Wednesday, March 25, 2020

Reopen the economy -- but carefully!

I did a WSJ oped today on reopening the economy.  As usual it's gated so I can't post the whole thing for 30 days. Their lead editorial expresses many of the same sentiments

Closing down the economy is a panic response. It is not how we should be fighting the virus. We should be following the Korea, Taiwan, Singapore models: Test everybody. Trace all their contacts. Isolate those who test positive or with symptoms. Isolate people who are most likely to get really sick and use scarce ventilators. Tamp down hotspots with local lockdowns. Allow business to open, but with stringent protocols adapted to that business and its employees. The options are not lockdown vs. back to nothing. The needed option is reopen with social distance.

The cat is out of the bag on that one, as our governments were caught flat-footed -- as governments almost always are -- and responded late. The snafus and regulatory roadblocks to get testing ramped up and even to produce or allow the importation of masks and gowns are scandalous. But here we are. The situation is out of control. Sometimes you do hit the panic button.

The point of the oped -- closing down the economy is the panic button. It is going to cost something like a trillion dollars a month. So during the next few weeks, our governments -- federal state and local -- need to be getting ahead of the curve, so they can implement the above appropriate public health response. NOW.
Businesses were doing a good job already: announcing sanitation, social distancing and other protocols to keep operations safe and reassure customers. Visit any airline’s website.
State and local governments need to work with businesses to figure out a satisfactory combination of personal distance, self-isolation, frequent testing, stricter rules for those who must interact with customers, cleaning protocols and so on. Each industry will likely be different. Even onerous rules, which can be eased as officials and businesses gain information and experience, are better than a blanket ban.
What are the rules for reopening an auto paint shop? The public parks?

Much of the lockdown is to keep hospitals from getting full. Most of the people hit by this disease are old. And retired people by and large are not counting on a monthly paycheck. That's what "retired" means. The obvious conclusions: Older and retired people may face lockdowns while healthy people can go to work. That and location and contact tracing are horrendous violations of civil liberties, yes.
Is this an awful violation of civil liberties? Doesn’t grandpa have a right to go play golf, or head down to the senior center? Not in an emergency. He does not have the right to expose himself to a virus and then claim a spot in an ICU bed that is costing society $20 million dollars a month. Prepare also to claw back civil liberties promptly when the pandemic is over, as we did after wars. 
There are a lot of empty hotel rooms, with cable TV, and lots of empty restaurants who would like more takeout business, and lots of unemployed uber and grub hub drivers. Want a stimulus? Anyone who tests positive gets a free two week stay at the hotel, meals included, at government expense.

A trillion dollars a month is an immense cost. The shadow value of those missing masks and ventilators is huge. And it's worth spending an immense amount of money to avoid a trillion dollars a month. No, we don't need the defense production act. Just pay 10 x cost -- pay $100 billion for masks ventilators and test kits, and remove the regulatory barriers, and we'll be flooded. Defense production is what a government does that wants battleships but can't afford to pay for them. We've got oodles of money. Profit is a fine motive.

It is even more important for our governments to get the real public health plan going NOW because we are in the calm before the storm. In two to three weeks the crush at the emergency room will be in full swing, and there will be no political breathing space for anything but more panic. This too can be an advantage. People will see the need for the extensive virus safety protocols they will have to follow at work. But that will be a terrible time to start thinking about how to save a tanking economy, and vanishing public trust.  People will not wait for the last case to pass, and the government to sound the all clear in July or August, emerging from their homes like the end of a Zombie movie to find a destroyed economy around them. The choice is sensible plan NOW or widespread disobedience and chaotic re emergence of the virus over the summer and fall.


  1. A penny for your thoughts on this counterpoint:

  2. good NYT piece on this topic here today. Loved your Hoover Webinar the other day as well (where you talked about this) very important to think about this stuff now, i.e.its not a question of "economy" vs "COVID Mitigation" it is an inevitable question of "how do we do it", i.e., come out of lock down and sequester of people and businesses.

