The World Goes on Sabbatical - EconVue Spotlight March 2020

The novel coronavirus was the featured topic of our past two newsletters, Is the Cure Worse than the Disease? on March 2 and China Sneezes and the World Catches a Cold on February 2nd.  In this issue, we have curated credible commentary and information to offer perspective, if not solace, during the first quarter of this annus horribilis. Forecasts for the coming weeks and months range from the optimistic to the dire; reality will probably find its level somewhere in between given enormous global efforts to stem the tide.

The COVID-19 pandemic is like no other-a combination of the existential threat of the Cuban Missile Crisis and 9/11, combined with the economic shocks of the 1973 Oil Crisis and the 2008-09 Global Financial Crisis. In 2020, contagion has been accelerated by global flows of people and goods--during SARS, many fewer Chinese traveled abroad. The New York Times has created a riveting interactive graphic of how the virus spread out from Wuhan, based on cell phone traffic and epidemiological data. 7 million people left the area after contagion had begun.

Efforts to reverse this disaster have been heroic and will affect almost everyone on the planet.  Already, a billion people are effectively quarantined. In just the past week, the world has gone on sabbatical, for a period of unknown duration. However, there are many unwilling participants who don't have the luxury of paid leave, and these people and businesses are now the focus of policymaking solutions. I am confident that where money can solve Main Street problems, money will be found. Even Ken Rogoff is saying that this time is really different, and debt is the least of our problems right now. 

How will this unprecedented economic sudden stop change the world? Historians have pointed out that William Shakespeare wrote King Lear and Macbeth during the Great Plague of London in 1605, when the theaters in London were shuttered. Isaac Newton also discovered the law of gravitation when on enforced hiatus during this period.  Though many of us are more modestly hoping to finish a few books or home projects, I am willing to bet that most of us don't do much. We have been paralyzed by fear for the health of our family and friends, discombobulated by the disruption of our routines, and inundated by the rapid flow of information and events. A few however will be driven to create and innovate, and change the world. 

Because of the potential for sudden loss of human life, we are naturally mesmerized by worst case scenarios. The total losses in global equity markets in the last few weeks are $27+ trillion and counting, losses which as Jim Bianco has said have now gone to money heaven. COVID-19 has claimed nearly 15,000 lives, which would mean that the risk associated with each fatality (VSL) based on equity market losses alone has already reached $1.8 billion dollars.

The negative shocks are obvious, but epidemics do in fact end. The life-altering, multi-trillion dollar question is when. What are the positive shocks that could create a sudden restart, and what are the long- term consequences of this experience? To name a few:

- Oil price rise: OPEC and the oil producers could end their race to the bottom. The failure of Russia and Saudi Arabia to reach an agreement was the match that lit the fire in markets. EconVue energy expert Nikolai Tagarov says that President Trump might be waiting until the strategic reserves have been filled at low price levels before shaking a stick at MBS. We are now at 635/727 million barrels based on current storage capacity.
- Therapeutics and treatment nt protocols, proven effective and deployed quickly, could be game changers. Work is proceeding everywhere and on all cylinders to achieve this goal. 
-Testing ramps up and we are be better able to know who should be isolated and treated, so we can put everyone else back to work. This is happening now and is just a matter of time. 
- The American economy proves more resilient than worse-case projections and the labor force shifts to new opportunities. Waitstaff work at grocery stores (Walmart alone has created 150,000 new jobs) and those who cannot work are given financial support. Substitution effects at all levels smooth the economic downturn.
- US manufacturing of strategic medical equipment ramps up very quickly in the age of 3D printers, flattening the curve and increasing capacity at hospitals. New companies are born. 
Some zombie companies and barely-making-it restaurants do not survive the shutdown. Creative destruction, and strong businesses become stronger. Online becomes essential.
- When the virus ebbs, American consumers do not react with caution and party like it's 2019. Travel, events, entertainment, construction, and retail skyrocket, fueled by free money that will stay free for many years to come. 

