martes, 7 de abril de 2020

Why does Spain have the world’s highest coronavirus mortality rate?

Experts attribute the problem to a range of factors, including an aging population and slow early detection effort.

Spain entered its fourth week of confinement on Monday as the country with the highest number of coronavirus deaths relative to its population.

With 13,055 confirmed coronavirus fatalities, or 28 for every 100,000 inhabitants, Spain has already surpassed Italy in terms of the number of deaths compared to the population (not to the number of confirmed cases, which is the more common metric).

Authorities are now placing their hopes on the improving indicators coming out of the emergency rooms, where there has been a drop in the number of admitted patients. This is relieving the pressure on hospitals’ intensive care units, which have been overwhelmed with critical cases in recent weeks.
The way that you determine the cause of death, whether from the virus or from underlying diseases the patient may have had, also plays a role
Pere Godoy, Spanish Epidemiology Society

The downward trend is supported by the overnight death toll, which was 637 on Monday, the lowest figure for a 24-hour period since March 24 (although Monday figures can be lower due to under-reporting during weekends). In any event, it was the fifth day of dwindling fatalities after the peak of April 2, when there were 950 deaths in a 24-hour period. Health Minister Salvador Illa has already described the pandemic as the worst health crisis of the past century.

So why are so many people in Spain dying from coronavirus complications compared with other countries?

An aging population with a high rate of underlying health issues, as well as the impact that the virus has had on senior homes, are some of the reasons, according to Pere Godoy, president of the Spanish Epidemiology Society.

“The way that you determine the cause of death, whether from the virus or from underlying diseases the patient may have had, also plays a role. This is not being done the same way across different countries, and it makes comparisons less reliable,” notes Godoy.
It is possible that our early detection effort has lagged behind that of other countries like Germany or South Korea
José María Martín Moreno, Valencia University

José María Martín Moreno, a professor of medicine and public health at Valencia University, adds another factor to the combination of demographics and counting methodology.

“It is possible that our early detection effort has lagged behind that of other countries like Germany or South Korea, which conducted mass testing that enabled them to isolate infected people and stop the transmission chains,” he says. This early detection may have prevented the virus from reaching particularly vulnerable groups such as the elderly.

Adding to the problem is the fact that “not enough investment has been made” in public healthcare in recent years, adds this expert.
Densely populated areas

Jesús Rodríguez Baño, head of the infectious disease department at Virgen Macarena Hospital in Seville, underscores two other issues.

“Studies still need to be done, but probably it also has something to do with the way we interact socially, with greater physical proximity,” he says. “And the fact that the worst-hit areas are Madrid and Catalonia shares something with northern Italy: these are all densely populated areas.”

“It is true that more tests and greater isolation could have stopped the chain of transmission before reaching the more vulnerable groups. But I want to be very humble here, because in a way, we all got it wrong during the first stages,” he adds. “It’s easy to see things clearly in hindsight, but this should teach us to learn and analyze what happened.”
Tests and gear

Minister Illa has stated that the government allocated “€845 million” in the space of three weeks to purchase testing kits, ventilators and masks. “We have achieved a regular and permanent supply [...] as a complement to regional governments’ own purchases,” he said.

According to the health minister, the one million rapid tests that are being distributed by his department among regional authorities will “serve to conduct quick screenings” that can later be backed up by the slower but more reliable PCR tests inside labs.

As for the recommendation that everyone use a face mask, Illa said that “this is a measure that is currently being analyzed, but no decision has been made.” In any case, “national production is being activated.”

viernes, 3 de abril de 2020

Jobs Destroyed Worldwide as Coronavirus Sparks Recession

World job losses could reach total of 25 million, ILO warns

Unprecedented since Great Depression, Deutsche’s Hooper says

Storefronts are seen closed as streets stand unusually empty in the Fashion District of Los Angeles, California, on April 1.
The world’s workers are reeling from the initial shock of the coronavirus recession, with job losses and welfare claims around the globe already running into the millions this week.

As the International Labour Organization warns of almost 25 million layoffsif the virus isn’t controlled, the cuts from Austria to the U.S. reflect the deepest peacetime recession since the 1930s as economies are frozen to beat the pandemic.

“We see unemployment rates in the U.S. and Europe getting up well up into the teens,” Peter Hooper, global head of economic research at Deutsche Bank AG, told Bloomberg Television. “Given the pain that we see near-term in the U.S. and Europe, this is unprecedented since the Great Depression, in terms of magnitudes.”

Rising unemployment will intensify pressure on governments and central banks to speed delivery of programs to either compensate workers who are made redundant, or try to persuade employers to hoard staff until the virus fades.

Failure would risk an even deeper recession or weak recovery that would require policy makers to consider yet more stimulus on top of that already deployed.

At JPMorgan Chase & Co., economists predict their measure of unemployment in developed markets will jump by 2.7 percentage points by the middle of this year, having started this year around its lowest in four decades. While there will be some healing as economies recover, they still predict elevated unemployment of 4.6% in the U.S. and 8.3% in the euro area by the end of 2021.
Stress Test

The shock to labor markets also marks a stress test for different social models. The U.S.’s more flexible culture means more will lose their jobs than in the euro area or Japan, where there is a greater onus on retaining staff during a shock.

A first glimpse of the U.S. devastation was apparent in its monthly labor report on Friday, showing employment fell last month for the first time in a decade. Payrolls slumped by more than 700,000, seven times as much as economists had forecast. Those figures are all the more worrying because they cover only the start of the labor-market damage in early March, prior to the biggest rounds of layoffs and closures.

A greater hit is coming therefore, not least since the number of Americans applying for unemployment benefits soared to a record 6.65 million last week, more than twice the record set in the prior week. The 9.96 million combined claims of those two weeks is equivalent to the total in the first 6 1/2 months of the 2007-2009 recession.

Goldman Sachs Group Inc. this week predicted unemployment there will soon spike to a record 15%.

In Europe, a report showed almost one million Britons applied for welfare payments in the space of two weeks, 10 times the normal amount. The country’s statistics office released a survey of businesses where 27% of them are reducing staff levels in the short term.

There was also a record jobless-claims surge in Spain, whose nearly 14% unemployment rate is already among the highest in the developed world. Austria’s rate jumped to 12%, the highest since the aftermath of World War II.

While German unemployment barely rose in March, like the U.S. report, that data was based on a cut-off date before most shutdown measures took effect. But Detlef Scheele, who runs the country’s labor agency, said next month’s data will show increasing joblessness.
Hours Cut

A record 470,000 companies applied for German state wage support in March -- a number that is likely to continue rising -- suggesting that so far around a fifth of the workforce could have working hours reduced.

French businesses have also rushed to benefit from government aid to keep workers on their payroll, while getting paid 84% of their salary by the state. As of Thursday, 400,000 companies applied for 4 million workers -- around 20% of the private sector labor force.

Nordic data already shows the region is suffering a major employment shock, with more than 800,000 people out of work there, including in excess of 620,000 on temporary furloughs in Finland and Norway, according to calculations by Bloomberg.

Jobless Spike

Unemployment forecast to surge from low base in U.S., tick higher in EU

Source: Estimates by JPMorgan economists as of March 27

In Asia, Japanese unemployment held at 2.4% in February, but there’s been a sharp drop in the ratio of available positions to the lowest level in three years. More recent developments showed a rapid taking up of emergency loans via a government program for people who have lost their jobs or face wage cuts.

Almost 23 million, or a third of Thailand’s population, registered for the government’s cash handout since it was made available on March 28. The grants are intended to cover only 9 million people, and will pay out 15,000 baht ($455) to each individual over three months.

Much focus will fall on China, whose economy is returning toward full capacity. Its rate of surveyed urban unemployment jumped to a record 6.2% in February as business shut down. Those interruptions threw an estimated 8 million people out of work, according to economists at Australia & New Zealand Banking Group.

As eye-watering as this phase of the global economic crisis may already be, Peter Hooper at Deutsche Bank says the outlook won’t seem as bleak when the virus outbreak ceases and demand rebounds.

“You should see a fairly quick drop from these very lofty levels of unemployment,” he said.

We Need to Measure Lives Against Money. Here’s How

When can America reopen from its coronavirus shutdown? The answer depends how you weigh human health against the economy. We asked experts how to think about the tricky calculus.

