

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Covid-19: What should Uncle Sam do?

On February 29 the first person in the United States died from Covid-19, the disease caused by SARS-CoV-2, the so-called novel coronavirus first observed in Wuhan, China.  On March 12, three more people succumbed from this disease bringing the total to 41. Ten days later on March 22, 117 died bringing the total to 419 as the exponential growth of Covid-19 deaths continues. Globally 15,420 had died by midday March 23 and deaths are rising fast.

How and where will this end?  Shutting the economy down and keeping everyone isolated in place until the virus “dies” for lack of new victims would ultimately kill everyone from starvation (if not boredom).  This pandemic will only end (stabilize with the status of the flu, which currently kills about 34,000 per year in the U.S.) when an effective vaccine is developed and administered to almost everyone. This will take one year to eighteen months if it is discovered today, and that is if we are lucky that the safety and effectiveness trials go according to plan. Without a vaccine, the pandemic will “end” when most of us have acquired immunity to it as a result of having and surviving (as almost everyone will) covid-19 –acquiring so called herd immunity.  This assumes that having and surviving the disease will immunize us. This is generally the case with viruses but has not yet been established for SARS-CoV-2.

Our hospitals and medical services could not handle the patient load if every one contracted this disease over too short a period, so it is important to slow down the pace of infection–so called flattening the curve (which could spike quickly as you see from the opening paragraph). The ideal strategy is to allow the infection of those with low risk of serious illness or death to speed up herd immunity with minimum demand on our limited health facilities, while protecting and treating the most vulnerable. The young and healthy are least vulnerable and the old and health-impaired are the most vulnerable.  We should reopen schools and restaurants after Easter and gradually restart our cultural entertainment lives adhering to higher standards of hygiene and public interaction. This would be ideal both with regard to speeding up herd immunity and with regard to minimizing that damage to the economy.

What should government do?

I am from the government and I am here to help (it is risky to attempt humor in these times, but what the hell). “Treasury Secretary Steven Mnuchin warned GOP senators that the unemployment rate could spike to nearly 20 percent if they fail to act dramatically…. The United States is expected to lose 4.6 million travel-related jobs this year as the coronavirus outbreak levies an $809 billion blow to the economy, according to a projection released yesterday by the U.S. Travel Association…. Research from Imperial College London, endorsed by the U.K. government, suggests that 2.2 million would die in the United States and 510,000 would die in Britain if nothing is done by governments and individuals to stop the pandemic.” “six-chilling-estimates-underscore-danger-of-coronavirus-to-public-health-and-the-economy”

“Infectious disease experts do not yet know exactly how contagious or deadly the novel coronavirus is. But compared to SARS and MERS, SARS-CoV-2 [as the novel coronavirus is now labeled] has spread strikingly fast: While the MERS outbreak took about two and a half years to infect 1,000 people, and SARS took roughly four months, the novel coronavirus reached that figure in just 48 days.”  “Mapping the Novel Coronavirus Outbreak”

The U.S. does not have the medical equipment or hospital beds that will be needed for those anticipated to need ICU facilities.  And as poorly equipped medical staff fall ill from their exposure to the Coronavirus, we will run out of enough doctors and nurses to care for them forcing us to default to the unpleasant realities of medical triage where doctors begin to assess and choose those that have a higher probability of survival and to leave the weakest to fend for themselves. This has already started in Italy.

So, what should the government do? Its response might be considered under three categories:  a) Stop or slow the spread of covid-19; b) Help state and local health service providers care for those needing it; and c) minimize the damage to the economy (i.e. to those whose income is affected by the disease or the measures taken to slow the spread of the disease).

As with all good policies, as the government determines its immediate approaches to the crisis, it should keep one eye on the longer run implications of the policies adopted. It should balance the most effective immediate actions with the minimization of what economists call moral hazard in the future.  The simplest and best-known example of moral hazard results from the now hopefully banished practice of governments bailing out banks when they fail as a way of protecting depositors. This one way bet for the banks–they profit when they win their bets and the government bails them out when they lose them–encouraged banks to take on excessive risks. In the U.S. we have replace bank bail outs with deposit insurance and efficient bank resolution (bankruptcy) procedures. “Key Issues in Failed Bank Resolution”

If economists do nothing else, we pay very close attention to incentives, particularly those created by government rules and regulations (including taxes and subsidies).  Government financial assistance must also be carefully designed to be temporary, recognizing the danger that expansions of government into the economy in emergencies have the bad habit of becoming permanent.

