An economic perspective on COVID-19 from a recovering engineer
Full disclosure, I am not a medical professional nor am I a statistician, just a recovering engineer.
The coronavirus COVID-19 by now is the most discussed topic of the entire year and will likely stay that way for the foreseeable future. Since its first discovery in Wuhan, China, the virus was largely spreading undetected and now has 97% of the countries in the world reporting cases. In Europe, Italy and Spain were hit the hardest and the soonest with other European countries following behind in the number of detected cases. Each of those countries have both locked-down their citizens in a bid to stop the virus’ exponential spread. For Spain and Italy, the infection rate is rapidly reaching the maximum with the United States following a couple weeks behind. As the rest of the world begins the painful ascension to the infection rate peak, each country in the world must not only support its medical services in the present but also start to chart out the post COVID-19 reality. That is to say, how do societies plan to handle living with a hyper contagious virus until such time as a safe and effective vaccine has been found?
The first response we have seen thus far has been to “lock it down” and contain. While somewhat effective, it is both exceptionally expensive to monitor, track and quarantine and may be myopic when viewing the situation as a whole. Further, unless we assume the interconnected nature of our global economy no longer includes the movement of people, countries like China and South Korea that for the most part have defeated this virus at an incredibly high cost, have no real way to re-open their economy to the world without the ever-present concern that the next foreign visitor arriving might have the virus that slipped by undetected. The long game really must focus on bringing the economies of the world back on-line as soon as possible with specific care and focus on A) caring for the vulnerable and B) not allowing the utilization of the hospital systems (including the ICUs) deviate from 80% (as we must leave some capacity for other medical events). Specific to point B, we cannot stop these lockdowns and socially distancing without causing the exponential growth we are trying to avoid. That said, we must moderate and throttle them using the hospital utilization as the metric to track.
Let’s step back and remember what we are trying to accomplish. Our highly interconnected societies function in a way that we are all suppliers and customers of each other. When people are removed from the workforce, the system as a whole starts to go into a coma. In this case, an intentionally self-induced coma. Granted some in society are frankly lucky enough to be able to work from home and have this global pandemic be nothing more than an inconvenience. However, the lion’s share of the world is watching as savings are being consumed with no apparent end in sight. More specifically, there is a lot of additional uncertainty because there is no well communicated plan for the long run, that is to say, what happens after the peak?
We must understand that productive people that are at home generate almost no societal benefit when they are at home as opposed to being in their professional role. Further and excluding a small percentage of workers, the global workforce doesn’t telecommute nearly as much as it could. Unless remote working is built into the DNA of a company, the transition to working from home in a short period of time will be bumpy and minimally productive.
While not wanting to sound alarmist nor challenge the medical establishment, I believe that defeating this bug by assuming we 100% understand its incubation period or its methodology for transmission is also too simplified at this early stage. Having seen the videos of the Chinese city of Wuhan as they attempted to clean the air using massive air cannons blasting an unknown aerosolized substance into the air demonstrates how hard it was for the Chinese to remove this virus by cleaning their way out of this. The only real path forward that doesn’t inspire the OCD of society will either be to have antibodies as a result of direct exposure to coronavirus or a vaccine. All the while we must never allow hospitals to be overrun. That said the migration to a “herd immunity” is the correct path as our species has done for millennia. These days we have information sharing, unparalleled medical innovation, and something this virus would have thought to slow it down. Amazon logistics.
Recommended path forward
We as society need to bifurcate our approach. On one hand we should let the scientific community pursue and fast track a vaccine to deploy globally (estimated implementation timeframe is 18 months but could be accelerated to 6-9 months). On the other hand, each country should focus on getting their hospitals to 80% utilization via lockdown initially and the intense social distancing to maintain a constant infection rate. Hospitals can handle or even adapt to a constant flow of new patients. Hospital resource constraints appear when an exponential number of patients overwhelm the healthcare system. This has already been seen in Madrid and will be seen for certain in other locations (e.g. New York which is facing a 60,000+ bed shortage by the time they reach peak rate of cases).
