“Performance is better than promise. Exuberant assurances are cheap.” – Joseph Pulitzer

The Corona Economy, Part II

Will America Survive It? 

Alec writes:

Today marks the 29^th day in a row that I have worn pants with a drawstring.

I went into Rand’s room this morning and woke him up. I said, “Rand, you have to get up.”

He raised his head up from his pillow and said, “Why?” Then he went back to sleep.

My wife is running a business with 10 restaurants and goes to work every day. She is busier than ever… as other restaurants gradually close, they are filling a growing number of carryout orders for breakfast, lunch, and dinner.

Her text this morning read, “Has at Costco $1.49.”

How she had time to text me, or what the text meant, I didn’t know. But thinking it might be vital information, I texted back, “WHAT??”

Her reply was, “G gas.”

I thought, “Wow, gas, $1.49 a gallon. I can’t remember when gas was that cheap. I’d better rush to Costco to get gas before they run out.”

I jumped into my car and backed out of the driveway. Then I realized: I hadn’t gone anywhere for 29 days. My gas tank is still full!  (Later, I did the math and I am driving an average of 0.7 miles a day. I may not need gas until the middle of June.)

But America will soon be “opening up again.” Not because Donald Trump wants it to.  Nor will it happen because we’ve passed the peak of the contagion. (There will be a second wave.) State governors will have lots to say about it, but they won’t actually make the important decisions. America’s people – its entrepreneurs, professionals, corporate executives, and employees will.

“Opening up” is  bit of hyperbole. Our economy was never truly shut down. It was regulated into a crippled gait. In six short weeks, the US has experienced a financial collapse it hasn’t experienced in a hundred years.

As I write this, for example, more than 22 million American workers have filed for unemployment. Millions more will surely be filing in May and June. Both Treasury Secretary Steven Mnuchin and the Fed’s James Bullard have said they believe that unemployment will bypass 20% and could end up higher than it was during the Great Depression of 1929.

The unemployment rate hit a record of 25% in 1933 – 4 years after the Great Depression – and remained over 14% during the entire decade of the 1930s. The highest rate since then was 10.8% in 1982.

Another concern: The 2008 financial collapse was triggered by mortgage defaults. What is happening today is just as serious – rent defaults. According to Rent Payer Tracker, as of April 19, one-third of the 13.4 million renters surveyed hadn’t yet paid their April rent, ordinarily due on April 1. An increase in rent defaults isn’t likely to collapse the economy by itself, but it reflects a trend I’ve seen even among friends and colleagues that are financially secure: People are reluctant to pay bills they don’t have to pay.

The big picture is the gross domestic product (GDP), the total output of the US economy. With so many businesses, large and small, inactive or unprofitable, Goldman Sachs projects that GDP could decline by 24% by the end of June.

Think about that. Total GDP output in 2019 was about $21.4 trillion. If it drops 24%, that’s an annual loss of over $5 trillion of economic activity. And that’s on top of the macroeconomic factors we covered in Part I of this series:

* The US government is currently in debt to the tune of $24 trillion.

* It’s been running at a $1 trillion annual loss for years.

* The Treasury itself is broke. Its bills exceed its revenues by several trillion dollars.

* The government recently spent $2.5 trillion it didn’t have.

* On the other side of the ledger, federal tax revenues will be at least $2 trillion less than they were last year.

Add it all up and you have an already broke government increasing its deficit by as much as $10 trillion in a single year!

The government is working furiously to avoid a total collapse. Their strategy is to give away trillions of dollars in paper money. They have already given half a trillion via the Payroll Protection Program and have committed to another half-trillion more. And that’s not counting the 1.5 trillion that went to bail out Wall Street.

As you remember from Monday’s essay, the US government doesn’t really have any wealth to distribute. It’s broke and is getting broker every day by billions of dollars. If, as I suggested, our government were a business, only a fool would invest in it or lend it money. But that’s how it’s been surviving these past several years – by selling Treasury bonds to the likes of China, Saudi Arabia, and Europe.

That’s of no apparent concern to some of our legislators and public thinkers. They are criticizing the giveaway so far for being too conservative.

Regarding the 20% to 24% projection of GDP loss, a NYT columnist said, “This time, with government deliberately shutting down commerce, it could well fall faster.

Only a World War II-scale response can make up that difference.”

And where will government get the money?

His answer: “At a time when inflation is close to zero and the government can borrow for 30 years at less than 2%, this is precisely the moment to borrow to underwrite a recovery that also modernizes the economy.”

