How the COVID-19 Shock Is Different

Yves here. At least before Monday’s meltdown, I had some colleagues I had regarded as savvy maintain that the COVID-19 crisis wasn’t as bad as 2008 because it wasn’t damaging the financial system. I was shocked that they couldn’t see that the real economy damage could be lasting, and that there were also serious financial system vulnerabilities (Italian banks, with contagion to the EU;, Hong Kong, with an outsized banking sector; the UK with an outsized banking sector and Brexit as a parallel disruption; undercapitalized derivatives central counterparties).

This post is unduly cheery as to the ability to address this crisis given that many governments lack critical operational capatity, but it does show the multiple vectors for damage.

By Richard Baldwin, Professor of International Economics at The Graduate Institute, Geneva; Founder & Editor-in-Chief of Originally published at VoxEU

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. Given the transient nature of the underlying medical shock, this column argues that governments should focus on ‘keeping the lights on’ using costly but quick measures to ensure the circular flow of money continues to circulate. The goal should be to reduce the persistence of the crisis and avoid the unnecessary accumulation of ‘economic scar tissue’.

How should we think about containing the COVID-19 economic crisis?

Christmas lights, when I was a kid, were wired in series. If one lightbulb blew, the whole string went dark. My Depression-era parents taught me to fix it by checking each bulb, one-by-one, all one hundred of them. The tree was dark for a long time. But since bulbs were expensive and labour was cheap back then, the prolonged darkness was worth it.

Today, I would do it differently. I would tend towards a ‘costly but quick’ option, say, replacing all bulbs at once. After all, goods are cheap, labour is expensive, and Christmas is short.

I suggest that policymakers think about the ‘economic medicine’ for the COVID-19 crisis in the same way.

  • Governments should choose quick options that keep the economy’s lights on without worrying too much about costs. After all, people are the important thing, money is cheap, and this medical shock is transient.

This Economic Crisis Is Different
Economic crises are like buses; there’s always another one coming along (IMF 2020). But this one is different. And it is different in two main ways.

  • The underlying shock has hit all the G7 nations and China at the same time.

Unlike the Asian or Global Crisis, the COVID-19 economic crisis did not start (economically) in one or two nations and then spread to many others. The medical shock, as measured by the number of new cases, started in China in late 2019. But it was only a matter of a few days before cases showed up in some G7 nations. By 31 January 2020, every G7 nation had at least one case.

  • The medical shock is striking the economy at multiple sites.

The most-studied economic crises start at one site. Banking crises start with the banks, exchange rate crises start in the forex market and central bank reserves, sudden-stop crises start with international capital flows, and so on. This one is not like that.

Three Types of Economic Shocks
To organise thinking about what we should do, we need to ‘simplify to clarify’ when it comes to the nature of the economic shocks that the virus has sparked. Three facets are key (Baldwin and Weder di Mauro 2020).

First, the disease hits output by putting workers into their sickbeds; this is like temporary unemployment. Or economically, it is like August in Europe – the labour force ‘downs tools’, but only temporarily. In the US and some other nations, this may also lead to a direct hit to spending since some workers do not get paid when they are sick. Others are in the ‘gig’ economy where they don’t get paid if they don’t work.

Second are the public-health related containment measures aimed at flattening the epidemiological curve (see my previous column, Baldwin 2020) – factory and office closures, travel bans, quarantines, and the like.

Third is the expectations shock. As in the Global Crisis of 2008-09, the COVID-19 crisis has consumers and firms all around the world crouched in a wait-and-see mode. This is most obvious in the massive drop in travel and hotel stays – but probably only because those data are released so fast. Leading indicators like the Purchasing Manager Indices (PMIs) are all down sharply.

Strike Sites: Where Are the Three Types of Shocks Striking the Economy?

The COVID-19 crisis has struck the economic ‘machine’ in several places at the same time, as Figure 1 illustrates schematically.

Figure 1 COVID-19’s multiple strikes in the circular flow of income diagram

The figure displays a version of the well-known circular money flow diagram (e.g. Mankiw 2010). In simplified form, households own capital and labour, which they sell to businesses, who use it to make things that households then buy with the money businesses gave them, thereby completing the circuit and keeping the economy ticking over.

The key point is that the economy continues running only when the money keeps flowing around the circuit. Roughly speaking, a flow-disruption anywhere causes a slowdown everywhere. The diagram here adds in a few more complications by allowing for a government and foreigners. It also separates consumption expenditure and investment expenditure.

The red crosses show where the three types of shocks can, or are, disrupting the flow of money – the economic dynamo, as it were. Starting from the far left and moving clockwise:

  • Households who don’t get paid may experience financial distress or even bankruptcy – especially in the US where medical bills are a major source of people going broke ( 2020).

This reduces spending on goods, and thus the flow of money from households to the government and firms.

  • The domestic demand shocks hit the nation’s imports and thus the flow of money to foreigners.

This doesn’t directly hit domestic demand, but it dampens foreign incomes and thus spending on the nation’s exports. This can slash the flow of money into the nation that used to be coming from export sales. In the 2008-09 Global Crisis, these two strike zones were particularly important leading to what came to be known as the Great Trade Collapse (Baldwin 2009, Bems et al 2012).

  • The drop in demand and/or direct supply shocks can lead to a disruption in international and domestic supply chains.

Both lead to further reduction in output – especially in the manufacturing sectors. The hit to manufacturing can be exaggerated by the wait-and-see behaviour of people and firms. Manufacturing is especially vulnerable since many manufactured goods are postpone-able – things you can wait for without huge costs for at least a few weeks or months.

  • Business bankruptcies (Benassy-Quéré 2020).