From these general considerations our response should be guided by these principles: Measures should be effective with the least cost. They should be narrowly targeted. They should be temporary. The cost of financial assistance should be shared by all involved–no bailouts.

Flatten the curve 

The government’s first priorities must be to slow the spread of covid-19 while supporting the medical needs of those contracting it.  Limiting the number of infected will limit the resulting deaths (guesstimated to be around 1% of those infected by this virus). Slowing the rate at which people are infected–flattening the curve–will reduce the peak demand for hospital beds and related services until a vaccine is found (once one or several candidates are discovered today, it will take 12 to 18 months of tests to establish its safety and effectiveness and manufacture enough to start administering it).

Despite clear warnings that the novel coronavirus posed serious threats to the U.S. for which we were not prepared, President Trump failed to act until very recently, calling the scare a Democratic plot as recently as February 28. “Trump-says-the-coronavirus-is-the-democrats-new-hoax”  “U.S. intelligence agencies were issuing ominous, classified warnings in January and February about the global danger posed by the coronavirus while President Trump and lawmakers played down the threat and failed to take action that might have slowed the spread of the pathogen, according to U.S. officials familiar with spy agency reporting.” “US-intelligence-reports-from-january-and-february-warned-about-a-likely-pandemic”

Countries that acted quickly to identify and isolate those infected by the virus have generally succeeding in slowing its spread without shutting their economies down.  South Korea, Singapore, and Taiwan have tested widely and quarantined those testing positive, many of whom were asymptomatic. Their economies have not been shut down. Restaurants and bars remain open as do schools in Singapore and Taiwan.  New cases in S Korea have fallen to very low levels two weeks ago and active cases have been declining since March 11 as more people recover than acquire the disease. On March 22 only two people died from the disease.  Cases and deaths have remained low in Japan, Singapore and Taiwan. The following describes the lesson’s from Singapore’s success: plan ahead, respond quickly, test a lot, quarantine the sick, communicate honestly with the public, live normally:  “Why-Singapore’s-coronavirus-response-worked–and-what-we-can-all-learn”

As a result of the U.S. failing to act earlier, the potential for this approach has been reduced in the U.S.  Nonetheless, the government should urgently remove its barriers to testing, increase the supply of tests, and pay most of the cost of testing. In order to discourage frivolous testing those being tested should pay a small amount of the cost (e.g. ten dollars per test).  Even today (March 21) very few Americans are tested despite frantic catch up efforts by the U.S. government.  “A-government-monopoly-led-to-botched-covid-19-test-kits-but-private-labs-are-now-saving-the-day” Positive test results (“cases”) in the U.S. are rising rapidly (983 new cases on March 16 jumped to 9,339 on March 22, for a total of 33,546). However, as so little testing has been possible, there is no way we can know whether this dramatic increase reflects increases in infection or only the increase in the identification of existing infections. “Peggy Noonan gets tested–finally”

As a result, the government has urged people to stay home, and most entertainment centers (theaters, cinemas, restaurants, gyms, and bars) have closed, and a few state governors are mandating it.  Many international flights have been cancelled.  Aside from grocery stores and pharmacies, most shops and malls have closed. A controversy is raging over whether closing schools does more harm than good. Among the arguments against it is that because serious illness and death among the young is rare but they can spread the disease (to their families at home and others), attempting to block their infection interferes with herd immunization (protection from infection as the result of a large proportion of the population becoming immune as the result of recovery from infection).

The economic impact of those drastic measures will be explored below, but the government must now urgently prepare for the surge of covid-19 patients promising to overwhelm our brave medical health care workers, medical supplies and hospital beds even with these draconian measures. Priorities must be given to properly equipping medical service providers and training their replacements as they fall ill. Hospital beds and respirators and other equipment needed for the more seriously ill must be urgently produced, in part by turning out and away, less seriously ill patients and those with non-emergency, elective treatments. We can delay the investigation into why these steps where not taken two months ago when the need was identified.

Care for the sick

The government should support the market’s natural incentives to develop better treatments and ultimately a vaccine (i.e. profit). This raises challenging policy issues. Protecting the patent rights of firms developing treatments protects the profit incentive for them to do so. However, the sharing of research findings, thus threatening such patents, can greatly accelerate the discovery of helpful medicines or procedures. Hopefully rights can be established and protected that both encourage drug development and cooperative information sharing.