After days of market freefall, President Donald Trump hinted two weeks ago that he was thinking about relaxing public-health restrictions for the sake of the economy—“WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF,” he tweeted, before promptly getting roasted by the public health world. Did he really want to sacrifice American lives to goose the Dow back up? It seemed inhumane.

Since then, the president has backed away from opening businesses up right away, but he also had a point: This cure is pretty bad. This week’s report that 6.6. million Americans had filed for unemployment insurance was double the previous record, which was set only last week. Analysts are predicting that GDP could shrink by double-digit percentages this quarter. That’s a lot of future unhappiness.

At the same time, the disease might be even worse. Trump’s coronavirus task force has said that 100,000 to 240,000 Americans could die from the virus, and that’s the best-case scenario.

So, what’s the right amount of economic pain to endure in order to save lives? The debate will only intensify over the next month, as we approach the April 30 endpoint Trump set for national social-distancing guidelines, and pressure builds to re-open businesses, despite the high likelihood the virus will still be spreading.

MARCA POLITICA turned to a handful of thinkers—people who have studied the impact of pandemics, recessions and more—to helps us understand how to even begin to think about the dilemma ahead. Do we really need to weigh lives against money? If so, how do you do it right?

Spoiler alert: No one offered us a hard date for when life will go back to normal. But there were some surprises. You’ll find a clear guide to making the lives-money tradeoff (and a good rationale for doing it), a surprising fact about the economics of the response to a past global pandemic, a suggestion for a surgical middle-ground approach to a reopening, and a strong argument that recessions actually save lives.


Why Economists Measure Human Lives in Dollars

It’s a highly imperfect exercise—but could actually save more people. James Broughel is a senior research fellow and Michael Kotrous is a program manager with the Mercatus Center at George Mason University.

It might feel heartless when President Donald Trump muses about whether the “cure is worse than the problem,” as though a plunging stock market and a patchwork of business and travel shutdowns could possibly outweigh the lives saved by America’s response to the Covid-19 pandemic. And it might feel uncomfortable to think about the response as a tradeoff between saving the economy and saving lives.

But we really are facing that tradeoff, and, in fact, economists make a routine practice of comparing dollars with lives. There are costs and benefits to every policy decision, and by valuing human lives in dollar terms we can arrive at a way to measure those costs and benefits against each other.

As human beings, we tend to see life as having almost infinite value, but it’s also worth remembering that money spent to save one life has an opportunity cost: It could have been spent in another fashion and—if spent more efficiently—saved even more lives. Resources are never unlimited, and without assessing the dollars-to-lives tradeoff, it’s likely that policymakers will fail to save as many lives as they otherwise could.

When it comes to policy, and especially an urgent and life-altering policy issue like the current epidemic, the problem with this kind of cost-benefit calculation isn’t in the idea, it’s in the execution. Even for run-of-the-mill policies, it’s tricky to assess whether a policy does more good than harm. With respect to Covid-19, an exhaustive cost-benefit analysis is even harder because of limitations in our ability to track the disease’s spread, predict the human response to it and analyze the effects that policy will have in slowing its transmission.

Acknowledging these challenges, here’s what the numbers look like, as best we can determine.

On the cost side of the ledger, it is difficult to disentangle the costs of the shutdown policy from the costs of the coronavirus itself. Many of Trump’s supporters talk as though the economy would fully re-open if the restrictions were lifted. But even if governors around the country lifted their emergency orders overnight, would life return to normal, and the stock market revive fully? Likely not. There would still be a new and dangerous virus in the country. Aside from the thousands, maybe millions, who became sick, many more people would still stay home while the risk of infection remains high.

To get a handle on the costs of current policies, one must identify the elusive “counterfactual” scenario—what would happen if the government did nothing. If we assume that most people would choose to stay home regardless of any government action, then the costs of government orders to stay inside and close businesses could be close to zero. At the other extreme, Federal Reserve analysts have estimated that GDP could decline by as much as 50 percent in the second quarter of this year. If we assume that it’s really government orders driving this behavior, and otherwise people would be going about their business, then the cumulative cost of the government’s response is vast, as much as $2.5 trillion just in this quarter. The cost over the long-term would be even higher.

The true cost likely falls somewhere in between these extremes. The debate in Congress about the proper amount of stimulus might be instructive. One way to look at the $2 trillion stimulus package passed last week is as an attempt by the government to make Americans whole for the costs of being forced to stay home by government orders. Provisions of the stimulus bill directly address these costs—increasing unemployment benefits and broadening eligibility for millions of recently unemployed Americans, as well as loan and grant programs that may allow small businesses to make payroll during the shutdown.

Then there is the benefits side of the ledger, which is also difficult to gauge. A study from Imperial College London estimated that as many as 2.2 million Americans might die as a result of Covid-19, but this was an early estimate that basically assumes no behavioral responses from the public as the disease devastates the country. Even if we assume that number is a reasonable upper limit on how many people might die, there’s still the question of how effective government policy will be in changing the trajectory of the pandemic’s progression and saving lives. Some epidemiologists believe that as soon as the social distancing efforts end, the virus will return with a vengeance.

Here’s where assigning a dollar value to life-extending benefits enters the equation. One common way to do this is by using the “value of a statistical life,” or VSL, which reflects what current citizens are willing to pay to reduce their own risk of death. (It’s usually estimated by looking at how much extra compensation workers in dangerous professions get paid.) Estimates of the VSL vary, but tend to average about $10 million for Americans. If we assume, for example, that the government’s response to Covid-19 prevents an enormous death toll of 2 million citizens, the value of all those prevented deaths could be as much as $20 trillion.

However, the value of a statistical life is not universally accepted by economists. For one thing, what an individual is willing to pay to reduce risk might be very different from what society should pay. A person nearing the end of life might find it rational to expend all of his or her wealth on potential life-extending treatments. But society, which will endure past any of our individual lives, ought to be more frugal with its finite resources.

An alternative approach to the VSL is to consider the productive contributions associated with extending life—that is, the economic value people are expected to contribute. Such an approach is commonly employed when valuing the benefits of regulations that enhance our health. For example, an environmental policy that prevents asthma attacks or non-life-threatening illnesses might end up saving society money by reducing hospital stays or emergency room visits. Compared with the VSL, this approach provides more of an apples-to-apples comparison between benefits and financial costs. It accepts that the true value of a life is likely undefined, but we are at least able to estimate the economic value each person creates.

One 2009 study estimated the total value of worker production at different stages of life, including the value of “nonmarket” roles such as staying at home to raise kids. The authors estimated that the present value of future worker contributions ranged from about $91,000 to $1.2 million in 2007, depending on the age of the worker.

Age is an important factor in the coronavirus pandemic, too. The CDC has reported that, as of March 16, 80 percent of U.S. deaths from Covid-19 have been people ages 65 or older. Combining the CDC’s numbers with the aforementioned estimates of the value of worker production at various ages (and updating them for rising productivity and inflation since 2007), we end up with an expected value of forgone earnings for victims of Covid-19 of about $414,000 per person. Even this estimate of benefits—already drastically lower than the VSL at $10 million—likely overestimates the economic value of workers in cases when the cost of replacing them is relatively low.

In other words, the economic benefit of preventing all those potential deaths depends on which controversial measure you use: In this case, upper-bound estimates of mortality benefits associated with government interventions range between $20 trillion with the VSL approach and $828 billion if the worker production approach is extended to 2 million lives saved. Twenty trillion dollars is roughly the value of an entire year of the nation’s GDP; $828 billion is considerably less than the value of Congress’ latest economic stimulus bill.

There are other costs and benefits to account for as well. On the one hand, a prolonged shutdown of the economy could increase some health risks for those who lose their jobs, a knock-on cost of impoverishing so much of the citizenry. On the other hand, Covid-19 has been shown to cause significant lung damage among some of those who recover; reducing those cases is another potential benefit of government action. An economic shutdown could even have unexpected benefits—for example, a decrease in air pollution or the number of car crashes.

To go strictly by the numbers, Trump may well be right that the government “cure”—in the form of restrictions on commerce and movement—might be worse than the Covid-19 disease. But it’s also possible, given what we know, that everything the government is currently doing is worth it, and relatively inexpensive to boot.