Many businesses have loaded up on debt in recent years (BIS 2019), so they may be vulnerable to reductions in the cashflow. The bankruptcy of the British airline Flybe is a classic example. This sort of shutting down of firms creates further disruptions in the flow of money. Creditors don’t get paid, often workers don’t get paid fully, and in any case become unemployed. To the extent that the firms that go under are suppliers to or buyers from other firms, the bankruptcy of one can put other firms in danger. This sort of chain-reaction bankruptcy has been seen, for example, in the construction industry during housing crises.

  • Labour layoffs, sick leaves, quarantines, or leaves to care for children or sick relatives.

This is the last but perhaps most obvious of the strike zones. When workers lose their jobs – even when they have unemployment insurance or other income support – they tend to cut back spending on less necessary, more postpone-able items. The precautionary motives may be less evident for workers who keep their jobs but are taking leave, but as mentioned, this sort of leave is not recompensed in all G7 nations, or not for very long.

What Should Governments do?

The basic principle should be: keep the lights on. The COVID-19 crisis was sparked by a medical shock that will dissipate. It does not seem to be an especially deadly pandemic, so although many will die and each death is a tragedy, it is not like the plague where the workforce will be reduced significantly on a permanent basis. The key is to reduce the accumulation of ‘economic scar tissue’ – reduce the number of unnecessary personal and corporate bankruptcies, make sure people have money to keep spending even if they are not working. A side benefit of this would be to subsidise the sort of self-quarantine that is needed to flatten the epidemiologic curve.

There are already a number of excellent plans posted. My favourite, by Benassy-Quéré et al., was posted on on Wednesday.

See original post for references

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  1. Hank Linderman

    This is definitely a crisis that is unprecedented in my 66 years. I’m in Kentucky, relatively few confirmed cases and no deaths, but no widespread testing either, so we are all in the dark. I heard from a friend who runs a cave in a KY town that relies on spring break income who texted; “I have never in my life seen people so freaked out before … not even after 9/11.” On the phone he said he expected most small businesses in his area to close.

    I am a little surprised by the claim on financial sites that this is a “Black Swan” event – “whocuddanode” I suppose. Even if the initial appearance of the virus was unpredictable, the way the US has handled it didn’t need to be.

    “Keeping the lights on” makes complete sense conceptually, but in practice what will work? I wonder if the government should print some hundies and give two (five?) of them a month to every citizen. Kind of a variation of Andrew Yang’s UBI.

    Interestingly, I got a call from a conglomeration of Baptist churches asking me to speak at their convention later this month. (I’m a candidate for Congress in Kentucky’s 2nd.) Gov. Beshear had just asked churches to not hold services this weekend, so I asked the caller what his church was going to do. He said something about not recognizing the Governor’s authority and that his church would be holding services. I confess I commented that it was fascinating that his church didn’t recognize the state but wanted to influence who served. He hung up on me, I’m guessing I’m off the hook for the convention. Ideally, they will cancel. (To be fair, I suspect most churches across the state will stay open for services.)

    BTW, I tried to *un-bold* my text but it didn’t work, not sure what caused this.

    1. Billy

      Will people refuse to file income tax returns this April?

      Why should they? The federal government has done basically ZERO
      to protect their health,
      that of their parents,
      their business
      and their communities.

      1. turtle

        Well, going by your stated intent, the idea should be to delay only if you owe. If you expect a return, definitely file as early as possible.

    2. jrs

      If they print money it would help people pay their rents and bills is pretty much all. Those things are necessary of course. If the rent doesn’t get paid, more evictions, more homeless, more homeless people to get corona.

      But noone is going to go out and spend it if that’s what they think, no unnecessary shopping (yea we may still get groceries, buy gas to get to work if we still have jobs). No restaurants and cafes. Maybe Bezo’s makes some more billions as getting packages is about the only thing people can do.

  2. hemeantwell

    I wish I could develop this more, but the diagram reminds me of the trade flows diagram that Adam Tooze, in Crashed, compellingly argued was the wrong way to think about what happened in 2008. I agree with the author that this crisis has components that 2008 did not, or at least not so saliently. But is this diagram giving adequate representation to the complex, and largely off the books, forms of credit and indebtedness that I think Tett was referring to in the FT article in today’s Links section?

    I’m very much in “Never let a crisis go to waste” mode. It is imperative that we get a thorough analysis in circulation now.

  3. boomka

    Surprised nobody is discussing UK’s response yet. It is quite astonishing, as UK decided to be the first country to try the bold experiment of going for herd immunity, in other words just coming to terms with the fact that most population will be infected anyway, so going for it intentionally, so that virus stops circulating due to every survivor being immune.

    I guess time will judge it either as one of the biggest mistakes in history, or one of the best decisions ever made. UK is betting the house on a chance that the disease is not as bad as it seems, and economic disruption is worse. What works in their favor is that press is very tightly controlled, and propaganda machine is probably one of the strongest in the western world. If they can successfully hide the fact that people are dying en masse and hospitals are not coping, and keep the appearances of BAU, they might just pull it off.

    Of course, the realist in me thinks that they are just trying what Wuhan tried in January, and the result will be the same…

    1. Eustache de Saint Pierre

      Dr. John Campbell is on board with it mainly as now it is pointless to try & contain it as there is already community spread. He has been pretty much on the ball & I suppose it is what we have got & we best try to make the best of it. I am personally relieved it is not total lockdown as I have to travel to a vulnerable someone who lives 55 mile away. I was just about to move closer but that would take a month after checking out a few places & goodness knows what the situation would be like 4-5 weeks hence.