Never before in US history has so much money been doled out so quickly and with so little understanding of or regard for consequences. Rarely have so many politicians from both sides of the aisle favored such a level of spending.

As Bill Bonner recently pointed out, the Small Business Administration giveaway is forcing banks to review and approve loans at a surrealistic rate.

“Every half a second,” he writes, “they’ve had to check out the facts… verify the value of collateral… and assure themselves that everything was on the level – after all, they were giving out as much as $2 million per application!”

“Who gets the money?” Bill asks. We can’t be sure. But when money is being given away so fast and furiously, there’s a good chance that much of it will be unproductive. “Like subprime mortgages in 2007,” Bill says, “All you need [to qualify] is a pulse. Even hedge funds are eligible.”

The millions that have been fired or furloughed will be getting a few hundred dollars a week while the shutdown continues. Meanwhile, the hundreds of US senators and representatives and their thousands of aides will continue at full pay while they try to spend our way out of all this mounting debt.

“Don’t worry,” they assure us. “We are going to take care of this.” Assurances from people that have never run a business and have little to no understanding of how a real economy actually works.

So what is it they don’t understand? We’ll talk about that on Monday.

“Imagine preventing health crises, not just responding to them.” – Nathan Wolfe

My Last Essay on the Coronavirus (I Promise!)

5 Important Questions; 5 Conclusions 

Once again, we were having a family argument about the coronavirus. The topic last night was: “Why Donald Trump Is Killing People With His Plan to Reopen the Economy.” But after a good five minutes of perfervid shouting, it turned into an argument about how dangerous the virus really is.

“And now COVID-19 is the biggest killer in America,” J said.

“That’s not possible,” I said.

“I read it in The Washington Post.”

Now J has been right about that damn lefty rag before, so I had to check my facts. I tracked down the article this morning. It was published on April 16. The author had given COVID-19 the “biggest killer” title based on a single week’s data.

J was right. The article made that claim. But I feel that I was right too. Because the “fact” that it was on the top of some chart last week doesn’t mean it is or is going to be the leading killer this year. As always, it will be heart disease and cancer. Coronavirus will do its share of killing. It will make the top 10, edging out suicide, kidney disease, and maybe even pneumonia (from common colds and influenza). But I doubt it will edge out accidents, lower respiratory, cerebrovascular, and Alzheimer’s diseases.

Today, I’m going to try to answer the question of how deadly this novel virus is as part of what I promise will be my final essay on the virus itself. (I will be following up on Monday’s essay on “The Corona Economy” with two or three more essays, and then I’ll probably join the fray and register my view of how the crisis will change the way we live. But that will be it!) 

There are four reasons this will be my final essay on the virus itself:

* I normally write about subjects I know, like business and wealth building and so on. It’s exhausting to have to research and check facts to support my conclusions about the virus.

* When I began writing about the virus in mid-March, I was presenting ideas that were largely contrary to what I was seeing in the major media. It was fun to make claims and predictions that seemed outrageous and might offend. But in five short weeks, the consensus of expert opinion, along with the media, has moved uncomfortably close to what I was saying then. I have no interest is presenting ideas that the world is accepting as true. There’s no point in it.

* My family, my editor, and even some of my loyal readers have asked me to stop. As SC said recently, “Enough already!”

* If we get the right kind of testing done soon – and it appears we will – there will no longer be an argument about the most important questions.

So what I’m going to do today is present my argument against The Washington Post claim, and then reiterate (with some revisions) the five most important questions and answers about the coronavirus and COVID-19.

Question One: Comparatively Speaking, How Deadly Is the Coronavirus?

Let’s begin with some big numbers. How many Americans will COVID-19 kill in 2020? And how will that number compare to America’s biggest killers?

I’m going to address the second question first, because part of it is easy to answer.

In 2018, the most recent year the CDC had published records for, the top killers were as follows:

1. Heart disease: 655, 381

2. Cancer: 599,274

3. Accidents: 167,127

4. Lower Respiratory Diseases: 159,486

5. Cerebrovascular Diseases: 147,810

6. Alzheimer’s: 122,019

7. Diabetes: 84,946

8. Influenza and Pneumonia: 59,120

9. Kidney Disease: 51,386

10. Suicide: 48,344

The first expert estimates for COVID-19, you may remember, were 2 million to 3 million. Dr. Fauci and team’s first guess was 100,000 to 240,00. Just before they announced that range, I had come up with a range of 85,000 to 205,000, which was published in my March 30 blog. Shortly after that, Fauci and team dropped their estimate to 60,000. But that wasn’t meant to be the death toll for the virus itself. Just how many would die by August first.