Cost-benefit analysis can offer us a way to think about decisions, and put some boundaries around the likely outcomes. But even in simpler circumstances, it cannot always provide bright-line recommendations. And it can’t answer our deepest and most profound questions. In some cases, the calculus has to be driven not by a set of numbers, but by our values.


Social Distancing Saves Lives. So Do Recessions.

If you’re weighing a recession versus a pandemic in terms of lives lost, there’s no contest. Contrary to popular belief, deaths go down during economic downturns.
Anne Case and Angus Deaton are economists at Princeton University. They are the authors of the recently published book Deaths of Despair and the Future of Capitalism.

When Donald Trump tweeted in late March, “WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF,” a lot of people had questions about what “worse than the problem” meant, exactly. “You’re going to lose more people by putting a country into a massive recession or depression,” he clarified a few days later in a Fox News town hall. “You’re going to lose people. You’re going to have suicides by the thousands.”

The assumption that people die more in recessions feels right, and so it seems like a good reason to suggest risking a more severe coronavirus outbreak with lighter restrictions on businesses and people, instead of inviting the worst economic crisis since the 1930s. There are, after all, a lot of reasons to imagine such a surge in deaths could happen: lost healthcare due to lost jobs, which would make people more vulnerable to otherwise preventable deaths and, of course, suicides.

But the assumption that people die more during recessions is wrong, at least in wealthy countries. Past economic downturns show that, in fact, mortality rates go down in recessions, for a number of reasons. If you’re weighing the human cost of a recession or depression against the human cost of illness and death from the virus itself, as Trump and policymakers across the country are doing right now, it’s important to keep in mind that the toll of a recession in terms of lives lost is not a factor.

It’s true that poor people die younger. That was true in France and Britain in the 19th century, and it is true in the United States today. People in their mid-40s in the top 1 percent of tax returns have about 15 more years to live than people in the bottom 1 percent. Yet is it not true that when people get poorer, they are more likely to die; annual death rates are lower in recession years than in boom years.

In our recent book, Deaths of Despair and the Future of Capitalism, we argue that the long-term, 70-year, slow-motion collapse of work, wages and community for working-class Americans is the root cause of the epidemic of drug overdose, suicide and alcoholism that has ravaged less-educated men and women. That epidemic, and those deaths, came after a slow and prolonged decline in the wages and jobs that supported working-class life—very different from the normal upswings and downswings of the business cycle. Despair came over years and decades, not from a short-term downturn in the economy.

One of the first studies of health and recession was published almost a century ago by sociologists William Ogburn and Dorothy Thomas (the first woman to be tenured at the Wharton School). They made the important distinction between “lasting changes in the economic order”—such as the Industrial Revolution or, to extend to our own work, the erosion of working-class life that underlies deaths of despair—and “brief swings in economic prosperity and depression, around the line of general economic trends,” such as the Great Depression.

They examined booms and busts from 1870 to 1920 and found, to their own astonishment, that death rates rose in good times and fell in bad times. They were careful not to overstate their findings—“we do not draw a definite conclusion”—so strong was the seemingly obvious presumption that bad times bring death. That presumption is widely held to this day.

One might think the pattern of recessions and death from a century ago is different from today. A century ago, pneumonia, influenza and tuberculosis were the leading causes of death, not cancer and heart disease. Deaths were “younger,” with death rates among infants higher than death rates among the elderly, the inverse of today’s pattern. Sixteen out of every 100 children did not live to see their first birthdays.

But the same pattern of recessions and deaths held throughout the 20th century. Mortality rates fell from 1930-33, the four worst years of the Great Depression; in the 1920s and 1930s, mortality rates were highest in the years of fastest economic growth. The same was true for the longer period from 1900 to 1996. Business cycles differ to some extent in different U.S. states, and mortality was lower in bad times state by state in the 1970s and 1980s. The same was true in England and Wales for economic fluctuations from 1840 to 2000. The relationship was stronger at some times than at others, but the pattern was consistent: Mortality declined more rapidly in bad times, and declined more slowly or even rose in good times. Europe and Japan show the same pattern.

What about the Great Recession after the financial crash in 2008? The economic effects were most severe in a few European countries, like Spain and Greece. Remember Greece? Its economy was so devastated that it threatened to crash out of the Eurozone. In the United States, it was used as the bogeyman, the perennial warning of what might happen to us if we did not get our fiscal house in order. Unemployment in Greece and Spain more than tripled, to the point where more than a quarter of the population was unemployed. Yet Greece and Spain saw increases in life expectancy that were among the best in Europe.

For the Great Recession in the United States, the story is more complicated, because the years after 2008 saw a large and growing epidemic of deaths of despair. But deaths of despair began to rise in the early 1990s and grew inexorably into the 2010s. They rose before the Great Recession, and grew during and after the Great Recession; the line of rising deaths shows no perceptible effect of the collapse of the economy.

The big question is: Why? And why is our intuition so wrong?

Many of us have the haunting vision of ruined financiers hurling themselves out of skyscrapers and off of bridges during the great crash of 1929. These accounts were doubtless exaggerated, but suicides did indeed increase during the subsequent Great Depression. Suicides, however, are the exception, not the rule, and they are a small share of total deaths. In 2018, there were 2.8 million deaths in the United States, of which 48,000 were suicides—less than 2 percent of the total. Each is a tragedy, but it takes very large changes in suicides before the suicide tail wags the mortality dog.

Why might the non-suicide deaths decline in recessions? High activity rates bring dangers. There are more traffic accidents. There are more occupational accidents when construction is booming and factories are running at full tilt. There is more pollution, a life-threatening danger for some infants. It is also possible that busier lives bring stress, and that stress brings heart attacks. Or that people have less time for exercise, healthy meals and self-care. In today’s rich economies, most deaths are among the elderly, and many older people are cared for by low-wage workers. When the economy is booming, when there are better paid jobs elsewhere, it is much harder to hire and retain these workers for nursing and elder-care homes. Care matters.

Which brings us back to suicides. Because suicides usually do rise in recessions, we think that there is a plausible case that the forthcoming recession will bring more suicides. But not inevitably.

Mass layoffs from plant closures have often brought suicides in their wake. Today, people are losing their businesses; workers and owners whose livelihoods and lives are structured and given meaning by what they have created—restaurants and coffee shops, bookstores, small businesses and non-profits of all stripes—may reasonably fear that they will never reopen, even if government packages provide some relief. They may feel shame that they did not make provision for such a calamity, shame unlikely to be shared by the managers of corporations who used their profits not to build a rainy day fund, but to buy back shares that enriched themselves and their shareholders, knowing that they would be bailed out in a catastrophe.

This recession, unlike others, involves social distancing or, for many and increasingly more as infection rates rise, isolation. Social isolation is a classic correlate of suicide. The United States has a suicide “belt” that runs north-south along the Rocky Mountains where population density is low. New Jersey, where we live most of the year, has the lowest suicide rate in the country; Montana, where we spend August, has the highest. Zooming in, Madison County, Montana, has a suicide rate that is four times higher than that of Mercer County, New Jersey. Isolation and depression can be deadly. Think, too, of the millions of people in recovery programs, like Alcoholics Anonymous, whose sobriety depends on community support. Social distancing will also bring more suicides this time around if hospitals are slow to respond, so that more attempted suicides may succeed.

Yet there is an important counterargument. Suicides tend to be low in wartime, especially when leaders can build social solidarity, the opposite of social isolation. Winston Churchill inspired the British in World War II. Governor Andrew Cuomo is inspiring New Yorkers (and many other Americans) who listen to his broadcasts. If the rhetoric of fighting the common enemy wins out against the possibility that Americans are jobless, alone, terrified and without meaning in their lives, even suicides could be low in the months ahead.


Here’s What Happened When Social Distancing Was Used During the Spanish Flu

The economy took a hit during the 1918 influenza pandemic, but cities that intervened earlier and more aggressively fared better.Emil Verner is an assistant professor of finance at the MIT Sloan School of Management.

The Covid-19 outbreak has sparked urgent questions about the impact of pandemics on the economy. Will our effort to fight the disease by locking down citizens and businesses do more damage than the disease itself? Because pandemics are rare events, policymakers have little guidance on how to manage the crisis. But looking at past pandemics—both the public health responses and their economic impact—can provide some insights.