      I looked up Chris Whitty the chief medical officer & he has impressive experience working in Africa with Ebola so appears to be a good choice & to know what he is talking about – but I guess we will ( hopefully ) know how good this particular cunning plan is at a much later date.

      1. Eustache de Saint Pierre

        I also looked up the the list of OECD countries of beds per 100 patients & another list on Wiki of quality of healthcare & that old pretty rundown dear the NHS does not do very well in either, with Italy better in the first list. JC believes & I think correctly as it is still pretty much Winter here that the NHS needs to get over the usual Winter scrum of respiratory illnesses to prepare for the influx of the critically ill.

        Me trying to be optimistic.

      2. turtle

        This is a terrible idea. Even if there’s already community spread, you should always try to slow down the spread, “flatten the curve” if you will, to minimize overwhelming the health system. Letting the spread run rampant with no controls is a sure way to have an order of magnitude more deaths than there would be if it were slowed down.

      3. PlutoniumKun

        As Taleb has pointed out on twitter, there is literally zero actual evidence that this could work – its been developed by bahavioural economists who have a remarkable history of getting the science wrong.

        It reminds me a little of a story told by a medical researcher in Africa who decided to use a turkey baster to inject himself with faeces from a Hamza tribesman to see if he could replicate their allegedly super healthy intestinal biota. He said that every doctor he asked for advice on it told him ‘Don’t do it! But if you do feel you have to go ahead and do it it I’d love to see the data….’.

        So yes, it will be an interesting scientific experiment, we’ll see in a few years which approach works best.

      4. Brooklin Bridge

        I am almost certain that Dr. Campbell has been read the riot act. His piece today is almost exactly opposite to what he has been saying all along. He also had a hard time getting it out, repeating it over and over as if somehow he could make the words convincing.

        I have seen him back off the WHO after sharply criticising it for not declaring an outright pandemic sooner. But today’s piece is at a whole new level.

        1. Brooklin Bridge

          Also, Dr. Campbell is definitely -still- NOT on board with the Herd Immunity idea, if he’s aware of it at all. He complained vociferously only a couple of days ago about UK allowing a flight in from Italy with 0 real checking of departing passengers other than the plane pilot saying they looked the passangers over and no one looked ill. Such a move is consistent with the Herd Immunity idea though I think Dr. Campbell would have been outright apoplectic if he had caught that implication.

      5. Massinissa

        Economists: “Assume herd immunity”

        How about lets NOT assume that? Economists making baseless predictions as always, but now its about public health…

    2. lordkoos

      Pretty hard to hide people dying en masse, especially with everyone communicating over the internet in real time.

      I question the “people are the important thing” assumption. While most people feel this way, our neo-lib governments certainly do not seem to share that feeling. We will see.

    3. thoughtfulperson

      ah, I was wondering why the pound was down so much this week. 1.32 to US$ Monday, 1.235 Friday. Guessing herd immunity not going to look so good in a few weeks

      Perhaps no testing and mixing deaths in with seasonal flu might work but I doubt it.

      1. rtah100

        No, this is what they are doing. It is in the public domain:

        – Robert Peston’s blog

        – EU Referendum website (lovely picture of Laurel & Hardy & Laurel, as below!)

        – the disastrous Laurel & Hardy & Laurel press conference of Billy Bunter and the Sandwich of Scientists (if you watch carefully, you see little bits of the monster poking through the smokescreen of handwashing)

        One of my family used to work in the Department of Health and confirmed with colleagues there today that the plan is “herd immunity” + “nudge theory” (that’s right, Cameron’s behavioural economics voodoo, last seen fit for tweaking participation rates in loft insulation programmes).

        *** THIS POLICY IS INSANE ***

        I’ve tried very hard to persuade people how sociopathic this is, given the clear evidence in the infection rates that this epidemic is controllable. It will subject the entire country to infection and crash the NHS. It will wipe out a generation of grandparents.

        They arrogantly believe that they escalate just-in-time (hmm, where have we heard that fail) and stay ahead of the steamroller. They will fail, they will introduce social distancing reactively and too late to be effective (heard of taking preventative measures after the event, literally shutting the stable door after the horse has bolted).

        The press conference was appalling.
        – A “scientist” stood up and claimed that large events needs not be cancelled because one person infects only two or three close by. This totally ignores the scientific concept of the overdispersion of R0 (i.e. through circumstances, some people fail to spread and others are super-spreaders at 72x), which means large events are vital for the virus to transmit. Cloistered in small groups, it just peters out, hence the efficacy of isolation and social distancing.
        – they announced stopping testing in the community in favour of hospitals. If you do not community test, you cannot tell if you are winning. If you can see it in your hospitals, you have lost. The only number you have to judge the wider battle on is the number of hospital cases and that number saturates very quickly, becoming meaningless. Counting only hospital cases does not even require testing, you can just count your dead and the number will be as useful and even cheaper.
        – they refused to give a number or range of the dead that their policy implies or what they weighed it against.

        If you have connections to the UK, please help me: we have to find a way to overturn this through popular pressure and force the government to follow WHO exhortations to use every method, at once, to stamp out the fire. And we have to do it in a week.

        If anybody can think of people who would help take up campaigning, please tell me – this has to stop.

        PS: the whole herd immunity idea is very dangerous. We do not want to accept that this virus becomes endemic. It is a highly transmissible respiratory pathogen, transmitted by droplets and possible aerosols. It is also kissing cousins of non-pandemic coronaviruses, SARS1 (10% mortality rate) and MERS (30% mortality rate). If it were to become endemic and undergo a recombination event in a patient with SARS or MERS, we could have to face a highly lethal and transmissible pathogen. It would be a pneumonic plague, a Black Death. We need to snuff this virus out, and we can because it has no apparent zoonotic reservoir of infection because every strain so far has descended from the one that infected the initial patients in China….