The failure of the U.S. government to provide for or allow significant testing for covid-19 is a scandal. The government should get out of the way. “Coronavirus-and-big-government” Its claim last week and the week before that testing was opening up is sadly not true.  By March 19th the U.S. with a population of 327 million had only tested 103,945 people (0.03%).  S. Korea with a population of 51.5 mil. had tested 316,664 by March 20th (0.6%) and Germany with a population of 82.9 mil. had tested 167,000 by March 15th (0.2%)  “Covid-19-why-arent-we-prepared”

President Trump’s trade war has damaged world’s ability to fight covid-19 in general but more specifically his tariffs on medical supplies are contributing to their shortage in the U.S.  “The US-China trade war has forced US buyers to reduce purchases of medical supplies from China and seek alternative sources. US imports of Chinese medical products covered by the Trump administration’s 25 percent tariffs dropped by 16 percent in 2019 compared with two years earlier.”  “Tariffs-disrupted-medical-supplies-critical-us-coronavirus-fight”

Save the economy

Having missed the opportunity to flatten the curve via testing and targeted quarantines, the U.S. has taken much more drastic steps to restrict public interactions, shutting down the entertainment, educational, and transportation sectors of the economy. These should result in temporary interruptions of the supply of these services that will bounce back when the restrictions are lifted. Some output will be lost forever (lost classroom time, and restaurant meals) but others can be recouped or at least restored to original levels (rates). Clothing and other retail items not purchased during the shut down can be purchased later.

What the economy will look like afterward (hopefully only a few months) will depend on several factors. The first is the extent to which our public behavior is altered permanently. Home movies might permanently replace some part of our usual attendance to the cinema. Teleconferencing might permanently reduce meeting travel or accelerate the existing trend in that direction, etc.

The policies being debated in congress at this moment for protecting individuals and firms from the financial cost of the temporary shutdown can profoundly affect the future composition and condition of the economy. Every big firm out there is working on how they can tap some of the taxpayer’s money that government will be giving out. Those pushing government interventions into new areas on a permanent basis will exploit the occasion to slip in their favorite policies. Unfortunately, once the government moves into an area– it rarely withdraws. Almost 19 years later, the horrible Patriot Act, adopted when a scared public was willing to trade off liberty for security, is still largely with us.

Our public interest would be served by incentives that lead those who might be sick with covid-19 to stay home rather than risk infecting others, and by policies that enable viable firms that lost customers and individuals who stayed home to bridge their financial gap until returning to normal. Affected firms and individuals will continue to have expenses (food, rent, mortgages, etc.) but no incomes. They should be provided with the funds to meet these expenses in order to return to life/work when the lights go back on. The sharing of the cost of those funds must be considered politically fair and must incentivize the desired behavior. Everyone must have some skin in the game (a share of the cost). Adopting measure that fill those criteria will not be easy.

The government (taxpayers) should cover much of the cost of the covid-19 related medical services and hospital costs, including very widespread testing. Medical service providers should be tested daily (e.g., several doctors have died from covid-19 in Italy). Anyone staying at home and testing positive should receive sick leave paid for by the government.

Assistance to companies and the self-employed should be as targeted as possible on those forced to reduce or stop operations as a result of covid-19. Where possible, assistance should take the form of loans to companies that continue to pay wages to their employees even if not working. Restrictions should be placed on how such loans are used (no stock buy backs, or salary increases during the life of the loans). Bank and lending regulators should allow and in fact encourage temporary loan forbearance by the lenders on temporary arrears from otherwise viable firms. “Bailout-stimulus-rescue-check” One small businessman convincingly argued that wage subsidies that keep working on the payroll are better than generous unemployment insurance, which makes it easier for firms to lay off their workers. “Dear-congress-i’m-a-small-business-owner-heres-what-my-business-needs-to-survive”

What about the big companies, such as Boeing, the airlines, the Hotel Chains, and Cruise ship operators? Yes, they should be included in the loan forbearance and incentive loan programs, but they should receive no special consideration beyond that. If government (partially) guaranteed loans through banks to pay wages and other fixed expenses for a few months are not enough to finance a firm’s expenses without income for a few months it is probably not viable in the long run anyway and should be resolved through bankruptcy as were GM and Chrysler in earlier financial crises. This would wipe out the stakes of owners while preserving the ability of the firm to return to profitable operation with new owners. “Bailing-out-well-if-bail-out-we-must”