The most frequently cited comparison is the 1918 Spanish flu, which similarly swept across the world and triggered widespread shutdowns in response. In a recent research paper, Sergio Correia, Stephan Luck and I examined the impact of 1918 pandemic in the United States to answer two sets of questions. First, what are the real economic effects of a pandemic, and how long do they last? Second, do public health interventions meant to slow the spread of the pandemic, such as social distancing, have economic costs of their own?

Our research compared different areas of the United States that were more and less severely affected by the 1918 flu, as well as areas that were more and less aggressive in their use of public health tactics to slow it down. (The technical term for the tactics we measured is “non-pharmaceutical interventions,” or NPIs.) The public health measures implemented in 1918 resemble many of the policies used to reduce the spread of Covid-19, including closures of schools, theaters and churches, bans on public gatherings and funerals, quarantines of suspected cases, and restrictions on business hours.

We came away with two main insights. First, we found that areas that were more severely affected by the 1918 flu saw a sharp and persistent decline in real economic activity. Pennsylvania, for example, experienced a substantial fall in manufacturing employment and banking sector assets, compared with less affected states like Michigan. The decline in economic activity was large—with an 18 percent decline in manufacturing output for the typical state—and lasted for several years after 1918.

You can see the economic disruption reflected in newspapers of the time. On October 24, 1918, the Wall Street Journal reported: “In some parts of the country [the flu] has caused a decrease in production of approximately 50 percent and almost everywhere it has occasioned more or less falling off. The loss of trade which the retail merchants throughout the country have met with has been very large. The impairment of efficiency has also been noticeable. There never has been in this country, so the experts say, so complete domination by an epidemic as has been the case with this one.”

Second, we found that cities that implemented early and extensive public-health measures suffered no adverse economic effects from these interventions by 1919; in other words, the interventions did not make the economic impact of the flu worse. On the contrary, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic subsided, compared with cities that intervened less aggressively.

Minneapolis and St. Paul, Minnesota, just across the river from each other, illustrate the difference clearly. In 1918, officials in Minneapolis quickly put restrictions into place and kept them for a relatively long 116 days. Officials in St. Paul acted much more slowly and only kept public health measures in place for 28 days. The death rate from influenza in 1918 was 24 percent higher in St. Paul (481 deaths compared with 388 deaths per 100,000 residents, respectively). And Minneapolis’ economy didn’t suffer from the restrictions. On the contrary, employment growth was twice as high in Minneapolis in 1919 as it was in 1914, when the previous manufacturing census was taken. These findings suggest that, at least in the medium term, there was no tradeoff between implementing public health measures and economic activity.

This result might be hard to grasp at a time when millions of Americans are currently filing for unemployment amid the coronavirus pandemic. How can it be that shutdown tactics like school closures and restrictions on business hours could actually benefit the economy?

The reason is that pandemic economics are different from ordinary economics. In ordinary times, business shutdowns and other restrictions are bad for the economy, as they limit economic activity. But it’s important to remember that in a pandemic, the disease itself is extremely disruptive to the economy. Households do not want to spend money or go to work if it involves a major health risk, and businesses do not want to invest because economic conditions are so uncertain. The alternative to these public-health restrictions is not a normal functioning economy, but rather a widespread, debilitating outbreak of disease that causes major economic disruption in the short and medium term. As a result, measures to fight the pandemic can actually benefit the economy in the medium term, as they target the root of what is ailing the economy—the pandemic itself.

Of course, there are a number of important differences between the 1918 flu and the current Covid-19 pandemic—most importantly, that the 1918 flu was significantly more deadly for healthy, working-age adults. But our research suggests that public health interventions such as social distancing should not be viewed as economically costly. Doing nothing could be far worse.


There’s No Tradeoff Between the Economy and Our Public Health

Both are measures of human wellbeing. That’s what we should maximize right now.Will Wilkinson is vice president for research at the Niskanen Center.

In light of political pressure and expert estimates that the Covid-19 pandemic could now rack up a six-digit American death toll, President Donald Trump has (for now) backed down from his threat to ease off social distancing measures, reopen the economy and “fill the pews” on Easter. But he has suggested nonetheless that efforts to protect the health of the American people undermine the vitality of the economy.

The physical separation that is now necessary to contain the Covid-19 pandemic does come with a shocking price tag. Because we’re paying so dearly to limit the risk of mass sickness and death, it can be tempting take the next step and imagine that if we were to toughen up and bear a bit more risk, we could maintain a much healthier economy with only a bit more suffering and loss.

Considering the tradeoffs of one kind of suffering against another, weighing their relative costs and benefits, seems reasonable. But it can also lead us into error. The tradeoff Trump has alleged between “the economy” and “public health” conceives of them as something like knobs you can’t turn up without turning the other down. But they are, in fact, mere abstractions, intellectual tools for inspecting different aspects of the same thing: the well-being of the population. Economic indicators measure well-being (very roughly) in one way; public health indicators measure it in another. But their common subject is how well people are doing.

Wealth and health go hand-in-hand at both the individual and the collective level. Because healthier populations are more productive, and wealthier societies can afford better measures to protect the health, safety and environment of their people, there’s generally little tradeoff between the public health and economic performance. Tradeoffs are rife in public policy, but the tradeoffs involved in public health initiatives around, say, seatbelts, smoking, guns and food generally have more to do with individual autonomy and wariness of nanny-state paternalism.

Formal economic models abstract away from other aspects of human wellbeing when they conceive of money as a proxy for “utility,” or the value of consumption. More money lets you consume more (or forego less) of what you want. A higher level of consumption, enabled by a less constrained budget, generates a higher level of “utility” or “welfare” in economic models simply because that’s how “utility” and “welfare” are defined in the models. But this doesn’t necessarily tell us what we want to know—especially when we’re struggling to contain deadly mass contagion. “Utility,” in the economist’s formal sense, doesn’t refer to a subjective experience of pleasure, happiness or satisfaction with life, and “welfare” doesn’t refer to objective human health and flourishing.

None of this is to say the means to buy the necessities and pleasures of life is not an absolutely essential element of wellbeing. Poverty does cause misery, sickness and death, and measures of wealth are still incredibly valuable. But they’re valuable because we value our lives and how well they go. Viruses don’t discriminate between rich and poor, and the “utility” and “welfare” of economic production and consumption are worth rather less to people struggling to breathe, and worth nothing at all to people who are dead.

Once we acknowledge that the epidemic and the economic slowdown aren’t really two problems, but simply two aspects of a threat to our population’s wellbeing, the policy response becomes clearer. Letting the epidemic rip without mitigating measures would eventually take a catastrophic toll on the economy anyway, in addition to the atrocity and trauma of an overwhelming level of sickness and death. The economic cost of idling the economy to contain the spread of the virus is more immediate than that long-term cost, so it’s the one we are thinking about—but incurring it now better protects the overall wellbeing of the population by minimizing the total loss to health, life and economic capacity.

The danger of fixating on narrow economic indicators of wellbeing, and the need to take a more holistic perspective, has led a number of economists and social scientists to advocate replacing measures like GDP with something like “Gross National Happiness.” Bobby Kennedy captured the spirit of this thinking when he famously complained that it’s confused to treat a metric like GDP, which fails to capture “the health of our children, the quality of their education or the joy of their play,” as the master indicator of our society’s wellbeing. GDP does tell us roughly how much wealth our economy produces, and how much the population has to spend, which is something we need to know. However, as Kennedy rightly observed, “it measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”

Another reason that we can’t turn to economic measures alone to understand how to respond to this crisis is that standard economic models are upended by epidemics. These models assume that physically proximate economic production and exchange generally leave us, and the economy as a whole, better off. But epidemics transform “brick and mortar” workers and customers into vectors of viral transmission, rendering economies based on integrated networks of physical nearness vulnerable to exponential growth in rates of deadly infection. Dead people don’t buy anything, and rampant illness hammers the productivity of workers and the profits of firms. Which is just to say, in the language of economics, that contagious virulence creates a “negative externality,” or harmful spillover effect, from physically proximate labor and market exchange. Simply showing up for your shift at Starbucks, or strolling in to grab a latte, means that you might be, or might become, the living, breathing equivalent of a factory belching toxic sludge into the drinking water.