        1. Fritzi

          Seems like the time tested Hollywood solution might be the only way if Britain, or at least her ruling elites, surrender completely to all out collective insanity and inhumanity.

          Namely sterilize the British isles using nuclear weapons.

          Sorry folks.

          Now you could argue that this would be insanity and inhumanity as well, but I’d take “harsh decisions” to save humanity from future Super Plagues over harsh decisions to save merely big finance every day.

          Think about it, sure, a couple millions of bits more will die, but at least it will happen fast, while the other option could very easily mean a much more horrible death for billions in the near future.

          Only question, who pushes the button.

          Perhaps Putin could do what is necessary for the survival of mankind, but only if the US would not go all out nuclear armageddon on Russia.

          PS: I’ll leave it to hypothetical readers to decide how serious this post is.

    4. fajensen

      One could get ‘herd immunity’ just fine without crashing the NHS and killing lots of people needlessly in the most miserable way, like in Italy – presumable to relive the past Glory of The Blitz.

      But, it’s what they voted for.

      In other news, Dominick Cummings has become invisible and Boris Johnson looks like shit warmed over.

    5. marieann

      “It is quite astonishing”

      I was more than astonished…appalled is the word. I have been following along with DR John for weeks and I couldn’t believe what he was saying……it is appalling that this is the UK’s response to the pandemic…an “it’s too late to do anything now” scenario so lets all just stay home…no,no you don’t need tested.

      I have loads of family in the UK and many of them with lung problems….bl**dy f**king hell…and I thought the US was the nightmare country

    6. d

      Ex pet that just because you got it once, doesn’t make it so that you won’t get it again. That seems to happen with this virus

  4. The Rev Kev

    I think that the good professor is refusing to recognize this for what it is – a systematic problem. Sure, treating the symptoms will help but there is going to have to be a radical overhaul of the world financial system in order to cope and adjust. And who says that the present pandemic will be the last one that we will experience in our lifetime that will hit the world financial system? It is not surprising that he is having this reaction. Just been put onto an interesting page about adjustment reactions which apply here and the problems with coping-

    1. Larry Y

      Not just the financial system – other systems include supply chain, healthcare, etc. Need to decouple, make more resilient, add buffer/margin/slack, etc.

      One thing that the spreadsheet jockies might understand is exponential growth, compounding away. Put that into system with all kinds of positive feedback loops (in engineering terms, positive feedback makes small changes bigger, making systems inherently unstable)… and *makes sound effect*.

  5. Jim A.

    At least before Monday’s meltdown, I had some colleagues I had regarded as savvy maintain that the COVID-19 crisis wasn’t as bad as 2008 because it wasn’t damaging the financial system.

    I did a double take when I heard somebody say that this wasn’t as bad because it isn’t a financial crisis. The fact that somebody can say that with a straight face is evidence of just how divorced from the real world Wall Street is. If equities were priced based on real profits in the real economy of people creating goods and services that were of greater values than their inputs, then the disruptions brought on by COVID-19 would be expected to have impacts on the market at least as severe as those brought on by a credit crunch. ISTM that Wall Street is only beginning to price in the costs of current disruptions in supply and diminished demand. I haven’t seen any indications that people have considered that the “social distancing,” measures (limited travel, no large meetings, etc.) may have to be maintained for a long period of time. After all, we don’t anticipate a vaccine for a year or more. Even those organizations instituting these dramatic measures seem to regard them as a temporary blip, not the “new normal.”

    1. thoughtfulperson

      Good point. Remember, China has gotten it’s Ro below 1.0, but, still maintaining quarantines and the other measures (as far as I’ve heard), with a number of new cases coming in from Iran now. As long as any country has a lot of it, it spreads. Probably bad idea for countries to try to suppress their numbers as travelers will show up and they will get banned globally. At least until 2021, maybe by mid year, when vaccine if we are lucky has become widely available.

      To the point, Wall St probably not baking in the full cost of the shut down for a year(?) yet (or if that fails, the cost of many deaths).

  6. Susan the other

    “Subsidizing the quarantine” is the long way around. It will be difficult and chaotic to give everyone the money they need to survive. Probably impossible. I’m sure Mitch and Nancy are writing up a bunch of convoluted conditions that must be met as we speak. Clearly an economy that runs on an unbroken chain of consumption, production and a medium of exchange to link the two needs all three. But wouldn’t it be easier to create a system of crisis credit whereby the government uses its existing statistics to estimate how much demand there will be and then supplies the credit directly to both sides? This really (above) sounds like subterfuge… like a way to rationalize keeping corporations and businesses alive even though they are drowning in debt… keep money circulating. But it’s a little light on reality – as in making sure certain things are supplied… like masks and test kits; maybe even toilet paper. Point being – when we are in the middle of a crisis not caused by our capitalist system (which is bad enough) but is caused by a deadly virus pandemic it is a little annoying to read about making sure everybody can buy electronic gadgets and potato chips. Which is how I read this.

  7. Jesper

    The crisis might help show which jobs are bs-jobs and which jobs are actually adding value, same with consumption – which consumption is necessary and which is not. The likelihood that the real jobs will become better paid is negligible (in my opinion) and reduction in non-essential consumption is also unlikely to continue after the crisis has passed.
    I can hope that the crisis allows for the shortening of the working week and sharing of the real jobs but since GDP is more important than life (at least it seems that many people in positions of power have that belief/religion) then my expectation is that once the crisis has passed then GDP will again be the only thing that matters.