  3. The economy is not closed now and shouldn’t be closed in the future.

  4. Closing down the economy is what you have to do, if you do not have enough tests - such as the US. Finally here in NYC we can test due to NY state action! More patients in NY hospitals are below 50 than above 50 years old (so much for the likely pattern of COVID-19 incidence), and hospital capacity is virtually reached.-- You get to choose the South Korea, Singapore path, when you are prepared and can test; if not you will overwhelm your health care system.
    When you are asleep at thew hell, your ideal options narrow quickly. -

    And is irrelevant for reopening the economy: as long as your hospital capacity is overstretched. BTW: who will do the separation and enforce it? Will you separate from your family, if told so (we are both above 60)?

  5. You indicate at paragraph nine ("Does grandpa have a right to go play golf...") that an Intensive Care Unit bed " costing society $20 million a month." At $20 million per month per ICU bed, the daily cost per ICU bed works out to $657,534. That figure is two orders of magnitude greater than the average first day cost of an ICU bed with mechanical ventilation ($10,794). The average second day and third day costs of an ICU bed with mechanical ventilation are $4,796 and $3,968, respectively. The ICU bed-day cost information cited comes from an article titled "Daily cost of an intensive care unit day: the contribution of mechanical ventilation", published in Critical Care Medicine 33(6): 1266-71 July 2005. The study entailed a "retrospective cohort analysis using data from NDCHealth's Hospital Patient Level Database" from "253 geographically diverse U.S. hospitals" covering "51,009 patients >/= 18 yrs of age admitted to an ICU betw. Oct 1 and Dec. 31, 2002." Abstract at:

    The daily ICU bed cost figures cited above are comparable to average ICU bed-day costs of $3,592 for Canadian hospitals (Canadian Inst. for Health Information: "Care in Canadian ICUs" (Aug. 2016); Ottawa, ON: CIHI; 2016.

  6. Referring to the article "Daily cost of an intensive care unit day: the contribution of mechanical ventilation", the mean cost of a patient's stay in an ICU and the mean length of stay in days were found to be:
    $31,574 (+/- $42,570) and 14.4 days (+/- 15.8 days) with mechanical ventilation, and,
    $12,931 (+/- $20,569) and 8.5 days (+/- 10.5 days) without mechanical ventilation. Standard deviation given in parenthesis.

    Even at two standard deviations, with mechanical ventilation the ICU cost per month would fall well short of $20 million per month. [2 × ($31,574 + 2 × $42,570) = $233,428].

    It would be of interest to learn where the figure of $20 million comes from.

  7. An urban planner's guide to "reopening our cities":

  8. It may be instructive to compare the number of ICU beds and General Ward beds per 100,000 population in selected G7 countries.

    The number of ICU beds per 100,000 population: Canada 14, USA 20, UK 3, Germany 25, France 9.5.

    The number of general ward beds per 100,000 population: Canada 300, USA 220, UK 300, Germany 600, France 380.

    It is evident that the UK and France are the least prepared for ICU demand arising from this latest pandemic, while Germany is perhaps the best placed to deal with that demand. It is noteworthy general ward beds are one to two orders of magnitude greater than ICU beds per 100,000 population. A general ward bed can be converted to an intensive care bed with a ventilation capability if pressed, provided ventilators and medical staff are available. Here, again, Germany is better placed than its peers; the USA less well situated. The call for a ramp up in ventilators, and medical PPE is readily explained by the figures given above.

    The figures above were taken from Figure 1, "Hospital beds and adult ICU beds per 100,000 population, international and Canada", in Canadian Inst. for Health Information. "Care in Canadian ICUs." Ottawa, ON: CIHI; 2006.

  9. Lack of readiness is easily explained. Mechanical ventilation in ICUs primarily arises from surgical cases--42% of ICU surgical patient admissions--versus 24% of ICU medical patient admissions. Overall, the proportion of invasive ventilation in ICUs is 33% (Canada), 39% (USA), and 19% (France). Hospitals will adjust their operating capital equipment inventories according to their expectations of frequency of utilization. (Data source: CIHI, 2006.)

    The sudden advent of a pandemic amounts to a unanticipated shock arriving faster than the order placement and delivery lead times can accommodate. Manufacturers and their suppliers can't ramp up instantly; governments don't, as a general rule, stockpile medical equipment and PPE equipment at the levels in demand today.

    In order to gain the time to produce sufficient stock to meet the anticipated demand for ventilators and medical PPE, we have to accept some curtailment of our individual freedoms and liberties, else we must be prepared to accept greater personal loss in terms of higher mortality rates and greater longterm economic costs. Clearly there is a trade analysis that must be undertaken: the value of individual freedom (rights) versus collective welfare (i.e., our common wealth).

