Stripped of euphemism, America has pretty clearly made a choice. To “save
the wealth (ahem) “the economy!” at the expense of “a few million dead.” Chasing the possible chimera of herd immunity.
The problem is that is a false choice. We will definitely get the millions of dead. But we probably don’t save the wealth. The worst of both worlds.
A month or so ago, I really did not think “we” (or our elites) would make this choice. A failure of imagination on my part. Regardless, I’ll stay hunkered down and hopefully we’ll avoid the worst of the consequences. And I’ll continue to hope that I am wrong (about the death stuff especially, less so the wealth stuff).
We Have Chosen the “Herd Immunity” Strategy. Lots of Dead People Fast.
Forced to make a choice, America has chosen to preserve
the wealth “the economy.” Sacrificing a lot few million ordinary lives on the altar of mammon. Lets not pretend otherwise. Governor Kemp of Georgia and others knew what they were choosing with “early re-opening.”
- 2-3 Million Dead: The USA (or large parts of it) have pretty clearly chosen to let the pandemic run its course. Meaning we are choosing 2 to 3 million extra deaths (assume a ~1% fatality rate and 80% infection rate before we get some sort of herd immunity).
- Why sacrifice those lives? We (OK our leaders and the elites they listen too) are making wealth preservation a priority. What sort of wealth? Small-fish-nationally, big-fish-locally, “country club Republican” wealth. The strip-mall owners looking into the abyss of personal bankruptcy if those store rents aren’t get paid. The car dealers paying the carrying costs of unsold cars. The McDonalds franchise owners who face a HUGE balloon payment of rent in midsummer. The sort of person who can call the Governor and be put through.
- Assuming it won’t be “our” sacrifice. Underlying that is the personal calculus that the bulk of those deaths will happen to poorer people living in more crowded spaces. These decisions are sending “them” out to do that dying, not “us.” No shared sacrifice here.
- We will likely soon see re-accelerating infection and death rates.
- I’m no epidemiologist, but a lot of those deaths will probably happen in the next 6-12 months. Before a vaccine is readily available in 2021.
- The whole idea of herd immunity might prove to be a mirage. It isn’t clear prior infection provides protection. It might. It might not. We simply don’t know.
Having made that choice, we are now indulging in a (probably brief) period of magical thinking. Somehow we’ll save our asset values and the virus will fade away in the summer heat! This optimism seems to be what is powering the current market boom. The consequences of that choice will likely hit hard in the weeks and months to come.
Will it Work? NO? The Economy Will Still Tank. Those Strip Mall Landlords and McDonalds Franchisees Are Still Going Bust.
Forget the morality. Just ask whether this gamble will pay off. If we “re-open” the economy, will it actually re-start? No. It probably won’t. We’ll wheeze and struggle and stop-start along. The worst of both worlds.
The magical thinking here is “they” will gladly, boldly, bravely march out to face death (heading back to Disneyland), while “we” cower behind closed doors (aided by Instacart, Amazon, and remote working).
All evidence suggests “they” aren’t going to go out (and get infected and die) with enough enthusiasm to really re-start the economy. “They” will stay home. We will limp along. The rents won’t get paid. The wealth will still evaporate. Same outcome as a lockdown, but with more dead people. And more angry, bereaved survivors (and voters) left behind.
- The title of this economic paper tells you all you need to know. Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu. But it is readable and worth a look.
- Look at the Google Mobility data from Sweden, which keeps being cited as a model by the “no shutdown” crowd. Ignore the anecdotes and look at the facts. Swedish people are social distancing anyway because they aren’t f**ing stupid! Retail traffic is “only” down 13%, traffic in parks is UP 82%, transit stations down 31%. Workplaces down 11%. That all translates into a pretty sluggish economy IMHO.
- (Breaking News Today) Look At the Google Mobility Data for the state of Georgia. They lifted their lockdown a week ago. Folks in Georgia are not flocking out into the streets. Retail shopping traffic improved, but its still seriously depressed at down 23% statewide. Ominously workplace traffic actually FELL from -36% to -45% statewide. Atlanta data is much worse in general and workplace is now -60% vs -45%?!? The data are particularly ominous given assumed “pent up demand” for things like haircuts.
- Fulton county (Atlanta) has Retail and Recreation down 43% (was -52%), Transit down 55% (no change), parks down 45% (was -41%), workplace down 60% (was -44%?!?).
- State-wide has Retail and Recreation down 23% (was 34%), Transit down 44% (was 53%), parks down 15% (was +4%), workplace down 45% (was 36%).
- The US pattern will probably be worse than Sweden. At least they take it seriously. Fox news has convinced a whole lot of people this is a hoax. “Most of those polled said they doubt the U.S. death count: Nearly two-thirds of Democrats think it’s higher, and 40% of Republicans think it’s lower… People whose primary news source is the Fox News channel are most likely to say that U.S. deaths attributed to coronavirus are inflated.”
- Those folks will go out and mingle. And infect each other. Meaning disproportionate pain for places where disbelief is highest. Driving a summer of highly local, “mini New York” crises shutting down cities and towns and counties. Particularly in Red States.
- All of the above (especially the Georgia data) doesn’t solve for a re-started economy. Or a V-Shaped recovery. It solves for the economic equivalent of the “limp home mode” of your car (a real thing – computer limited to ~30 MPH for a limited period of operating time). It sucks.
“Everybody has a plan until they get punched in the face.” (Mike Tyson)
We’ve made our choice. Sure a lot of people will die. But it will mostly be “them” not “us.” And maybe some miracle will save
my wealth “the economy.”
So we’ve got our plan. The only question is how long it takes for us to get punched in the face…
The Market – We’re Having Our Bear Stearns Moment Now. The Lehman Moment Comes Later (If it Comes).
The stocks I sold a few weeks ago are now HIGHER than they were in January. That is… (ahem)… frustrating.
But I keep reminding myself that the market chugged merrily along after Bear Stearns and Countrywide went bust in March 2008. We thought we’d avoided a systemic crisis. Doing the Wile Coyote (link below). Lehman’s bankruptcy, in September 2008, is when Wile stopped levitating. He hit bottom in March 2009. See my post here.
Maybe I’m wrong. Maybe we don’t have a systemic crisis. The Lehman moment may never come. But I’m going to stay on solid ground for a while now just in case. Meep Meep.
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