Monetary policy

The American economy (and elsewhere) is suffering in the first instance a supply shock (sick people unable to work and produce). This fall in income from supply disruptions also reduces demand. Cutting the Fed’s already low interest rate target to almost zero is a mistake. No one will undertake new or expanded investments because of it, and its impact on reducing the return on pensions and other savings will, if anything, reduce spending. The last decade of very low interest rate policy targets has already contributed to excessive corporate debt and inflated stock prices (recently deflated back to normal).

Injecting liquidity via new lending facilities and international swap lines, as the Fed is now undertaking, is the correct response. If lenders allow their borrowers to delay repayments for a few months, they need to replace that missing income somehow (rather than calling in nonperforming loans and bankrupting the borrower). The Federal reserve should substitute for that income by lending to banks freely against the good collateral of government debt or government guaranteed debt.

“The vital need of everyone in the economy, from the corner drugstore to the local transit authority to the mightiest multinational, is liquidity: credit to meet payroll and other key obligations so as to remain solvent until the end of what we all must hope is a finite crisis.”  “Here’s-an-economic-aid-plan-better-than-mitch-McConnell’s”

Macroeconomic policy

As noted above, the government’s help should be narrowly targeted to the direct victims of covid-19.  A general fiscal or monetary stimulus is not needed or desirable.  Nonetheless, it will add to the federal debt that is already bloated by years of annual deficits at the peak of a business cycle when a surprise is customary and appropriate.

“The United States is not confronted with a financial crisis and a follow-on crisis of demand, as in 2008 or 1929. Rather, previously robust consumption and production are being deliberately halted to save lives. Thus, traditional tools of monetary and fiscal stimulus, such as zero interest rates and direct cash aid to households, are unlikely to prove decisive. You can’t shop, or invest in new construction, while on lockdown.”  “Here’s-an-economic-aid-plan-better-than-mitch-McConnell’s”

This is a dangerous period both for our personal health and for the health of the economy. Affected firms should be helped in order for them to continue paying their employees and to remain solvent until they can return to production. But the United States has failed to prepare properly and is handling the fight against covid-19 poorly. We need to reopen our schools and restaurants and return to normal at a reasonable pace while allowing herd immunity to develop at a faster pace while supporting the most rapid development of a vaccine possible. Don’t fight this wildfire with our eyes shut while enhancing the dangers of future fires from ill-advised measures undertaken in this emergency environment.

Stay strong everyone. We will all get through this.

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Social Distancing

Research lead by Neil Ferguson and his colleagues at Imperial College London suggests that a staggering 2.2 million would die in the United States and 510,000 in Britain if nothing is done by governments and individuals to stop the pandemic (no social distancing or hand washing, etc.).  Imperial College London study  The U.S. was late and bumbling in addressing the Novel Coronavirus coming from China in December. The Food and Drug Administration (FDA) refused to authorize the use of tests approved by the EU and the test developed by Centers for Disease Control and Prevention (CDC) was flawed and had to be withdrawn. The United States remains embarrassing and dangerously behind other countries in testing and other preparations for dealing with the disease.  “Coronavirus-testing-delays-caused-red-tape-bureaucracy-scorn-private-companies”

Unable now to contain the virus in a targeted way, the U.S. has largely shut down its schools, theaters, restaurants and other places of public gatherings as well as flights from abroad. The Ferguson “report concludes that the British government might be able to keep the number of dead below 20,000 by enforcing social distancing for the entire population, isolating all cases, demanding quarantines of entire households where anyone is sick and closing all schools and universities — for 12 to 18 months, until a vaccine is available”. A comparable figure for the U.S. implies a reduction in the death rate to 86,000.

For perspective, traffic accidents in the U.S. in 2017 killed 40,100.  More than forty-seven thousand committed suicide that year and 55,672 died from influenza and pneumonia. When compared with ordinary flu, covid-19 spreads more rapidly and is ten times as deadly, but we still do not know very much else about its properties.  But, we can expect a relatively large number of deaths from this new virus no matter what we do.  But doing nothing will increase deaths considerably.