    1. Shane

      I think this is a pretty good assessment. The pandemic will probably be a catalyst for stripping away a lot of non-essential economic activity, leading to a classic stair step down after the crisis has passed. Reduced economic activity and consumption will see the amount of residual consumer money split between essentials that cannot be done without. Remember in the pre-industrial world people typically spent about half their income on food, which shrank during industrialisation to a much smaller amount.
      It will be interesting to see if any nations have the organisational competence and cultural coherence to renationalise any essential resources. Events like water being turned back on in Flint and suspension of mortgage payments in Italy shows the powers that have been just out of reach of increasingly stressed governments around the world.

    2. rob

      I agree,
      A situation like this ,that is still unfolding… could not have been done by just “deciding” to.
      It actually will give the eyes of history a glimpse into other alternative realities.
      If people are serious about a green new deal….. here is the closest example of a worldwide pull back on consumption.on production.
      Here we have the opportunity to envision what “slowing down” might actually look like. Not travelling so much. going out less. working less. NEEDING less.
      Maybe we might actually enjoy more… more time to think. more time to deliberate. more time to be aware of our current clusterf*ck. More time to inform ourselves about the people and their levers of power and their control over us.

      Maybe this is nature’s way of promoting balance. It could easily be written into a story. Nature always seeks balance… we will abide… being just one puny species and all.

  8. Bill Carson

    Peak Prosperity has been covering the epidemic, and they have an excellent graphic that they use to describe the balancing act that is needed. You have three major concerns, and each is important:

    1. Stop the Pandemic. Need to get RO below 1.0 with non-pharmaceutical interventions or tight containment and isolation actions.

    2. Keep the Economy Going. Because if the economy crashes, the outcome will be just as bad or worse than if lots of people die.

    3. Keep Hospitals Working. Need to keep the infection levels below that which swamps the hospitals.

    1. Tim

      You can’t do step 2 in large chunks of our economy without violating step 1.

      A “we are at war” mentality will make the healthcare workers the heros. Step 3 is guaranteed to happen.

    2. fajensen

      Denmark is shutting everything down! Schools, nurseries, museums, places that people go to (like theme parks), no testing unless one is poorly enough to be admitted to hospital, non-essential government work is work-from-home, business is following up with W.F.H. to front-run people from calling in sick to look after the kids (due to legislation, there is not much employers can do if people lie, and these days … they probably want people with a runny nose at home).

      Borders are closed. Even Danish citizens will be stopped unless they have specific reasons for travelling!

      Sweden is still going ‘Lallalalalalala, can’t hear, so nothing is happening!’

      Except they classified reporting on the low inventory of materials for sick care and claimed for a while that a doctor who said that ‘during normal times, they have closed ICU’s due to staff and other shortages, obviously they will have more problems with more patients’ was leaking ‘classified information’ and reprimanded her. Such quality leadership!

      I really hope that wife and I happen to be in the very lucky 80% ‘few-symptoms group’ and not amongst the *1 in 6* that needs a hospital because if we do, we will really be in trouble. We can’t even go back to Denmark for treatment now!

    3. Shane

      I think relying on hospitals to handle this pandemic is a big mistake. Most health systems were already stretched thin just managing everyday issues. Instead the chinese model of quickly assembling basic facilities to deal with those with hypoxia, while engaging in hard nosed triage, is the only way to go. Covid should be kept out of the pre-existing hospital system and concentrated in facilities that offer seats (better to sit with pneumonia than lie down) and basic non-invasive respiration (simple oxygen masks). People who need intubation and artificial respiration have a low rate of survival and these expensive and heroic interventions have no place in a pandemic like this when larger numbers of people who would do much better with very basic support are going unattended. These centers would be useful to start administering simple pharmaceutical support as well as treatment protocols become validated.

  9. Bill Carson

    A friend recently observed: “Remember when all the conservatives and centrists were using the example of the toilet paper shortage in Venezuela as proof that it was a failed state?”

    1. Jesper

      Am just back from grocery-shopping in Dublin. In the one shop I went into there was little bread, milk, eggs, meat, fruit, vegetables and frozen stuff available. But there was plenty of toilet-paper….

      1. RMO

        Toilet paper shelves in six stores I visited here in the Vancouver area were all empty yesterday. Not a single roll anywhere. We live within a few minutes drive of one of a large paper products plant which makes the stuff too.

        1. mpalomar

          Ah, a run on toilet paper.
          Somehow that sounds wrong.
          Surprising too for a respiratory disease, should be a shortage of facial tissue.

        2. Noel Nospamington

          I live in Vancouver Canada, and yesterday there was tons of toilet paper at the local Walmart and Superstore for sale.

          There is no toilet paper shortage in Canada, just a bunch of idiots hoarding it for no reason. Especially when COVID-19 is a respiratory disease not an intestinal disease, and local manufacturers have stated they can keep up with increased demand.

        3. phemfrog

          same here in DFW. no TP, paper towels, alcohol, bleach, sanitizer, bar and liquid hand soap. also no Ramen Noodles!

          everything else in stock. i bought plenty of beer.

          1. marieann

            “i bought plenty of beer”

            Same here we got stocked up in the important things…Kitkat bars and Whiskey

            1. Drake

              Coffee, tea — check. Beer, whiskey, cannabis — check. Rice, oats, lentils, quinoa, beans, pasta — check. B, C, D vitamins — check. Cookies, brownies, cheesecake — check. All set. For a couple weeks, anyway.

          2. pretzelattack

            a lot of stuff in the food aisles in this part of dfw is missing.
            i heard “we’re restocking, but we don’t know what our suppliers are sending” at 2 different chains yesterday.

  10. You're soaking in it!

    It sounds like the NHS has given up on testing for non hospitalized patients. They are advising people who feel ill with high temp and / or coughing stay at home for at least seven days before calling the NHS hotline.