If the risk of dangerous infection is high, the total harm to health, life, productivity and consumption imposed by the bustle of normal low-distance economic activity can easily exceed its usual economic benefits. When that’s the case, the level of spatial distancing needed to ensure that each infection leads to less than one new infection is economically efficient; it’s the best we can do given the constraints. Economic growth may be impossible in the context of a galloping pandemic. The best we can hope for is to suppress it in a way that minimizes the severity of the economic Ice Age.

It’s crucial to grasp the main constraint within which we are currently forced to optimize is that, thanks to the Trump administration’s slow and hapless response, we don’t know the real rates of infection. If we could better estimate the risk of showing up at Starbucks, we could determine the epidemiologically necessary and economically optimal level of social distancing. If we knew which workers and patrons are most likely to be infected, we could usefully surmise who can safely go on as usual and who should stay home.

For now, all we can do is focus on how to keep as many people well as possible. In the end, measures of economic performance alone—whether GDP or the Dow Jones—don’t always track the things we cherish most. My wife’s mother, and my children’s one living grandmother, is a respiratory therapist in Connecticut. We’re worried sick about her, because we all love her, and she desperately loves my children. Money is great, but it isn’t everything. It would be a cosmic tragedy if we were forced to trade love against prosperity. But we aren’t. Failing to protect the people we love won’t leave more money in our pockets. It will leave them even emptier, and with holes in our lives that we can never fill.
With a Little Ingenuity, We Can Reopen Much of the Economy Right Now

A large swathe of jobs somewhere between “essential” and “optional” could be reengineered so people can go back to work soon and safely.Jonathan Caulkins is professor of operations research and public policy at Carnegie Mellon University’s Heinz College.

The Covid-19 debate about when and how to reopen the economy has become dangerously binary. Yes, “life-sustaining” sectors like hospitals and electric utilities must operate unimpeded, and optional, public-facing ones like concerts, dine-in restaurants and theme parks likely aren’t worth the risks for now.

But keeping Americans safe doesn’t require shuttering the rest of our jobs. It does, however, require re-thinking how people do them. There’s a large swathe of jobs, somewhere between essential and optional, that could be reengineered to allow many to get back to work soon and safely.

The logic for all-but shutting down the economy is that doing so will stop the virus’ spread and allow mass testing to catch up. But even with all-out shelter-in-place efforts, we will likely still be living in the age of Covid for the rest of this year at least. Keeping businesses’ doors completely closed will have huge costs. Given this possibility, we need to figure out how to work sustainably in this new reality.

The stakes are enormous. In February, the leisure and hospitality sectors together employed 16 million Americans, and fewer than 6 million Americans were unemployed across the entire economy. Soon, because of limitations on social gatherings, those figures could be reversed. That is a steep but necessary price to pay; gatherings at bars, theaters and other public venues, are inherently dangerous right now.

We’ve already figured out how to protect many white-collar jobs—just work from home online. But we also can and should reengineer some blue-collar jobs—on-premise, physical work—so it can get done while maintaining social distancing.

Manufacturing is a prime candidate. Major automakers have closed their plants in North America, putting their laborers out of work. But these companies could be allowed to reopen if they can demonstrate that they have developed safe operating practices. True, factories involve people working together, but so do hospitals and grocery stores. And factories aren’t at all like bars or nightclubs: Already, the general public isn’t allowed inside, and many are large facilities with relatively low densities of employees because so much of the work involves heavy machinery. China is pioneering ways of getting factories back online while having workers practice social distancing. Those practices are now a crucial competitive advantage that U.S. workers need to catch up to. To take just one small example, painted lines could be used to define specific pathways where people can walk on factory floors.

Like manufacturing, construction does not directly involve the public, and is capital-intensive. Extended hours on construction sites could let the same work get done with fewer people on premises at any given time. Keeping just these two sectors—manufacturing and construction—alive could spell the difference between severe recession and depression. Together, they employ more people in the United States (20 million) than leisure and hospitality, and their share of economic output (23 percent) is even greater than their share of employment (12.4 percent).

Conceivably, there are even ways that furniture, clothing and other general stores could reopen on a limited basis, with employees but not customers allowed on site. Knowledgeable clerks literally walking through store displays with customers on FaceTime might have a chance to compete, at least in some instances, with Amazon. Shutting down stores altogether denies them that chance. If letting employees into a furniture store seems dangerous, note that anyone can now walk into Target or Walmart to buy a lamp or a chair right now. Those stores remain open because they also sell groceries, even though the furniture stores with which they compete at lamp-selling are forced to sit idle.

In addition to opening up more of these kinds of jobs and businesses, we should also think differently about some of the industries that are deemed “life sustaining.” Right now, those industries can basically operate as they see fit. That makes sense for hospitals—but not gas stations or grocery and convenience stores.

Of course, gas stations should remain open, but self-service involves scores of people touching the same pump handle every day. With so many people needing work, why not require gas to be pumped by gloved attendants with payments made online? That’s feasible; New Jersey bans self-serve stations, and until recently so did Oregon. Gas would be a little more expensive, but these days people are generally willing to pay a little more for safety.

Many grocery stores are taking steps to make their spaces safer, by sanitizing shelves and shopping carts more frequently or capping the number of shoppers at a given time, but they could do more. Making aisles “one-way” would ensure that shoppers never pass each other face to face. Produce could be pre-bagged so customers are not touching three tomatoes before taking one, and “comparison shopping” could be discouraged for the same reason. Before coronavirus, there was “you break it, you buy it”; now maybe it’s “you touch it, you buy it.” At checkout, cashiers could replace paper receipts with e-mails. (Speaking of which, credit card companies are allowed to operate right now, but why not push them to replace swipe cards with contact-less “tap and pay” cards?)

It’s not that companies viewed as essential have made no changes, but they are haphazard and undirected. A concerted and systematic effort to reengineer public-facing essential businesses would almost certainly cut virus transmission by more than would reengineering and reopening shuttered sectors that don’t inherently involve so much person-to-person interaction.

The original idea of two-week shutdown wasn’t long enough to eradicate the virus, and a two-month shutdown will do permanent damage to the economy. Neither protects against Covid returning in the fall or some other pandemic striking next year. Instead of seeing only two possible options—reopening the economy as before or keeping it closed until further notice—we need to be more flexible. We can start by inventing ways to reengineer the vast middle of the U.S. economy so that it can operate sustainably in the Covid age.

We Were Skeptical Social Distancing Was Worth the Economic Cost. Then We Modeled It.

The costs of slowing the economy are high. But they are worth it from an economic perspective.
Linda Helena Thunstrom, Jason F. Shogren, David Finnoff and Stephen C. Newbold are professors in the Department of Economics at University of Wyoming. Madison Ashworth is a graduate student in the university's Department of Economics. and public policy at Carnegie Mellon University’s Heinz College.

Should we think about the economic costs to saving lives as Covid-19 sweeps through the United States? It seems cold-hearted to do so in the midst of a pandemic that has already claimed more than 5,000 lives in the United States and puts millions of others at risk. Yet we consider costs to most of the actions we take, small and large, in our daily lives. And as the extent of lost jobs, missed rent payments and lost healthcare from those lost jobs comes into view, we have a responsibility to assess that damage, too.

Because no vaccine or effective treatments are yet available for Covid-19, the only way to slow the spread and reduce the severity of the outbreak is to implement a strict form of social distancing. In the United States, this has meant temporarily closing schools, universities, daycare centers and tourist attractions, cancellations or suspensions of national sports leagues, shelter-in-place orders and travel restrictions. These are unprecedented measures that come at a large economic cost.

We’re a team of economists at the University of Wyoming, and from the first days of social distancing, some of us were publicly wondering if the preventive measures taken to slow the spread of the virus would incur costs that might make us regret those measures in the long run.

So, we decided to run the numbers for a scientific article that’s currently under peer review. And we found, using a figure known as the “value of a statistical life” (VSL), that the value of lives saved through distancing measures exceeds the value of lost GDP by almost $3.4 trillion. In other words, yes, social distancing is “worth it,” also from an economist’s point of view, based on the current information about the economic consequences and disease spread.