  10. Wouldn't it be great if social security was a defined contribution plan and everyone had personal savings accounts they could tap in an emergency like this?

    1. You act like 80% of America wouldn't have emptied out their accounts already because "Walmart had a sale on that one thing that one time".

  11. There should be no freedom to get others sick.
    There should be no freedom to take scarce resources.

    1. "There should be no freedom to take scarce resources."

      I mean...everything is a scarce resources on some level, so this could just reduced to "thou shalt not steal" right?

      I get what you're trying to say but the phrasing isn't quite right.

  12. Back in 2009, when I was an elected official, the CDC appeared before us to warn of the pending H1N1 pandemic. The H1N1 virus was the basic strain that killed hundreds of millions in 1918. There was no vaccine for H1N1 in 2009. The CDC suggested four steps to minimize the effects of the "Swine Flu". As with COVID and the chicken flu, it was a virus that jumped from infected animals to humans.

    The four steps were:
    1. Know and react to the symptoms.
    2. Stay contact and look out for particularly vulnerable populations. For the Swine Flu its was younger children.
    3. Practice excellent hygiene.
    4. Practice Social distancing, although the phrase hadn't been invented yet.

    A year later, the CDC reported a particularly light flu season, particularly considering the virulence of the virus. My first thought was the warnings weren't necessary, but then realized the four practices were the reason.

    I hope there is a thorough investigation of the pandemic and the actions taken. Hoover seems to be particularly well motivated and qualified. I would like to see what happened to those people and in those jurisdictions that simply followed the CDC 4 best practices. It may be that mass quarantines concentrate the spread and thus the illnesses, hospitalizations and deaths. These casualties may be caused by ill-conceived and arrogant government action. Perhaps thousands of hospitalizations and deaths were caused by these policies.

    Finally, a number of mortality rates have been proposed, by all I have seen are baseless. While we know the numbers (deaths) we have no idea what the denominator (infections) is.

  13. Beef up the hospitals, spending large amounts if necessary. But we have to go back to work.

  14. John:

    Very important article. From a medico-economic perspective there are additional features that are important.

    If there was much more available testing and available serology, then one could identify the large and growing group of people who are both immune and cannot spread the disease. This cadre can be completely reintegrated into the workforce while the epidemic is occurring. This would greatly speed the economic recovery.
    Theses technologies should already be deployed. They will be shortly. The inhibitory forces in the development and release of these technologies are the FDA and the CDC.

    Arnie Calica, MD, PhD

  15. There have been some comments about testing and how that relates to getting back to work.

    There are 2 types of tests. The molecular tests are being used now. These test for evidence of the active virus in the patient now. It is used for clinical diagnosis and for containment (which US seems to have given up on). The second type is serological tests which look for antibodies as evidence of past infection and recovery. These have been typically used for population-based estimation, not for diagnosis of individual patients.

    Given the grave economic damage, I suspect that serological tests will be pressed into service to clear workers back into the economy, as the numbers of infected and recovered will be quite large (tens of millions) within a 2 months. However, this will cause the next logjam as a quick, cheap diagnostic serological test for SARS-CoV2 does not exist yet.

    Furthermore, at the same time that we have tens of millions of workers who have been infected and recovered, we'll be dealing with overload of our medical workers dealing with the infected and hospitalized, so there will be a shortage of trained personnel to administer serological tests even if they were available.

    I don't see a way to a rapid gearing up of our economy this summer. Sending people with unknown antibody status back into a workplace while the pandemic is still spreading in the general population will lead to at best massive absenteeism, at worst, civil disobedience.

  16. The other thing to take away from this: regardless of the source of an exogenous shock to supply and demand, we need a general game plan. Next time it might not be a pandemic. I know climate change/the environment is a touchy subject, but environmental quality does impact economies. There are negative externalities that arise from economic activity (pollution of water supplies, for example) that can affect how supply chains and consumption patterns function, as we have seen with this virus epidemic. Operationalizing the Coase theorem can only go so far when an event/condition impacts the larger macroeconomy.

    I just hope we don't return to Autarky Equilibrium(s). That would really send us back in time.


  17. Here's a link to an interesting WSJ piece on Covid-19 stats. Helps put some of the doomsday scenarios in perspective:


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