  11. PlutoniumKun

    I don’t think there is any precedent whatever for an enormous economic shock of this kind to occur within a matter of weeks over the entire planet. Even WWII took a couple of years before it filtered across Asia.

    Its very clear that there will be an enormous output shock and even parachute money might not work – people may just opt to save any additional cash distributed. Its clear that the most important thing right now governments can do is make sure that people still have income coming in, whatever their circumstances. This is surely the best way to keep the banking system solvent, among other things.

    One unknown I think is that the apparent success of the Chinese, SK and Singapore etc, may come back to haunt us – its great that they seem to have stopped the virus in its track, but at the expense of creating any type of herd immunity – which means that instead of one epidemic, we could see repeated waves of this virus hitting populations in Asia over the next two years or so, assuming we can’t develop a vaccine. This could make any kind of recovery impossible.

    1. vlade

      Re your second point, it’s actually a hard one.

      First, it’s not clear how much of herd immunity we can create – there are cases of re-infection pretty quickly IIRC. If we can’t develop a vaccine, then IMO there’s a good chance that we can’t get any reasonable herd immunity either.

      Second, if you could infect selectively, then yes, it would be great. But we can’t. So unless we want to ask the elderly to be risk a significant chance of dying for greater good, I don’t know how we can do it w/o large number of deaths.

      As an aside, for the morbid humour – I’ve now heard to refer to CV as “The Italian Pension Reform”

      1. Shane

        “Reinfection” is more likely to just be highly sensitive tests picking up residual viral DNA or plain false positives. And just because viral DNA is detected in someone doesnt mean they are infectious as well. Coronavirus vaccines to SARS had some unexpected effects in generating excessive immune responses when challenged with the real virus so may take a lot longer to develop than people expect. Many known viruses cannot be controlled with vaccines already for various technical reasons.

        One thing I haven’t seen explored much is the idea of variolation. This was when live smallpox virus was administered dermally, causing a minor localised infection in most individuals. The alternative was inhaling the virus and developing a major systemic infection before the immune system kicked in, leading to the horror show that particular disease was. Vaccination with the closely related cow pox only came much later and had lower side effects.

        The lungs are a terrible place to stage a battle between the immune system and a pathogen since the tissue is so critical and inaccessible to the immune system. Coronaviruses can also cause gastrointestinal symptoms if encountered through the oral route (and some covid-19 cases have presented as such). The transdermal option is also there. Both the gut and skin have a much more robust immune system presence and are more resilient to collateral damage. Once covid becomes more common in my area I am considering self experimenting with the transdermal route.

    2. ambrit

      With the way pathogens mutate, there is also the possibility that there will not be any effective “herd immunity” to be had. The “common cold” and “common flus,” mutate regularly, so that humans are constantly catching various versions of them. The Dreaded Pathogen can well fall into the same pattern, with it ending up creating much more deadly “coronavirus seasons” each spring and fall, on into the far future.
      The human animal doesn’t seem capable of fully extermination pathogens, just adapting to them. Even supposedly “extinct” diseases are lurking around in hiding somewhere in the world, often in bio-warfare labs.

      1. vlade

        Given that about 20% of the respiratory diseases that are commonly classed as “cold” or “flu” are coronavirus caused (not this strain, but different ones), it’s actually very likely.

        See the tweet thread I posted above.

        That’s why I consider the “herd immunity” stuff an irresponsible experiement. I’d not be surprised if it was Cummings’s idea in the UK.

          1. ambrit

            Since “Top Elites” have been exposed to carriers of the pathogen on both sides of the Atlantic, (AIPAC may have finally done America a Public Service after all,) this is accomplished already. Now, for England at least, mandate that all MPs must seek treatment at local NIH facilities in their districts. “A show of solidarity! Oceana has always been at war against East Asian Pathogens!”

            1. thoughtfulperson

              speaking of which, a friend in the financial industry says there is a “RUMOR” that the top 2 in US leadership has tested positive (that was as of 11am). Probably not true, but if they went to AIPAC etc…?

            2. Lambert Strether

              Waiting for the Acela cluster. Sealed, air-conditioned environment. Plastic, not fabric, seats. Lots of bars and poles to touch. Crowded cafe car. Seats arranged facing each other for groups to talk. Stops at multiple cities.

              1. ambrit

                Speaking of “bars and poles,” what about strip clubs?
                The Wall Street crows is supposed to be “big” on them. What will they do with all those tens and twenties lying around now?

                1. The Rev Kev

                  Maybe those girls can do online shows and those Wall Street types can digitally “make it rain” with digital cash depending on what sums of money they donate on that site.

          2. boomka

            History of UK recently seems to consist mostly of various attempts at self harm. What I don’t understand why the population keeps taking it. The “herd immunity” insanity alone should be enough to cause government overthrow but the populace again seems to just shrug it off…

          3. rd

            I think the concept was tried with the bubonic plague, smallpox, polio, and measles. It didn’t appear to go well when people tried to encourage herd immunity through infection for those before.

          4. urblintz

            Maybe this is why Trump will continue to allow fight from the UK… I think he floated the herd idea early on

        1. thoughtfulperson


          There was a link here in the past week I recall reading that a 2nd variation had been isolated in China. So mutation seems likely, and may have already happened. Herd immunity sounds like an excuse not to do anything while thousands suffer and ???

          1. RMO

            Remember one vital part of the neoliberal playbook: “Go die” Johnson’s plan is right in line with that.

        2. rd

          Part of herd immunity is the body getting used to the strain so it doesn’t over-react. It is largely the body’s immune system killing people, not the actual virus. That was why so many young people died with the 1918-19 flu. If the common cold didn’t exist before and suddenly showed up, it would likely have a high mortality rate as well.