To come to this conclusion, we first estimated benefits from social distancing in terms of the value of lives saved. To do so, we used a standard epidemiological model designed to forecast the numbers of susceptible, infected and recovered individuals over the course of an infectious disease outbreak. Then, we compared the predicted disease spread and number of deaths in the United States in two scenarios: one with social distancing measures, in which the spread is slowed and the total number of infections is reduced, and one without social distancing measures, in which the virus spreads unabated. For the social distancing scenario, we assumed a contact rate between humans about 40 percent lower than that in in the scenario without distancing. In the model, we concluded that 1.2 million lives would be saved by social distancing measures.

Next, we used a standard estimate for the value people assign to reducing their personal risk of death, VSL. It’s a controversial figure among social and behavioral scientists, given the provocative idea of assigning values to human lives. Further, the appropriate value is continuously debated among economists. Nevertheless, the VSL is frequently used in official policy analyses, consistent with guidance by the White House Office of Management and Budget. In our analysis, we assigned a VSL of $10 million, based on the values used by federal agencies, which gives a total value of lives saved of $12.2 trillion for those 1.2 million people.

Next, we estimated the costs from social distancing, in terms of the value of lost GDP. To do so, we compared the GDP development with and without social distancing. We forecasted GDP growth this year and the next six years.

Our forecast with social distancing is based on macroeconomic reports by Goldman Sachs. With social distancing, we assume GDP will drop by 6.2 percent this year (Goldman Sachs’ forecast from March 31), and that it will take approximately three years until the economy has recovered from the recession. Our forecast of the baseline U.S. GDP growth this year without social distancing relies on recent macroeconomic research that predicts the short-run economic impact of a pandemic this year, without accounting for stringent social distancing, would cause a 2 percent decline in GDP.

We assumed the same proportional rate of recovery for the economy with and without social distancing, so GDP growth would return to a new steady rate after three years in both scenarios.

The difference in the GDP reduction of these two scenarios—the 2 percent decline in the scenario without social distancing, and the 6.2 percent with social distancing, with a three-year recovery time in both scenarios—is $8.8 trillion. That’s our estimate of the hit that the United State GDP will take over the course of three years from social distancing lasting into the summer months this year.

But remember, the value of lives saved was $12.2 trillion. This rapid benefit-cost analysis suggests the net benefits—benefits from lives saved minus costs from GDP loss—amounts to $3.4 trillion dollars. Our results suggest that social distancing passes a cost-benefit test.

The final outcome, however, could depend crucially on policy choices yet to be made. Much uncertainty surrounds both the trajectory of the disease in the coming weeks and months and that of the economy in the coming months and years. As an illustration, based on just a 10-day-older, and more optimistic, GDP forecast by Goldman Sachs, we found net social benefits of social distancing amounting to more than $5 trillion, as opposed to our current best estimate of $3.4 trillion. This illustrates an important point—we gather more data as time goes by, and we likely will not know with confidence the impact of social distancing on the economy or disease spread until after the crucial policy decisions need to be made.

Further, the public health response and the economic stimulus might determine whether the social distancing measures taken in these crucial weeks will be viewed as a difficult but necessary response, or instead as a gross over- or under-reaction. But that does not take away from the importance of doing our best to make rapid assessments that inform policy today. We will have to live with second-guessing our decisions, but first guesses without systematic comparisons of the benefits and costs will likely be regretted more.

martes, 24 de marzo de 2020

Trump bets that voters are as impatient as he is

The president’s political calculus on coronavirus is now clear — let others own the shutdowns.

President Donald Trump’s vow Tuesday that he would “love to have the country opened up and just raring to go by Easter,” less than three weeks from now, was the clearest signal yet of the political logic he hopes to follow in a presidential campaign shadowed by global pandemic.

He is eager to own the only good thing about a crisis that has paralyzed the country and left millions of people in housebound despair: The reality that life will at some point slowly lurch back to normal.

He is determined to make other people—specifically, governors and public health officials—own everything else, including the reality that massive shutdowns will continue long after the Christian holy day on April 12.

Trump’s Monday evening briefing at the White House and his remarks this afternoon at a “virtual townhall” hosted in the Rose Garden represented a new chapter in audacity from a president who has already authored volumes on the theme.

His pledges about a return “much sooner than expected,” as he put it Monday, to a functioning economy, in which people can return to work and schools and the familiar rituals of consumer culture, is in defiance of what health experts in his own administration say will likely be necessary to slow the spread of COVID-19 and prevent hospitals from being overrun. It is in defiance, too, of closures of schools and businesses that governors in both parties have already ordered beyond April 12.

Increasingly, though, it has become clear that the gap between Trump’s optimism and impatience and the caution and gravity of other figures in the crisis is exactly the point, in political terms.

It reflects his reading of the power dynamics of this crisis. The one thing he has complete authority over is the words that come from his own mouth. Other people, especially governors, can assume the legal authority over closures and public sacrifice that flows from them.

This appraisal reflects a narrow view of presidential power, especially from someone who is often perceived as trying to expand the prerogatives of his office. No concern about federalism likely would stop a president who wanted the responsibility from leading a consistent nationwide response in concert with state and local officials, who would be hard-pressed to stand in defiance of a national plan.

But it has become clear that when it comes to coronavirus Trump does not want this responsibility. He says governors are free to navigate the situation in their state; he’s also free to second-guess any decision they make that he doesn’t like.

In the Fox News session, for example, Trump took shots at New York Gov. Andrew Cuomo, who has pleaded with the administration for help in getting more ventilators to the state, currently the county’s epicenter of COVID-19 and nearing the limits of its capacity to help stricken patients.

He referred to unsupported allegations from former New York Lt. Gov. Betsy McCaughey that in 2015 Cuomo had turned down a chance to increase the state’s ventilator stockpile. “I’m not blaming him or anything else, but he shouldn’t be talking about us,” Trump told Fox’s Bill Hemmer. “He’s supposed to be buying his own ventilators.”

Trump: America is not 'built to be shutdown'

Later in the session, when Deborah Birx, the coordinator of the White House’s coronavirus task force said New York City’s problems are exacerbated by its density, Trump interjected, “Do you blame the governor for that?” Birx didn’t answer her boss’s question.

Cumulatively, Trump’s appearances in recent days have offered an answer on the briefly in-doubt question of whether a pandemic would force alteration of Trump’s basic rally-his-partisans, blame-his-adversaries political style. The answer: no.

In a televised Oval Office speech on March 11, Trump implored: “We must put politics aside, stop the partisanship, and unify together as one nation and one family.”

Now, he has signaled that the country may be in the pandemic together—“parts of our country are very lightly affected,” he said Monday—but the response will be guided by conflicting voices. He said at that briefing if it were “up to the doctors” they would say “let’s keep it shut down” across the world “for a couple years.”

Whatever the element of political calculation, the Rose Garden appearance also made clear that Trump is also genuinely frustrated by the dictates of health experts that the more extensive the shutdown the greater the effectiveness—no matter the associated human and economic cost.

“We lose much more than that to automobile accidents,” Trump said. “We don't call up the automobile companies and say stop making cars. We have to get back to work.”

COVID-19 has so far killed under 700 people in the United States, compared to just under 39,000 auto fatalities in 2019. But disease experts say if uncontained COVID-19 could kill hundreds of thousands in the United States.

While Trump’s handling of the crisis has drawn fierce criticism from many quarters—particularly his downplaying of the severity in January and February and bogus prediction that cases would soon be “down to zero”—there is evidence that general public appraisals are more generous.

The Gallup organization Tuesday released a poll showing 49 percent job approval for Trump, tied for his highest ever.

“Trump's response to the novel coronavirus pandemic may be behind his higher overall approval rating,” Gallup said, in announcing the data. “Americans give the president generally positive reviews for his handling of the situation, with 60% approving and 38% disapproving. Ninety-four percent of Republicans, 60% of independents and 27% of Democrats approve of his response.”

The polling organization also noted that presidents typically see approval ratings rise amid crisis at home or abroad, but the gains usually prove perishable.

Washington Is About to Pick Which Companies Survive

Even with the biggest economic bailout ever, a lot of firms won't make it through the coronavirus crisis. How should Congress handle the triage?

Two ugly truths about any epic economic crisis are that not all businesses will survive, and government interventions help determine which businesses will survive.