So how many will die?

As you’ll see from my answers to the next several questions, that’s impossible to know until we know how many Americans (and other populations) have already been infected. Based on what I’ve seen, I’m sticking to my original guess. But I’m going to narrow down the range. My current guess is more than 85,000 but less than 120,000.

Conclusion and Prediction: COVID-19 is not the most dangerous health crisis Americans face today. It won’t come close to heart disease and cancer, but it will be significant, killing more than 60,000 but less than twice that.  

Question Two: How Deadly Is the Coronavirus by Age Group?

Throughout March, the media focused a great deal on the fact that COVID-19 seems to be especially deadly to older people and people that have “compromised immune systems” or “comorbidity issues.” This had most of my coevals frightened.

Then, about two weeks ago, another narrative hit the headlines: It’s killing younger people too! Even babies!

And that scared the shit out of everybody.

Let’s take a look at these two claims by comparing CDC figures on deaths by age group for COVID-19 against deaths from cold- or influenza-induced pneumonia.

From the beginning of February until the middle of March, 682,565 Americans died.

Of those 682,565 that died, 13,130 (roughly 2%) died from COVID-19 and 45,019 (roughly 6.5%) from cold- or influenza-induced pneumonia.

COVID-19 Percentages (based on 13,130 deaths)

Under 1 to 24: 16 or 0.12%

25 to 34: 113 or 0.8%

35 to 44: 289 or 2.2%

45 to 54: 751 or 5.7%

55 to 64: 1,773 or 13.5%

65 to 74: 2,919 or 22.2%

75 to 84: 3,576 or 27.2%

85 and older: 3,693 or 28.1%

Cold- and Influenza-Induced Pneumonia Percentages 

Under 25: 111 or 1.8%

25 to 34: 117 or 2.2%

35 to 44: 188 or 3.5%

45 to 54: 441 or 8.4%

55 to 64: 963 or 18.4%

65 to 74: 1,152 or 22%

75 to 84: 1,165 or 22%

85 and older: 1091 or 20.8%

At a glance, you can see one thing clearly: The percentage of people under 25 that died from COVID-19 was extremely small – i.e., about one-tenth of 1%. That is less than half the percentage of that same age group (2%) that died from colds and flu.

From this, it seems reasonable to conclude that if you are younger than 25, your risk of dying from COVID-19 is effectively non-existent.

What about the other age groups? From 25 to 34, from 35 to 44, and so on?

To get a better sense of that, I clustered them into three groups: 55 and over, under 55, and under 35.

* 55 and over: 91% of those that died from COVID-19 were 55 years old or older.

* Under 55: 9% of those that died were under 55.

* Under 35: 3% of those that died were under 35.

Now let’s look at the same age groups for cold and influenza:

* 55 and over: 83% of those that die from influenza are 55 years old or older.

* Under 55: 17% of those that die from influenza are under 55.

* Under 35: Only 4% are under 35.

From Dr. Jean-Laurent Casanova, a pediatrician who studies the genetics of disease severity.

“What we’re seeing here is the same for tuberculosis, malaria, all infectious disease of humankind. Some people control the infectious agent very well, others die, and there’s everything in between.”

Comparing the two sets of data points above, we can see that:

* Older people (older than 54) represent a somewhat larger percentage of those that die from COVID-19 than from influenza. But it’s not a huge difference. It’s eight percentage points – 91% as opposed to 83%.

* The percentage of people under 35 that die from COVID-19 is virtually the same as for colds and influenza: 3% versus 4%.

* Virtually no one under 24 dies from COVID-19, compared to 2% for influenza.

In terms of age, COVID-19 seems to be less lethal than cold- and flu-induced deaths for people younger than 25, about 20% more lethal for people over 55, and has about the same true lethality rate for people under 55.

Conclusion: People older than 55 have a higher likelihood of dying from COVID-19 than they would from getting pneumonia. But it looks like it’s only 20% higher, so they shouldn’t be terrified. Their risk of dying from it is still less than 1%. People between 25 and 55 should be as worried about dying from it as they are about dying from pneumonia. And people under 25 shouldn’t worry at all.