Speaking of events, I had been working for many months as the co-chair of the Japan America Society of Chicago's 90th anniversary gala, scheduled for March 13th. Sadly it was postponed. Our guest of honor, Professor Ezra Vogel, and Noriyuki Shikata, who had been slated to introduce him, graciously agreed to do a remote podcast from Cambridge for the Hale Report.  Although not quite the same as getting together in person, we did have a delightful and insightful conversation about the evolving geopolitics of the US, Japan and China.  You'll find a link to the podcast below. Professor Vogel,who  by coincidence will also be celebrating his 90th birthday this year, helped me with some technical issues with the podcast. His latest book Japan and China- Facing History is an essential work of modern East Asian history.

Hale Podcast Episode 8 - An Interview with Ezra Vogel & Noriyuki Shikata

In addition, many of our EconVue experts, friends, and colleagues have written about the coronavirus:

Medicine in the Age of Pandemics: why our innovation system for new drug discovery is failing and how to fix it. 
Kathryn Ibata-Arens 

With foresight and fortitude by our political and business leaders, our global innovation system can rebound, facilitating a rapid response to develop and launch life-saving diagnostics and treatments. 

The Biggest Lie About COVID-19
Seth Kravitz

 It’s not a disease of the elderly, it affects all ages, regardless of pre-existing conditions.

The Federal Reserve Can’t Rescue the Economy from the Coronavirus
Robert Shapiro

The Federal Reserve’s interest rate cut on Tuesday certainly won’t hurt the financial markets or the real economy, but as the subsequent steep drop in stock prices shows, the cut won’t help much, either. Three forces stand in the way

Fiscal Stimulus Will Help Set Up Economy for Rebound
Michael Lewis

The federal government has approved two “phases” of fiscal relief for the current COVID-19 crisis, an $8B bill supporting medical work and expanding testing for the virus signed on March 6, and a $100B expansion of sick and family medical leave that President Trump is signing today. The vastly larger Phase 3 package will likely come up for a vote within the next several days. Collectively, this fiscal stimulus will cost more than a trillion dollars, putting it on par with the combined Obama and Bush administrations’ responses to the Great Recession.

U.S.-Japan Relations Through the Lens of America’s Heartland
Eleanor Shiori Otsuka Hughes

China’s painful gains from Covid-19 crisis
Xi Sun

Economics of the Coronavirus

Coronavirus: The Hammer and the Dance
Tomas Pueyo 3/19/2020 Medium

The value of lockdowns--why a hammer approach can save both lives and the economy. And how UK's Imperial College paper ignores the value of time.

This is the Only Way to End the Coronavirus Financial Panic
Andrew Ross Sorkin, 3/18/20 New York Times

A government bridge loan to everyone.

Possibly important COVID-19 numbers for the US
Derek Scissors 3/17/2020 American Enterprise Institute

Unreported cases skew mortality figures for Covid-19

Some Ask a Taboo Question: Is America Overreacting to Coronavirus?
Amy Harmon 3/16/2020 New York Times

The problem is that the downside of Covid-19 restrictions will be disproportionately felt by those who can least afford it. It is important to have these discussions because every choice we make has a cost.

The Economic Impact of COVID-19 in Low- and Middle-Income Countries
David Evans and Mead Over 3/12/2020 Center for Global Development

For vulnerable families, lost income due to an outbreak can translate to spikes in poverty, missed meals for children, and reduced access to healthcare far beyond COVID-19.

The Value of a Statistical Life
Thomas J Kniesner and W. Kip Viscusi 5/9/2019 Forthcoming: Oxford Encyclopedia of Economics and Finance

The Value of a Statistical Life (VSL) refers not to the value of a human life, which is of course priceless, but to the statistical value of economic risk associated with that life. Currently $10M in the US. 

Health and the economy are closely linked... If the covid-19 pandemic leads to a global economy collapse, many more lives will be lost than covid-19 would ever be able to claim
Francois Balloux 3/14/2020 Twitter Threads

The value of an effective therapeutic or a vaccine has never been higher. Policymakers will struggle to create an economic equivalent.

The British approach to coronavirus
Tyler Cowen 3/14/2020 Marginal Revolution

The UK is betting South Korea and Italy will see rebound infections in spite of numerous restrictions. Banning of mass gatherings would have to be 13 weeks long and would have a mild (10%+) effect on reducing infections— and is economically unsustainable.