As coronavirus crushes the economy, Washington policymakers are scrambling to figure out who to bail out, a responsibility that one veteran of the 2008 financial rescue morbidly but accurately compared to the frantic triage work that doctors are currently doing in overcrowded Italian hospitals. They don’t want to waste precious resources on patients who can’t be saved, or on patients who can recover without their help. They know they can’t prevent all deaths, but they want to prevent the preventable deaths.

“You have to decide who you can bridge through this,” he said.

That kind of economic triage is happening right now. With American commerce facing an unprecedented shutdown, and just about every business other than Amazon, Costco and Purell taking devastating hits, Washington is gripped in a bailout frenzy. Nearly every industry is sending its lobbyists to ask Congress for handouts, including the private jet industry.

The coal industry wants permission to stop making payments to miners with black lung disease.

The hotel industry alone has requested a $150 billion bailout, which would help President Donald Trump endure the cancelled bookings at his resorts.

As Congress rushes to assemble an enormous stimulus package to try to slow the freefall or at least pad the landing, it’s becoming clear that a lot of federal dollars will be sent straight to American taxpayers, but also that a lot of federal dollars will go straight to the companies that employ them. Washington’s last epic bailout, the $700 billion Wall Street rescue of 2008, was wildly unpopular but ultimately quite successful—and while a financial panic is a different kind of crisis than a viral pandemic, it has some lessons for today about when companies should get help and how that help should be delivered.

These are political questions, and in the current congressional negotiations, Democrats are pushing for more aid for families, especially poorer families, while Republicans are pushing for more aid for businesses, with fewer strings attached. But there’s a growing bailout literature—including a new academic treatise, titled First Responders, produced by the architects and engineers of the last bailout—that suggests some answers are better than others.

In any case, Washington is about to send jetloads of money to American capitalists—perhaps not yet as much as the $700 billion it authorized in 2008 for the financial industry after the worst financial collapse since the Great Depression, but certainly more than the $80 billion it ended up injecting into the auto industry to soften the Great Recession in 2009. Trump’s own trillion-dollar proposal included $500 billion for businesses, and that figure seems to be growing as congressional leaders hash out a deal.

Ideally they’d be able to think long and hard about who to bail out and how the bailouts should be structured to minimize the short-term and long-term suffering. Right now they don’t have time to think long, but here are some hard problems they’ll need to consider.
The Pandemic Priority

Some of the industries begging for bailouts are truly vital to the U.S. economy. Many are on the cusp of huge layoffs that would cause awful pain. And none are responsible for the pandemic that’s destroying their bottom lines. But triage is about priorities, and Washington’s top priority is as spectacularly obvious as it has been largely absent from the stimulus debate: It needs to do everything it can to contain the coronavirus right now. The first rule for getting out of a hole is to stop digging, and that means throwing money at any business that can make more tests, masks or ventilators, provide more hospital beds or medical supplies, or otherwise help get the pandemic under control.

Trump’s two-page stimulus proposal did not specify one dime for these industries, but it’s the length and severity of the pandemic itself that will determine the ultimate fate of the airlines, the hotels and every other American business. Any aid that isn’t directed towards ending the pandemic is a Band-Aid.

It may seem unfair to send other blameless industries to the back of the line, especially after Washington approved $700 billion for too-big-to-fail banks that actually caused the cataclysm in 2008, but it really reflects the same principle. The crisis in 2008 was a financial panic, an all-out run on the financial system that props up the economy; the only way to end the panic was to assure depositors and creditors that their money would be safe in the system, and the only way to do that was to have the government stand behind the banks.

The crisis today is a public health catastrophe, and the only way to get cruise lines and hotels and factories back in business will be to stop the spread of the virus. So those industries don’t have a special claim to be first in line for bailouts—except insofar as cruise ships and hotels could be repurposed to quarantine the sick, or factories could be repurposed to make necessary medical equipment.

The financial bailout worked in 2008, and every dime the government invested in dying banks was repaid with interest after they recovered. This time, Washington shouldn’t expect to get back money it invests in the overwhelmed public health sector. But if that money helps contain COVID-19, it could save millions of businesses and trillions of taxpayer dollars.

The Critical Question

While the medical sector is the only sector vital to ending this crisis, it’s certainly possible that other industries could be deemed vital to the economy, as the auto industry was in 2009. Trump’s proposal included $200 billion worth of loans to airlines and “other critical sectors of the U.S. economy experiencing severe financial distress.” The next question in front of Washington in a time of triage is: Are any other sectors so critical to the economy that ordinary taxpayers should bail them out?

After all, just about every sector is experiencing severe financial distress. So even though more than 2 million Americans work in the hotel industry, and 15 million Americans work at restaurants, it’s hard to justify helping beleaguered hoteliers or restauranteurs through industry-specific bailouts rather than general programs to help businesses and workers. U.S. cruise lines want U.S. aid even though they’re headquartered outside the U.S. to avoid U.S. taxes. Their economic adversity is not evidently more critical for government to relieve than the adversity of shuttered barber shops or retail stores or movie theaters.

The airlines do seem likely to get a bailout, and they arguably do provide a vital economic service to a nation of frequent flyers that would be difficult to replace if they all went bust. Boeing is also seeking a $60 billion aid package, and while it might seem enraging even to contemplate helping a behemoth that was already in trouble before the pandemic because its planes kept falling out of the sky, it is America’s single biggest exporter. One lesson of the 2008 bailout, which rewarded reckless behavior but quelled a catastrophic panic, is that success should be measured by results for the nation, not by the morality of the bailout recipients.

Incidentally, another lesson of 2008 is that turbulence on Main Street—unemployed workers and underperforming businesses unable to pay mortgages and other loans—can create turbulence on Wall Street, which can then create a vicious cycle that intensifies problems on Main Street. It is unfortunately possible that if the pandemic drags on for awhile, Big Finance might need more help from Congress to stave off another panic. It would infuriate the country, especially after Goldman Sachs just gave its CEO a raise to $27.5 million, but financial markets are already deteriorating so quickly that the Federal Reserve has quietly begun to pump liquidity into faltering credit markets.

“It’s hard for markets to function when people can’t price risk, and right now there’s so much uncertainty that it’s very hard to price risk,” says Brookings Institution economist Nellie Liang, who ran the Federal Reserve's Office of Financial Stability and edited First Responders, the collection of essays by the 2008 crisis managers. “We’re definitely starting to see some dysfunction.”

This is why one Main Street solution floating around, a “Jubilee”-type mandate where the government suspends all payments on mortgages and rent and other loans for a couple months, could freak out creditors and destabilize the financial system yet again. "That. Would. Be. Crazy!" another crisis veteran told me. When governments tell creditors their secured loans are no longer secure, credit can dry up in a hurry. That’s why the Fed is starting to revive many of the lending programs it used to backstop the credit markets in 2008—including one guaranteeing private financing for creditworthy corporations outside the financial industry.

The problem, of course, is that if the pandemic drags on too long, few financial or non-financial corporations will remain creditworthy. This is why the best way to make sure there’s no need for another financial bailout, and to minimize the need for other business bailouts, would be to contain the coronavirus so that the non-financial economy can recover.

Still, it does look like the government will bail out some industries. The next questions to ask are: What kind of terms should the government impose, and what should it get in return?
Conditional Love

The three big myths about the bank bailout is that it cost taxpayers a mint, gave the banks blank checks with no conditions, and made sure no one on Wall Street lost money. In fact, taxpayers got their money back with interest, banks faced limits on executive pay—although those modest limits were lifted once the government was repaid—and most bank investors absorbed gigantic losses, while gigantic firms like Bear Stearns, Lehman Brothers and Wachovia were wiped out. And because there were real dangers to imposing onerous conditions on financial firms during a financial panic that would not apply to non-financial companies during a pandemic, Washington can be much tougher about its bailouts this time.

The first principle for any industry-specific emergency aid is that the main goal should be to get the industry through the emergency, not to bail out its investors or executives.

The government is about to blast unprecedented amounts of money into the economy, but that money ultimately comes out of the pockets of taxpayers, so it’s reasonable to ask bailed-out industries to repay the government once the emergency has passed. That means the bulk of the aid being delivered through loans or perhaps, as in 2008, government purchases of non-voting stock that avoid saddling the firms with excessive debt without subjecting them to operational control by Washington bureaucrats.