What steps should the U.S. take?  We don’t ban cars because people die in them. We choose to take calculated risks if they are not “excessive”.  https://wcoats.blog/2016/12/27/our-risks-from-terrorists/

The extreme measures being taken in the U.S. proceeded without serious estimates of the economic costs to the economy and the spill over health risks of children kept home with vulnerable grandparents, etc.  “The CDC guidelines advised that short- and medium-term school closures do not affect the spread of the virus and that evidence from other countries shows places that closed schools, such as Hong Kong, ‘have not had more success in reducing spread than those that did not,’ such as Singapore.  But this guidance was not released until Friday [March 13], after the cascade of school closings had begun.”  “States-are-rushing-to-close-schools-but-what-does-the-science-on-closures-say”

Our extreme reaction will generate huge costs that cannot be fully known reverberating for years to come. We can be pretty certain that there will be unintended, undesirable consequences quite beyond the disruption of our pleasurable, cultural activities (bankruptcies of otherwise viable firms and the resulting loss of jobs, etc.). The government (congress and the administration working together for a change) is attempting to anticipate and ameliorate as many of those consequences as possible. One example of the search for cost effective balance of cost and mitigation involves the stopping of flights from Europe.  The cost of monitoring arriving airline passengers before boarding abroad is very likely cheaper than the economic disruption and damage of forbidding foreign visitors at all.  Following Trump’s announcement of the travel ban (once his team sorted out and clarified what he was actually imposing) the American Civil Liberties Union announced, “These measures are extraordinary incursions on liberty and fly in the face of considerable evidence that travel bans and quarantines can do more harm than good.”

Unlike the U.S., Britain has not closed its schools and restaurants. But as I am writing this, the UK just announced that its schools will close Friday March 20.  The Patriot Act passed quickly after the 9/11 terrorist attacks in the U.S. on September 11, 2001 (for those of you too young to remember) reminds us how quickly and easily we surrender our revered liberties when we are scared.  Almost 19 years after 9/11 we still have the dangerously intrusive provisions of the Patriot Act.  Once freedoms are surrendered and the government steps in it seems to be hard to regain them.  The extreme measures being taken in the U.S. and elsewhere to slow the spread of covid-19 provide us with the latest example.

On March 16, Deborah Birx, White House coronavirus response coordinator, reported that models based on data available so far indicated that the biggest reduction in deaths came from “social distancing, small groups, not going in public in large groups. But the most important thing was if one person in the household became infected, the whole household self-quarantined for 14 days. Because that stops 100 percent of the transmission outside of the household,”

The biggest bang for the buck comes from individuals protecting themselves by social distancing, hand washing, and normal (and perhaps enhanced) care to avoid the sick and avoid exposing others when we are sick as we generally do now. Clear public health guidance from the government could go (would have gone) a long way to encourage the enhancement of such diligence.  The Kennedy Center for the Performing Arts never closed down during the flu season.

Covid-19 calls for vigorous government action, even now when it is too late to stop it any time soon. We will need extra hospital beds, medicine, respirators, protective gear, replacements for infected health workers, vaccine research, development, manufacture and administration and more.  Soon we will require replacements for the many brave health care workers such as nurses and doctors as they also become infected with the virus. But as with all decisions, private and public, a careful assessment of costs and benefits of different courses of action will produce the best result.  Knowledgeable public information to guide the natural protective self-interests of each of us and our usual concern and respect for the well-being of our families, friends and neighbors can carry us a long way toward minimizing the further spread of this disease at minimal cost to lives and property.

P.S.  In my previous blog of March 15 (Covid-19, why aren’t we prepared) I reported Beth Cameron’s claim that the National Security Council Directorate for Global Health Security and Biodefense was disbanded in May 2018.  Ms. Cameron was its director at the time.  Yesterday Tim Morrison, director of the successor unit for a year in 2018-19, “No-white-house-didn’t-dissolve-its-pandemic-response-office”, explained that its staff and function were merged with two other units performing overlapping functions in order to improve efficiency without a loss of its capacity “to do everything possible within the vast powers and resources of the U.S. government to prepare for the next disease outbreak and prevent it from becoming an epidemic or pandemic.”  I apologize for misrepresenting what happened and expect Mr. Morrison to apologize for the disastrous failure of his unit to fulfill its mandate.

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