In parallel, a national initiative for randomized national testing for people who have the presence of the antibodies confirming they have already had the virus (and thus theoretically immune). Further, governments should issue certificates and waivers to allow those with the needed antibodies to go back to work. All the while, we should continue monitoring our most vulnerable and moving those to a quarantine environment or shelter at home with support services. Once a country is about to reach the peak infection rate, we need to pivot to quarantine the vulnerable instead of quarantine for all. Private companies / enterprises will leap at the option to pay for these tests that could in-turn get a certification that allows them to have a waiver from the lockdown and go back to work.
Germany is already planning for such testing of its population later this month. Interestingly enough, based on a recent paper “Estimating the number of infections and the impact of non- pharmaceutical interventions on COVID-19 in 11 European countries” on 30 March 2020 by the Imperial College, it estimates that even though Spain and Germany have approximately the same number of infections (of course we must consider the quantity and quality (and timing) of when such tests are given), Spain is estimated to have 15% of its population infected (with a 95% credible interval ranging between 3.7% and 41%) compared to Germany’s 0.72%.
As paradoxical as it might seem and with a vaccine almost a year away, there is a unique strategic advantage to being the country that is the “first mover” regarding having the infection rates be flat and being able to restart the economy before others (provided it is pragmatic and done in a safe way). While exceptionally unpleasant to be in lockdown to “flatten the curve”, we must all acknowledge that “flattening the curve” does not stop the infections from happening. Rather, it still infects people, but it does so in a controlled manner. While that infection is done in a controlled manner, those that have recovered from COVID-19 or had it and never realized it (asymptomatic) should go back to work to get the economic engine running again.
If we make the assumption that the only thing to truly stop this virus in an interconnected world is a vaccine, then for a majority of the world it is a question of when, not if. The main differentiating factor will be medical resource constraints (e.g. a full hospital / ventilator) when some need it. After the peak of new cases per day in each city / state / country and with the assumption that most will contract this virus (just a question of wehn), then the prudent response thereafter should be continued social distancing and mass testing for the antibodies that would demonstrate COVID-19 immunity and be able to go back to work (while keeping a quarantine for the most vulnerable). Further in the case of Spain, as a country, they could have ~20x the domestic workers rebuilding their economy compared to Germany (or ~5x that of the United Kingdom). In a few weeks / months, there will inevitably be a competitive race condition of when (not if) each country’s leadership will implement the above. It is in their own citizens’ best interest to start to engage the workforce as soon as safe and appropriate.
What will change?
The domestic and international economy is having a massive dislocation event. In doing so, especially in the retrospective wake of the disruptions and supply constraints, many will re-evaluate supply sources as well as the social proximity that we had become so accustomed to. Further, the world governments will now with no doubt expand research grants to identify and combat future virus outbreaks. It has been a painful economic lesson in research value.
By 9 April 2020, the iconic American city, New York City, should hit the peak maximum rate of cases and bring with it the painful event of losing thousands. By the time this is over, New Yorkers will have experienced another horrific event, this time mostly caused by hospital resource constraints (e.g. not enough beds) and being overrun with exponentially infected patients that need medical care before the curve could be “flattened”. After the peak in New York, we will begin the Roaring Twenties 2.0 but this time global and all somewhat timed to start in concert.
By some accounts the genesis for the economic expansion 100 years ago in the United States was built in the wake of the 1918 influenza pandemic that killed millions. Looking forward to the next decade post COVID-19, the global economy should enjoy economic expansion similar to the US stock market rallies of the late 1990s (where even a monkey could select stocks that would go up, and famously did).
In closing, no actual infrastructure has been damaged nor massive capital expenses need to be incurred to restart the economy. It is true that counties are spending a huge allocation on medical resources and that must continue until a vaccine is deployed. However, as the tectonic impact of the peak of cases subsides, so too should the intensity of additional medical capital allocations. From a macro perspective, we will not have a “V” recovery; however we will have a cursive “V” with much of what allows the economy to come banging back being the psychology of knowing that this seismic economic event is behind us. The demand for most goods and services are unchanged (rather the financial capability has been hit); supply has definitely been compromised but no infrastructure damage stands in the way to repair previous supply chains. Governments and Central Banks around the world are committed to ensuring the global economy comes together. They need only to have this virus go in the history books and unleash the creative global workforce to get back to work. Will we beat this? Absolutely yes. There is room for optimism in these challenging days. Let’s come together and help each other get back on our feet. We are about to start the Roaring Twenties 2.0 !!! Follow me on Twitter @mrabino1