Note: Yes, if you are under 55 and are in contact with older people, you should be concerned about spreading the virus to them. But that doesn’t necessarily mean you should be in lockdown, as I’ll explain in a bit.

Question Three: What Is the True Lethality Rate of the Coronavirus? 

If you have been reading my earlier blogs on this subject, you already know that I believe the true lethality rate of COVID-19 is much lower than the case fatality rates (CFRs) that were reported from the end of February. First, the reported CFR was 12% (based on Wuhan and northern Italy). Then it was 6% (based on I can’t even remember right now). Then the WHO announced that it was 3.4%.

In my March 30 blog, using the data available, I estimated the real lethality rate to be between 0.85% and 1.02%.

At the same time, or maybe a day or two later, everyone including Dr. Fauci and team), was estimating the rate to be 1%. (Which, of course, made me feel that I was doing the math correctly.)

But because there was no way of knowing exactly how contagious the disease was and how long it had been in the USA, I said that I thought the true lethality rate could turn out to be as low as one-tenth of that, or one-tenth of 1%.

We won’t know the answer until we’ve done enough random testing of the population (not testing of symptomatic cases). But there have been studies that point towards a rate of less than 1%. For example, in South Korea, which conducted random testing of more than 140,000 people, officials found the actual fatality rate to be 0.6%. And apart from Wuhan, the rest of China has reported a lethality rate of 0.7%.

Conclusion: The actual real fatality rate of COVID-19 is (and will be) between 0.2% and 0.4%, about double the rate for influenza but nothing near the estimates authorities were working with when they decided to shut down the economy.

Question Four: How Contagious Is the Coronavirus? 

On March 30, I said:

Let’s move on to the other metric we need to estimate the death toll: the Ro or reproductive rate – i.e., the rate at which the virus will spread from one person to others in close contact. Like the case fatality rate, this one has been going up in the past month. Since I’ve been tracking it, it’s gone down from 3.0 to 2.3.

A reproductive rate of 2.3 means that [on average] each person that gets the virus will infect 2.3 more.

An Ro of 2.3 may not sound so contagious – but if you do the math, you’ll discover (as I showed in that essay) that the virus can spread from one person to 11.6 million people in just 14 exponential steps!

The coronavirus is a very fast-moving bug. But that rate is not fixed. It’s dependent on its ability to move freely from one host to another. Without barriers, it can grow at these rates. And that’s why some of the earlier articles posted on social media were predicting that millions of Americans would die from it this year.

But nature doesn’t work that way. We are designed to combat viruses just as viruses are designed to infect us. The way we do that – the way we protect ourselves from all threats – is with adaptive behavior. In the case of snakes and lions, we wear shoes and walk carefully though the jungle. In the case of past viruses, those of us that were concerned with catching the flu – generally older people – got flu shots and avoided people with runny noses. As for younger people and their children, it was hardly a concern.

With the coronavirus, we have been practicing much more stringent adaptive behavior. Some of that has been voluntary and some of it has been mandated. These practices definitely slow the spread of a virus but they will not reduce the eventual number of Americans that will eventually be infected. That will be the percentage of the population we need for herd immunity.

One of the many things we don’t know now is how many Americans are now or have already been infected with the coronavirus. This we will find out soon – after we’ve completed several large randomized tests of the population. (Either the swab test for the virus itself, or the serology test for antibodies.)

The guesses I’ve seen ranged from 20 million to 60 million. To achieve herd immunity (more on this in the next section), we’ll need a lot more than that – possibly more than 100 million. Remember, the higher the number of infected, the lower the real lethality rate. Let’s hope that this bug has spread like wildfire. It will mean that we may have reached the peak already. And that means fewer deaths with each passing week.

Conclusion: The coronavirus is very contagious, at least as contagious as influenza. It is likely that it has already infected 30 million to 60 million. If we are lucky, we will discover that the number is much higher than that.  

Question Five: Has Social Distancing Really Helped Us Defeat the Virus

In my March 30 essay, I concluded that social distancing was good and necessary – especially in hotspots – because by slowing the spread of the virus, we reduce the risk of overwhelming our hospitals.

For the moment, at least, that strategy has worked. New York City, the “center” of the pandemic in the USA, is no longer short of hospital beds and ventilators.

But is social distancing the best way to conquer the virus?

Epidemiologists agree that the only way to extinguish a virus is through herd immunity. And as I said on Friday, herd immunity is what happens when a large percentage of the population has developed immunity. Depending on the virus, that percentage can range from 40% to 60%. When you get to those numbers, the virus cannot spread like it needs to because its host population is too small.

