Coronavirus and The Economy: My View of the Facts and Where we are Going

You see a ton of stuff online about COVID-19, a lot of more “official” sources, and a lot more speculation. I am nothing but an amateur following this, but have followed the various pieces of this for since January and thought I would write out my thoughts on where we stand today.

Viral Aspect:

Let’s start with the three things that sound the scariest and are the reasons we see governments freaking out and then we’ll get to the things that should calm us down.

1. This virus is likely to spread until 2/3-3/4 the population has had it. At that point, herd immunity kicks in (fewer people for each person infected to infect leads to a gradual decline in number of cases instead of increase). Until that point, exponents being what they are, all you are going to do is mitigate it and slow it down.
2. Exponents: How long this goes on depends largely on how many people already have it. The best news will be if it is actually fairly wide spread already (with most pretty minor to no symptoms) and we are just a few doublings away from the peak. There are some different numbers out there, but 6 days seems to be the most reliable double timing I’ve seen. If 100,000 really had it March 12th when Ohio’s governor speculated it was that high, we are already probably well past 200,000 now in Ohio whom have/had it. If you take that 100,000 and assume a double rating of 6 days, then after 6 days you are at 200,000, after 12 days at 400,000, after 18 at 800,000, after 24 at 1.6 million, after 30 at 3.2 million, after 36 at 6.4 million, and shortly after that the entire population. This is a bit simplistic look at the numbers, but it’s close enough for our purposes. (Note: It is possible that 100,000 guess was wrong in either direction. If it was only 10,000, this will be a lot worse. If it was closer to half a million this will be a lot better).
3. The above numbers are why the governments are freaking out and worried about overwhelming the medical system. Exponential growth makes things go from OK to very bad very quickly. (This applies to anything growing exponentially). The idea of “flattening the curve” is to slow that doubling rate down so that there will be fewer people going to the hospital at a time. This will prolong the event, but also means fewer have it at a time. I find it fairly unlikely that they can slow this down enough to prevent overcrowding the hospitals, but it will reduce the over-taxing of it somewhat at least.  Either way, it is really only the final few doublings we are worried about.  If you cut the transmission rate in half, the final doubling (by our 6 day guesstimate) would be over 12 days instead of 6.

4. For most people getting this, it will not be more than a flu and for many there won’t even be symptoms. It will be bad in certain populations though. You might hear stories of young healthy people dying, but most of it will be anecdotal and they will either be a) not nearly as healthy as suggested or b) have some unknown underlying condition. In Italy right now, the median age for those who have died is 81 years old and 90% of those who have died have been over 70 (most with other complications) https://swprs.org/a-swiss-doctor-on-covid-19/ .
5. The emphasis at many points has been misplaced in the media. There is a lot of talk about things like ventilators, but the vast majority who make it to the level of being on them it does not help (with limited sample size we are talking less than 10%). (https://www.thelancet.com/action/showPdf?pii=S0140-6736%2820%2930566-3 see the stats on page 5).
6. A vaccine is probably at least a year away and might well come out after there is a point in it.
7. Given the two above, it seems the best current focus is on drugs that mitigate the disease and that’s where there might actually be some progress. South Korea and Italy are different in a lot of ways and a pure apples to apples comparison might not apply, but one thing that has been different was South Korea widely used hydroxychloroquine, an anti-malaria drug and has reported far fewer deaths and serious cases. Again, it should be noted there is a lot more science that has be done to see how big of an impact this is and for most people, the side effects would be worse than the coronavirus. That said, things like this are the best hope for helping those most at risk who catch it (and there is some evidence hospitals are starting to use it). (https://www.dailymail.co.uk/news/article-8134675/US-firm-making-coronavirus-treatment-doubled-price-January.html and https://market-ticker.org/akcs-www?post=238556 ).

Economic aspect:

1. From things closed right now and the path we are going, it is almost certain  we are going to end up with a depression-level drop in GDP in the 2^nd quarter (a 10% drop is what defines it).  In fact, it will probably be way above that.
2. How big of a deal on businesses closing this is cannot be understated. Most companies operate with debt and small margins. You just can’t close down for a month and expect everything to come back. There will be a ton of bankruptcies from this and there will be a lot of businesses, especially smaller ones that never reopen. The changes to FMLA are going to make things hurt even more.
3. Government expenses are way up here and tax revenue is going to collapse. See my previous post here detailing how bad a debt collapse is likely to be for us. This might not be the straw that breaks the camels back yet, but there are very worrying signs. Several cities/states were close to bankruptcy as is. You add this onto it and it almost has to throw some big players under (state of Illinois being one of the worst). Maybe the federal government gets involved then, but that will just continue to raise the stakes (although might again buy time).
4. (Added in Edit):  The longer this goes on, the worse it is going to be.  The idea of an economic shutdown for more than 2 months is almost completely unthinkable.  Honestly, 2 months probably is too, but think that is happening no matter what.  I think the economic fallout from this will be worse than the viral aspect and the longer this goes on the more that is true.  I don’t personally agree with our approach to mass shut downs, but at this point they are unlikely to stop.  That said, no plan that has them going for more than 2 months should be viewed as viable and even ones with more than a month must be looked at with a great deal of caution.

 

Edited post on 3/23/2020