      2. PlutoniumKun

        There is also the – hopefully very small – chance that the disease can be more dangerous on a second infection, as with Dengue Fever. Apparently some viruses learn to use antibodies as carriers into the cell.

        Ultimately, we really don’t know how this disease will play out in the long term, there just isn’t enough science. The best authorities can do now is minimise infection until the summer, and hopefully there will be answers (and a vaccine) by next November.

        1. vlade

          That’s the whole point – we don’t know enough about the virus yet.

          But then, maybe the point of doing this is not the “herd immunity”, but the fact that if you let it rip, it will release significant funds for social and health system (by removing the ones who are the most expensive to care for), as well as solving younger’s generation housing problem. Two birds with one stone! Herd immunity then is a cherry on the top.

          1. PlutoniumKun

            It will also permanently remove a good chunk of the Tory party base from the electoral register.

            1. vlade

              Johnson is not a real Tory, he’s “I’ll do whatever gets me votes”.

              I’ve seen people like that, who got to power on a right-wing ticket, and now are sucking life (voters) out of old communist parties with populistic policies.

          2. ambrit

            I hate to admit it, even to myself, but Mr Cynic agrees with you. Having met and been around what passes for the “Elites” over here way back when, this callous attitude is all too believable.

            1. fajensen

              Maybe we will learn that it is a unbearable expensive display of opulent luxury for a society to place idiots, clowns and chancers into key positions?

          3. vlade

            not to mention, that as the article PK posted, there’s not such thing as “acquired herd immunity” unless you cull out those who are genetically more suspectible to the disease.

            As I wrote yesterday, then the right word is “eugenics”.

          4. Massinissa

            “as well as solving younger’s generation housing problem.”

            Even as a joke, this doesn’t hold water. There are more empty homes (in the us at least) than there are homeless people. The problem is not an actual lack of housing, but a lack of affordable housing due to the housing bubble jacking up prices.

    3. rd

      WW I followed by the 1918-19 Flu set the stage for massive economic and financial problems for the next 20 years, collapsing governments, and culminating in triggering WW II and the Cold War.

      hopefully we have a more stable underpinning than the world coming out of WW I, but it can still be a major shock and I expect significant political change over the next decade following globalization, the GFC, and this.

      1. Darius

        Forty years of neoliberal destruction have wrecked the whole world system. It wasn’t even functioning that well before. I’m expecting utter chaos for years.

        1. notabanktoadie

          Neoliberalism decreased the regulation of banks but left in place their implicit and explicit government privileges.

          It wasn’t even functioning that well before. Darius

          Exactly and that’s why we need to re-think finance along ethical lines and not rely on previous ad-hoc “solutions” from the 1930’s.

    4. Tom Bradford

      “the most important thing right now governments can do is make sure that people still have income coming in,”

      I’d argue that the most important thing governments should do is to keep the supply chains for the basics going. If a car factory shuts down or they stop making golf-balls the world will muddle on. If a bakery shuts down, or truckers stop trucking stuff to supermarkets, or even if the supermarket closes ‘cos the check-out girls stay at home, dollar bills are a poor substitute for loo-rolls and you’ve got social break-down in a week.

      1. Patrick Morrison

        I may be mistaken, but my inclination is that maintaining people’s income is the most efficient way to make sure the supply chains for the basics keep going. Households are more likely to know their needs than organizational guesswork about what the basics are.

    5. Tom Bradford

      “the most important thing right now governments can do is make sure that people still have income coming in”

      IMHO the most important thing right now governments can do is to support the supply chains for basics. If a car factory closes down or the supply of golf balls dries up the world will muddle on, but if the bakeries close or truckers stop trucking to supermarkets, or supermarkets shut down because the check-out girls choose not to have face-to-face contact with shoppers a couple of hundred times a day you’ll have looting and social breakdown within a week.

  12. Math is Your Friend

    Assuming this virus settles in for the long term, I suspect it is extremely likely we will develop effective vaccines and/or antivirals.

    Certainly our gene sequencing and analytical capabilities have grown, and certainly some sources indicate that we have and are developing faster, more flexible ways of developing/identifying/building vaccines and drugs.

    At some point we are going to have to revisit testing and approval practices, which very much extend time to availability and cost. I expect we are entering a realm where making sure drugs and vaccines are almost completely safe will result in more deaths than rushing them through and accepting a chance that one person in a thousand may have adverse, even fatal reactions. This may require additional legislation about liability in some countries where lawsuits are a way of life.

    The other obvious need is for emergency drug/vaccine production facilities that can be mothballed or kept idle but functional, reserved for major emergencies.

    1. vlade

      We still have no vaccine/antiviral for “common cold”/flu. As I wrote above, about 20% of those are actually caused by various strains of coronavirae. It’s not impossible that we’d develop a vaccine against this – it does appear to be fairly genetically stable, unlike others (especially flu). But I’d not count on it as a given.

      1. voislav

        Not quite. There are two mechanisms at play here. One is the vaccination, the other is the residual immunity. We have flu vaccines against a large number of different flu strains, the problem is that the vaccines are strain-specific and we can only vaccinate against a few every year.

        A decision is made every year which 3-4 strains will be prevalent and population is vaccinated against those. If the prediction is incorrect and a strain that is not part of the flu vaccine spreads, then we have an epidemic.

        Residual immunity makes the virus less severe in subsequent years, as the antibodies developed through infection or vaccination linger in the system for several years and reduce the severity of subsequent infections.

        So even if there is no vaccine, there is a good chance that subsequent outbreaks will be less severe as population will have residual immunity.