Coronavirus will bankrupt more people than it kills — and that's the real global emergency
Omar Hassan 3/11/2020

Coronavirus will bankrupt more people than it kills — and that's the real global emergency

BOJ expands monetary stimulus to defend economy from coronavirus
Mitsuru Obe 3/16/2020 Nikkei Asian Review

The Bank of Japan  is already the largest shareholder in many Japanese listed companies and is itself listed on the TSE. Will the Fed follow the Bank that invented QE? And change the Act that prevents this?

Keeping the lights on: Economic medicine for a medical shock
Richard Baldwin 3/13/2020 VOX

The COVID-19 economic crisis is different. It hit the economic giants all at once – the G7 nations and China. And the economic strikes are widely spread, hitting many sectors all at once. It is not a credit crisis, or a banking crisis, or a sudden-stop crisis, or an exchange crisis. Today’s crisis is a bit of all these. 

Science

I’m hearing people say it’s impossible to make covid vaccine b/c we haven’t been able to make one to any coronaviruses. Not true.
Peter Kolchinsky 3/20/2020 Twitter threads

Great explainer thread: why will have a COVID-19 vaccine, but will never have one for the common cold.

Countries test tactics in ‘war’ against COVID-19
Jon Cohen and Kai Kupferschmidt 3/20/2020 Science Magazine

Is testing the key difference in the fight against COVID-19?

Japan uses just a fraction of its testing capacity
Reuters 3/18/2020

Don't ask don't tell?  Or a model for other countries?

It’s not exponential: An economist’s view of the epidemiological curve
Richard Baldwin 3/12/2020 VOX

It is easy to first underestimate a disease’s spread by thinking the curve is linear, but then overestimate it by thinking it is exponential.” It’s actually an epidemiological curve.

World's Fastest Supercomputer Finds Potential Covid Treatments
Victor Tangermann, Neoscope, 3/20/2020 

Full speed ahead at the Oak Ridge, Tennessee national laboratories.-and everywhere in the country. 

Visualizing the History of Pandemics
Nocholas LePan 3/14/2020 Visual Capitalist COVIDー19 is barely a blip on this infographic -yet.

China/ Not China

We Are in This Crisis Because of the Decisions of the Chinese Government
Jim Geraghty 3/16/2020 National Review

We are in this mess in large part because of the decisions of the Chinese government. And once it’s safe to come out, we’re going to face some extremely consequential decisions about how we choose to treat the Chinese government after their catastrophic secrecy, coverups, blundering, and disregard for human life around the globe.

The World Needs Masks. China Makes Them — But Has Been Hoarding Them.
Keith Bradsher and Liz Alderman 3/13/2020 New York Times

Trump talks about economic nationalism, while China does it. Great read — and keep reading to the end, because France, Germany, others are also keeping their masks.

Taiwan says WHO failed to act on coronavirus transmission warning
Financial Times 3/19/2020

WHO needs to be completely rethought, as an independent fully-funded organization with teeth.

Chinese military scientists ordered to win global race to develop coronavirus vaccine
Minnie Chan 3/19/2020 This would be a good ending to this story. Competition can be a very good thing.

Is there not a case for demanding some sort of reparations from the Chinese government?
Matt Ridley 3/16/2020 Twitter Threads

You will be hearing more calls for accountability in the coming weeks and months as COVIDー19 damage mounts. Better to ask China to invest in a new global public health framework that is independently monitored.

The Italian fashion capital being led by the Chinese
Sylvia Smith 2/12/2013 BBC

Outlines China's investments in the fashion industry in Northern Italy.  320,000 Chinese citizens live in Italy today with a high concentration in industrial regions. 

Investigating the impact of influenza on excess mortality in all ages in Italy during recent seasons 2013/14-2016/17
Rosano, Bella, Gesualdo, et al, 8/3/2019 International Journal of Infectious Diseases.

Italy has been experiencing increased mortality due to respiratory illnesses.  Pollution?  So much that we do not know. 

Historical & Literary Perspectives

Camus on the Coronavirus
Alain de Botton 3/21/19 New York Times

In January 1941, Albert Camus began work on a story about a virus that spreads uncontrollably from animals to humans and ends up destroying half the population of “an ordinary town” called Oran, on the Algerian coast. “The Plague,” published in 1947, is frequently described as the greatest European novel of the postwar period.

Disease As Political Metaphor
Susan Sontag, 2/23/1978 New York Review of Books.

A tour-de-force essay spanning centuries of history and literature.