Either way, the beneficiaries of the aid should not be stockholders. There are good arguments for keeping vital industries afloat—even if they were mismanaged before the pandemic, even if they blew their cash reserves on stock buybacks. There might even be a case for government to protect their senior creditors, because financial markets can implode when it starts to look like Corporate America’s credit is no longer good. But there’s no reason to bail out their investors, who simply made bets in the financial casino that didn’t pan out. If you have money in the stock market, and you’re not a Republican senator who dumped equities after a scary intelligence briefing, you’re probably getting hammered right now; you don’t deserve special help if you happen to be invested in airlines.

Because this economic calamity is looking even worse than 2008, it’s unrealistic to expect the government to be as successful getting its money back this time. But the government actually has more leverage to impose harsh conditions on its bailouts than it had in 2008, when it was desperate for every bank to participate in the program despite the stigma.

“The banks had a gun to our head,” another former financial first responder told me. “That’s somewhat less true when the bailouts are of, say, airlines.”

Now that Washington can force bailout recipients to meet just about any demands, what should those demands be?

At the very least, Congress has leverage can demand full transparency and powerful oversight over every dollar of federal aid. The Trump administration is reportedly pushing for a $500 billion bailout fund that would not even require immediate disclosure of the bailout recipients, which ought to be a non-starter.

Meanwhile, the airlines have already volunteered to rein in executive compensation, stop paying dividends and refrain from stock buybacks over the life of their loans, a good indication that Congress could ask for more, like limiting those activities even after the loans are repaid. America’s top five airlines indulged in $45 billion worth of stock buybacks that drained their reserves before the pandemic, and it makes sense to ensure that any industry “vital” enough to get bailed out is also required to take its own survival seriously. Senator Elizabeth Warren has called for a permanent ban on stock buybacks for any bailed-out firm, as well as a $15-an-hour minimum wage and a worker representative on its board. Trump’s proposal suggested that bailed out airlines should face “continuation of service requirements.”

But it’s worth thinking about when punitive conditions can be too punitive, since the goal is to make sure these vital industries are healthy in the future. Trump’s notion of service requirements sounds like a plan to force airlines to keep flying planes with hardly any passengers, a recipe for bigger losses and bigger bailouts. Warren and other Democrats support a $15 minimum wage for everyone, but until they can pass it in Congress, does it make sense to saddle vital industries with higher labor costs than non-vital industries? Even limits on executive compensation, while clearly sensible as long as firms remain wards of the state, could make it harder for them to attract better leaders after they repay their loans.

Then again, requirements that bailed-out companies keep their workers on payroll can be onerous, too, but it’s unlikely that Washington will hand out hundreds of billions of dollars to businesses again without some kind of limits on layoffs. Bailouts aren’t only supposed to save vital industries. They’re also supposed to help the people who work in those industries.
Bailouts for the People

The easiest way to get money to ordinary Americans in an emergency is for the government to give it to them. The Republican and Democratic stimulus plans all envision sending checks to taxpayers. Democrats are also pushing for major increases in antipoverty payments like unemployment insurance, which many Republicans seem willing to accept. But there is also a powerful argument for giving aid to businesses, especially small businesses, if they use the aid to keep paying workers who would otherwise be laid off.

“We don’t want millions of people dropping onto the unemployment rolls, because once they’re on it’s hard to get off,” says one GOP congressional aide. “It’s important to keep people connected to their employers, and there’s also inherent dignity in having a job.”

That makes sense, and it would be great to limit the disruption from a near-total shutdown of the economy. But it would also be extremely difficult to do in a triage moment.

A gym, a café, a store, or any other business depending on customers who are no longer leaving their homes won’t be able to pay its employees until the virus is contained, and probably won’t be able to pay back a loan even after the virus is contained. This is why the leaders of the small business committees in the House and Senate drafted a bipartisan $300 billion plan to have the government guarantee loans covering payroll costs during the crisis, understanding that it might eventually cost much more. Americans make about $1 trillion a month, so a lot would depend on the boundaries set by Washington: Would all businesses be covered, no matter how big? Would all salaries be covered, no matter how high?

Again, there’s what Liang calls an “adverse selection problem” in essentially forgiving loans like this during a crisis; businesses that need them probably won’t be able to pay them back, while businesses that can pay them back probably don’t need them. And once the government decides to stand behind a business, there’s a natural tendency to do whatever it takes to keep it afloat. The Senate Republican stimulus proposal included that bipartisan payroll idea but expanded it to cover lease and mortgage payments for small businesses as well. And Democrats have said the latest GOP version would only require bailed-out businesses to maintain their workforce “to the extent possible,” which these days could be a pretty minimal extent.

This is all uncharted territory, because Washington is really dealing with two crises. One is the current nightmare of a nation in lockdown, a situation that is going to make it just about impossible for any bricks-and-mortar business that isn't selling groceries or hand sanitizer to stay afloat for long without government help. And then there’s the question of what the economy will need after the lockdown is over, which is even harder to answer when nobody knows how long the pandemic will last, or which kinds of businesses will be best suited to survive in a post-pandemic economy. That’s why ending the pandemic is almost infinitely more important than any other economic priority.

Keeping businesses alive is important, too, even though some of the firms that receive government medicine are going to die anyway. But that’s why the triage analogy only goes so far. Government doesn’t have the power to save every business, just as the Italian doctors don’t have the power to save every patient, but government does have the power to make sure every American has enough cash to buy essentials during the crisis. And as they spend that cash, they’ll help lay the groundwork for a recovery.

Before Washington even thinks about giving the Trump Administration a $500 billion bailout fund for businesses, it can start by bailing out the ordinary taxpayers who send money to Washington every year. Even if they aren’t too big to fail.

jueves, 19 de marzo de 2020

Mnuchin predicts ‘gigantic’ fourth quarter after coronavirus rebound

Pent-up demand will drive the economic recovery, the Treasury secretary suggests.

Treasury Secretary Steven Mnuchin. | Mark Makela/Getty Images

Treasury Secretary Steven Mnuchin acknowledged Thursday the U.S. faces months of economic contraction, but predicted a “gigantic fourth quarter” as Americans release “pent up demand” and return to “a normal world.”

In an interview with Fox Business Network, Mnuchin said he believes the economy will see its largest decline in this year’s second quarter, from April through June, followed by a third-quarter recovery as advancements in viral treatments and vaccines eventually halt the spread of the virus.

"I think you’re going to see a lot of pent-up demand," Mnuchin told Maria Bartiromo. "When we get through the next few months and Americans see what’s happening, and we have killed this virus, people are going to be comfortable going back to work."

Mnuchin continued: "We're going to be opening back business and people are going to continue what they do. They are going to live. They are going to shop. They are going to eat out. They are going to enjoy restaurants and travel and entertainment and we will go back to a normal world.”

Bartiromo pressed Mnuchin on company bailouts — a term he continues to push against. He emphasized Thursday that many of these companies will ultimately pay back any loans.

“This isn’t about bailing out bad businesses. This isn’t about banks that made bad loans," Mnuchin said. "These are about very, very good companies that have been instructed to shut down, so they need liquidity. That’s what they need."

"In most cases, my expectation is they will be able to pay back these loans. In the case of small businesses, if they can’t afford to pay back those loans, we’ll forgive them," he continued. "I don’t consider that a bailout. I consider that an incentive to keep workers hired.”

Mnuchin also clarified his reported warning to Republican senators on Tuesday that unemployment could spike to 20 percent if action is not taken. “What I said is that 40 percent of our workforce is in small business," he explained. "And I said, if half of them were let go, mathematically, we’d be at 20 percent unemployment.”

Mnuchin’s upbeat outlook comes alongside grim new data emerging from the federal government. The Labor Department on Thursday reported 281,000 new claims for unemployment insurance last week, a one-third increase over the previous week, a jump it attributed to the pandemic. It was the highest number of claims since September 2017, and economists expect that figure to soar in the coming weeks.

Asked whether economic data should be ignored in this volatile environment, Mnuchin replied, “The statistics in the short run of economics are obviously not relevant. This is an unprecedented situation where, at the government’s direction, we shut down parts of the economy and now is the time that we provide government support.”