        1. vlade

          That is not entirely true either, as for example, no-one still has a vaccine for cold, HIV etc. An attempt to do a vaccine against dengue fever made it worse.

          My point is that we do not know whether, with our current knowledge, we can do a vaccine against covid-19 or not, so taking it as a given is dangerous.

    2. Harold

      We have imperfect vaccines for influenza that work 50% of the time. Even that would be a big help, according to eminent epidemiologist Michael Osterholm, interviewed on Joe Rogan (on youtube) the other day. He said you could make a vaccine tomorrow for covid-19. The problem is making a safe vaccine is fraught with problems, sometimes they can backfire and cause even more serious illnesses. It can take years to achieve safety, he said. He estimated two years for covid-19. It was a very interesting program. Highly recommend.

  13. Chauncey Gardiner

    Unfortunately the reality of neoliberal capitalism is 180 degrees from Mr. Baldwin’s observation in the article that …”people are the important thing, money is cheap, and this medical shock is transient.” On the demand side, we are already seeing closures and layoffs in the services sectors in the Seattle area, particularly among local restaurants. I expect more are coming. Although the genie is out of the bottle, I expect the failure to prepare and provide testing for the virus in the face of well over a month’s advance notice from Wuhan, and a widespread belief that it is an orchestrated effort to suppress reported case numbers, could well lead to systemic changes that transcend the medical shock of the pandemic. People don’t forget when their family members are affected.

  14. Oregoncharles

    “Many businesses have loaded up on debt in recent years (BIS 2019), so they may be vulnerable to reductions in the cashflow.”
    Well, “learned nothing” (from 2008, only – let’s see – 12 years ago; it’s not like they’ve all died) certainly applies. The same problem was a central theme of the 2008 crash.

    Having run a very small business (landscaping – and yes, there are machines and materials to buy), I can’t quite believe how dependent contemporary businesses are on debt. If you’re a going concern, you should be running on income. Granted, there are exceptions, like construction and agriculture, where the return comes long after the investment on a cyclic basis, but even those should really be self-financing much of the time.

    My exclamations to this effect led to many patient lectures to the effect of (to my eye) “that’s just how we do it these days.” Yes, that’s exactly the problem. I don’t pretend to understand where this debt fixation is coming from (outside of private equity – formerly known as “corporate raiders” or “pirates”), but it should be illegal. It causes one disaster after another, essentially because the top managers aren’t nearly as smart as they think they are and because, well, brown stuff happens. Predictably, except for the exact timing.

    If someone can suggest ways to make businesses drastically reduce their debt dependence (making interest not deductible?), I’d like to hear about them. It’s an overlooked element in most left-wing economic proposals. Abolishing the MBA factories might be a good place to start.

    1. Mel

      Thorstein Veblen gave some reasoning for this in The Theory of Business Enterprise. TLDR: You can swing a certain amount of weight in the marketplace swinging your own weight, you can swing even more swinging your own plus the bank’s. You might never be able to out-borrow your competitors, but if you hold back, they can out-borrow you.
      I’ve conjectured that you can fund the biggest possible business by using your own resources purely as collateral for operating loans — I don’t know how to prove that.

    2. Stillfeelinthebern

      I couldn’t agree more. With 20 years of running a small biz, our security is our cash reserve. Didn’t have it in the beginning. Building it up was a main goal. Once it was there, we had all kinds of options. Interestingly, I had a surprising conversation with a local (very Republican) attorney a few weeks ago. I’m in dairy country where family farms are going out of business at record rates. He told me that the bankers should be jailed for loading the farmers up with debt. Went on a big rant about this and how he saw farms that were in families for 4-5 generations were lost because of the debt. I think he is generally correct and I was thrilled there was something we could agree on.

    1. rd

      Nobody is going to be in a rush to get their 737 Maxes back up in the air. The new ones that Boeing has parked on the tarmac could be there a long time.

    1. Tim

      That chart is kind of encouraging in the short term. The inverted parabola would go to vertical in another couple of weeks (that which can’t continue won’t). A short term buying opportunity is near if it isn’t today as a result of federal intervention.

      However longer term it just depends how bad the knock on effects are for flipping the off switch on the economy for a month or two. Can businesses and individuals find a way to survive it.

  15. notabanktoadie

    Economic crises are like buses; there’s always another one coming along (IMF 2020). Richard Baldwin

    Besides being inherently unjust, our banking and fiat creation model is inherently UNSTABLE in that it, for example, steals from potential customers to finance production. But what good is production without customers?

    Fix the injustice and the instability should decrease – as well as the danger of (further?) Divine Judgement should we remain complacent about it.

  16. Mikerw0

    Be prepared for massive bankruptcies. According to FEMA data when there is a catastrophe more than 40% of businesses never reopen and for those that reopen only 29% are still operating after two years. These statistics are for things like hurricanes when the closures from the CAT are relatively short-lived.

    Unless we just start giving everyone cash, and enough cash, expect a long protracted recession with a tepid and slow recovery.

  17. danny

    In other words, the response to Covid-19 coronavirus may be the shock that triggers that Minsky Moment

  18. Grayce

    It is not a credit crisis, or a banking crisis, or a sudden-stop crisis, or an exchange crisis.
    In an odd sort of way, it is an identity crisis. Perhaps a PR crisis. Individuals will act individually according to conclusions known only to them, in unpredictable ways. Modern Economics assumes some rational behaviors that can be foretold. Many people look to news about testing and the trends about where the coronavirus is found and in what quantifiable amount. Until the conclusions smooth out and become traceable in themselves, the economic engines (drivers) will not know whether to apply brakes or accelerators.

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