Economic Impact of COVID-19

Lots of discussion on the economic impact of COVID-19.  It will certainly hit GDP in the short term. The real question is what will happen in the longer term.  This has been the source of more fear than actual immediate deaths from the virus, at least in some quarters.

Former Fed Chair Ben “The Bernank” Bernanke has a less severe view that lines up more with what I am thinking.  It all depends on many things, but what happens “after” COVID-19?

Most of it revolves around the idea of “unemployment”.  If COVID-19 is more like a war, then who are the soldiers? In WW II soldiers with guns and supplies in Asia and Europe were considered employed.  It isnt clear to me why, or if that even matters.  It is clear you can yank massive numbers of people from productive work and still get by, perhaps even thrive in some way when they return to work.

On the flip side, most of what we know as unemployment comes from malinvestment or bubbles.  Basically people bidding up assets (like houses) and then causing a banking crisis.  Even these events don’t have to be a catastrophe, if handled well.  And COVID-19 isn’t about an investment bubble, so there isn’t really any comparison.

Lastly, COVID-19 can be seen as a natural disaster.  This can also be a cause of mass unemployment.  Hurricane Katrina in New Orleans caused nearly everyone in the city to become unemployed, sometimes for a long period.  But this is also different.  Capital, in the form of buildings and equipment, were destroyed.  This had to all be rebuilt with massive new investment. But this isn’t what COVID-19 is doing either, and it isn’t a useful model.

Ben Bernanke compares it to a big snowstorm, with everything being shut down.  Yes, a challenge and a big one, but maybe one with a rapid and full recovery.

Bernanke: Coronavirus disruptions ‘much closer to a major snowstorm’ than the Great Depression


Weighing in on COVID-19

To say life has been changed by COVID-19 / Corona Virus is an understatement.  I have posted a few factual articles but mostly think there is too much noise out there and I didn’t want to add to it.  At this point, as the storm gathers in the US I figured I would weigh in.

The Run Up:. I’m a Science Guy.  I watched the situation in Wuhan and it made me very nervous.  The Chinese officials spent quite a few weeks in denial, even arresting a doctor who tried to warn people.  The doctor later died.  China finally took some extreme measures, locked down millions of people and mobilized resources, even building new hospitals in short order.  But the slow early response was a problem.  Korea did massive testing and was able to keep a lid on things.  By late February I did my own numbers and got worried.  We bought extra food and stopped going out.  Parts of the press and specifically the President were (inexplicably) downplaying the risks.

St Patrick’s Day: by the time St Patrick’s Day arrived, I was more than a little worried.  People in New Orleans were still attending parades and packing Bourbon Street.  One nursing home had early cases and the Saints Coach Payton tested positive (even as tests were largely unavailable for regular folks).  Pro sports had been cancelled and my Mom’s independent care facility was locked down with no visitors.  Private entities were doing the right thing, even as elected officials stumbled, badly.

The Math: we have known how diseases like this spread for centuries.  This one looked to be spending like other seasonal colds and flu.  Except this one was capable of killing people.  Lots of people.  My very rough number from late February was one million dead in the US.  I had no context for that.  I looked up other disasters.  This would be more than all the wars in the history of the US combined.  And it could happen very fast.  Hospitals wouldn’t be able to cope.  I thought of those battlefield scenes from Gone With the Wind that terrified me as a child.  Funny, our president had just recommended that movie.

The Waiting: Social Distancing is finally being taken seriously and it should help, but lots of infection has already occurred.  I also find that many people did not seem to be taking this  to heart.  I kept running into people who frankly, weren’t terrified by this.  A recurring theme was that they had somehow had the Corona Virus already, a few months back.  Perhaps they had something, a fever and cough, but it was all but impossible that they had actually had COVID-19 in the US any time before February.  Yet, these people thought they were immune.  To be fair, most won’t die and many won’t even get very sick.  But they will keep spreading this thing and endanger the rest of us.  I did have contact with a couple of medical professionals.  They are very worried.  Doctors are dying in Italy.  The US has been way behind the curve (yet again) in preparation.  Doctors understand the risks of of their profession, but we are essentially sending them into a battle unarmed.

The Economists: the UK Prime Minister turned up on TV with a plan to just do nothing, if doing nothing can be said to be a plan.  Lots of people will get sick, many will die.  It is like a war.  Except one where you just wait around unarmed to get shot.  And the doctors and hospitals?  I don’t know.  Nobody mentioned that part.  I was (yet again) horrified.  The Brits didn’t seem to like this non-plan and Boris the Butcher quickly did a 180, but only after wasting more precious time.  This idea re-emerged, via a Brit on conservative TV as “the cure being worse then the disease”.  This idea as quickly jumped on by Texas politician Dan Patrick, saying he would give his life to save the US economy.  If it were only that simple, Dan.  I know I would support you in that endeavor.  No numbers or even vague speculation on how all this would work.  Are we talking 10 million dead in the US? More? That is my guess.  How long would it take?  I know I’m not going out to restaurants with people dropping dead in the streets.  And save what economy, and for who?  I assume the 1% have stashed themselves away someplace safe. My assumption is that this isn’t so much about saving the US as it is about saving the asses of a certain group of influential Americans.

What Comes Next: people will get sick and people will die.  Many more than necessary.  We could have been like Korea or even China, but lack of leadership and (frankly) stunningly bad policies and decisions made this possible in the US.  My prediction is that this mishandling of this epidemic in the US will go down in history along other massive societal failures like the fall of the Roman Empire.

After that, I don’t know.  Nobody does.  And you should ignore anyone who claims to know.  My hope is an early vaccine, more testing and better isolation.  I hope some lessons get learned about capitalism, public health and being prepared.  I hope bad actors are held accountable.  But I’m not betting on any of that at this point.

All that said, I still believe in the resiliency and innovation of the American people, or at least a certain segment.  I’m not watching the news much.  I don’t want to see the horror show about to happen in New Orleans, and soon many other places.  I spend lots of time cooking or doing yard work. I have bumped into neighbors (from a distance) and renewed some old friendships, mostly via email.  Am in closer contact with my family.  Old-fashioned phone calls seem to be making a come back.

That is my take.  Hope I am wrong, but given what we are seeing in other countries I’m not sure how anyone can think otherwise. But there is always lots of wishful thinking and other agendas in the US.  I suppose it is just who we are.