That is what happens every year with the flu.

According to the CDC, about 40% of the adult population in the US is vaccinated each year. That gives most of them (virus vaccines are imperfect) immunity for a year or two. In addition, tens of millions of Americans achieve immunity naturally by contracting the flu and recovering. That gets us to the 50% to 80% needed for herd immunity – and the virus dies off. (It usually peaks in two to three weeks and descends in an equal amount of time.)

But by imposing social distancing, we extend the virus’s natural life cycle and slow its spread.

That is why epidemiologists are warning us about a second and third wave. It is almost certain to happen precisely because of social distancing.

Conclusion: Yes, social distancing keeps hospitals from being overwhelmed. But it also interferes with the development of herd immunity. We can (and probably should and certainly will) “open up America.” But we will definitely have other waves of the coronavirus until at least 160 million (50%) of us have immunity.

So What Should We Do?

Everyone’s best hope is the development and deployment of an effective vaccine as soon as possible. And we are certainly working hard on that. Except for HIV, I can’t remember a time when so much effort has been put into creating a vaccine. But effective vaccines are not easy to develop. (We’ve been trying to develop a vaccine for HIV now for more than 30 years.) It’s generally agreed that, for the coronavirus, the best we can hope for is 12 to 18 months.

In the meantime, the virus will rise up and infect people every chance it gets. And if our policy is to continue with shelter-in-place, we won’t be able to stop the spread of the virus until an effective vaccine is ready. (And available in sufficient supply to immunize 100 million Americans.)

The only sensible option is to allow the virus to spread. Not freely, but in a controlled way that is based on what we know about its lethality.

If we accept the facts that (1) herd immunity is the only way to kill the virus, (2) the real fatality rate is 0.1% or 0.2%, and (3) a vaccine is a year or so away, doesn’t it make sense to try to achieve herd immunity as quickly as we can, while doing everything possible to isolate those who are most vulnerable?

By achieving herd immunity naturally, by isolating the vulnerable but otherwise letting the virus spread, wouldn’t that render the second and third waves of the virus weak or even impotent?

The administration has issued its guidelines. They are based on gradually opening up the economy. This makes sense from a distance. But the guidelines do not take into account the data that is most important to know: the fatality rates by age group.

Rather than being guided by social distancing, which segregates everyone, we should have different approaches for different vulnerability groups. We should have a policy that isolates the most vulnerable (over, say, 75 years old and anyone with a seriously compromised immune system), promote social distancing for people between 25 and 75, and let everyone under 25 resume their regular activities. That way, we would allow the virus to spread quickly through the population of people that have the ability to withstand it. And that acceleration will get us to herd immunity soon, probably in weeks. Once we reach herd immunity, we won’t have to worry about a second or third wave. (Most of the 600,000 Americans that died of the Spanish Influenza of 1918 died in the second wave.)

And What Should You Do?

I can’t tell you what to do – but I’ll tell you what I’d do.

If I were younger than 25 and had children, I wouldn’t worry about them or me getting sick and dying of the virus. The odds of that happening are probably the same as the odds of dying in a plane crash.

I would be comfortable interacting with people of my age and younger. But I would not interact with anyone older than 65 or anyone younger that had comorbidity issues.

If my children or I did get infected, I would keep us isolated until I was sure we were not just symptom free but tested negative so that we would not infect others.

If I were older than 25 but younger than 65, I’d feel free to interact with people under 25 and I’d keep a social distance from people of my age group.

And if I were older than 65 and worried about getting infected and dying, I’d self-isolate and stay isolated till there was herd immunity.

I am older than 65 but I’m not worried about getting infected and dying. If I did get infected, my chances of living would be better then 80%. In terms of getting and spreading the disease unwittingly, I’d follow the social distancing rules I mentioned above.

One more thing I’d do and advise anyone else to do. If I got symptoms, I wouldn’t wait to get an appointment with my doctor. I’d get tested not just for COVID-19 but also for any other upper respiratory disorder, including influenza. I’d do that because I understand that you don’t die from the bug itself. You die from pneumonia. And pneumonia, when treated early, can usually be treated with antibiotics.

Looking at it from a social perspective, the bottom line for me is that old and immune-compromised people should self-isolate. And the rest of the world should look forward to getting back to the sensible adaptive behaviors that are recommended for treating influenza.