Have We Bought Enough Time? and The Shape of the Curves
On March 11th the World Health Organization characterized the coronavirus as a pandemic and warned that it was going to spread to all corners of the planet. Notwithstanding the Trump administration’s assurances that the virus did not pose a threat to Americans, the Congress sprang into action and passed two pieces of legislation. First, it appropriated $8.3 billion to provide the government with the resources that would be needed to detect and prevent the spread the virus. A few days later, as schools were being closed, it appropriated an additional $1.275 billion to provide nutritional assistance to food banks, children who would not be able to receive meals at their schools and seniors and other home-bound individuals. By March 15th over 3,500 Americans had become infected with the corona virus, causing the CDC to recommend that gatherings of more than 50 people be prohibited.
On the evening of March 16th, while I was watching the results of the Democratic primaries held that day, in just two hours the number of confirmed cases of the coronavirus in the U.S. had increased from 5,000 to 6,000. This is when it became apparent that the nation was going to have to take far more drastic action to prevent its healthcare systems from being overwhelmed. On March 17th the five counties surrounding San Francisco ordered the closure of all non-essential businesses and New York State and others states along the I-95 corridor from Washington to Massachusetts soon followed. With more than 2,000 new cases of the virus being confirmed each day and epidemiologists not knowing how the virus was being transmitted, it was only a matter of time before the virus would reach every state. Equally important, the virus was spreading so rapidly that there was a very serious possibility that hospitals would be overwhelmed. One thing seemed clear; the nation was closely following in the footsteps of Italy and Spain that had already chosen to close all non-essential businesses in areas where the virus had made inroads. By the end of that week, states were beginning to order the closure of all non-essential businesses.
This meant that the nation’s economy would be brought to a near halt and that millions of employed persons would be furloughed from their jobs. Recognizing this, on March 27th the Congress enacted the Coronavirus Aid Relief and Economic Security Act (generally referred to as the “CARES Act. “). This legislation created a number of programs designed to help individuals, families and businesses, both large and small, to remain viable until the virus could be contained which epidemiologist felt would take until the end of May. The monies appropriated in the CARES Act aggregated roughly $2.3 trillion, an almost unheard of sum, considering that less than $1 trillion had been appropriated to save the nation’s economy as it was descending into the Great Recession of 2008-9. As it turned out the roughly $350 billion appropriated in the CARES Act to help small businesses was exhausted in less than two weeks and, in the third week in April, Congress appropriated another $480 billion most of which went to further fortify that program. Congress’ actions were not only intended to keep the nation’s economy alive while effort to contain the virus were ongoing, but also to buy time for the nation to acquire testing equipment, ventilators and face masks and other personal protective equipment with which to carry on that effort.
At the time these appropriations were being enacted, the federal government was being guided by the Institute for Health Metrics and Evaluation (“IHME”) whose projections called for the entire nation to maintain a panoply of social distancing regulations until the end of May. Most of the monies that Congress had appropriated were intended to carry the nation somewhat beyond that date as bringing the nation’s economy back up to speed would likely take a few weeks. While this plan was reasonable, it did not take into consideration the President’s desire to restart the nation’s economy by the end of April. Thus, by the last week in April he was both encouraging and, through fiscal deprivation, compelling the states to move forward with reopening their economies even though the CDC’s criteria for doing so had not been satisfied.
Many states acceded the President’s entreaties and began to relax their social distancing requirements even though (a) they were still experiencing daily increases in the number of new virus cases, (b) they lacked the capability to trace those who had come in contact with persons infected by the virus and/or (c) their medical resources were insufficient to cope with a rapid influx of new cases. This prompted the IHME to immediately raise its projected number of deaths that would result from the first wave of the virus from roughly 60,000 to approximately 140,000. It also prompted the House of Representatives to immediately pass its HEROES legislation which provided for a $3 trillion increase in federal funding for programs to support the economy. Mitch McConnell promptly announced that it was premature to consider further fiscal stimulus and declined to allow the Senate to even consider the House’s Bill.
To their credit, most of the states that had chosen to relax their measures to stop the spread of the virus did so in a slow and considered fashion. As a result, the sharp rise in the number of new virus cases that epidemiologists expected by mid-May did not materialize. Instead, throughout the Month of May, the daily numbers of new virus cases and deaths in most of those states remained somewhat constant. The exceptions were approximately a dozen states in which the virus attacked nursing homes, meat processing facilities and prisons, all of which proved to be fertile breeding grounds for the virus. The past two weeks, however, have begun to reveal an alarming trend. In the first week in June, the weekly number of new virus cases in the U.S. jumped from 135,000 to 157,000 and in the following week they jumped again to 163,000. These weekly increases were not concentrated in one or two states but, rather occurred in 28 states in the first week and 23 states in the second week.
Another alarming development has been the widespread protests that have grown out of the brutal murder of George Floyd by four Minneapolis police officers. Those protests, which have been ongoing for the past three weeks, brought together thousands of people (many of whom did not wear face masks and/or observe social distancing precautions) in over 150 U.S. cities. While it is a virtual certainly that these events will generate many more cases of the virus, the extent of that increase will not be known until the latter part of this month.
Notwithstanding these events, the stock markets have recovered roughly 60% of the losses they suffered in early March. Certainly, the Trump administration has been acting as if the virus has been brought under control, so it is somewhat understandable that stock traders might also think that. Their increased optimism has also been fueled by the May unemployment figures which declined from 14.3% in April to 13.2% in May.
This brings us to the various charts that economists and epidemiologists use to peer into the future. From the very onset of the virus’ invasion, the President has been wishfully saying that the virus will vanish as quickly as it appeared; and when that happens the nation’s economy will bounce right back in what economists refer to a “V-shape recovery.” Of course, the President is a great believer in “the power of positive thinking.” In fact, he seems to think that if he says something enough times, it will actually happen; and even if it doesn’t, his trusting supporters will believe that it will happen and that’s almost as good.
Let’s begin with the shape of the chart mapping the daily numbers of new confirmed cases of the virus. From the very outset, the epidemiologists at IHME projected that it would take the shape of a bell curve. Their concern was that the apex of that curve would exceed the nation’s health care systems’ ability to accommodate all of those who would become infected. Thus, their warning was that efforts had to be taken to “flatten the curve” so that no infected person would have to go untreated. The good news is that New York City, with heroic efforts on the part of its medical personnel and the Army Corp of Engineers, was able get by (but just barely) without its healthcare system suffering a total collapse. Newark and the State of New Jersey was also able to duplicate that feat. Now many other cities and states are facing the same problem even though on a smaller, but no less dire, scale. What we have discovered is that the front end of each jurisdiction’s curve has a bell-shape, but the back side is more like a long and gradual downward slope; and this is true both locally and nationally. Thus, the number of new virus cases confirmed after the peak has been reached far exceeds those that came before the peak was reached.
The shape of the daily death curve is essentially the same as curve depicting the daily number of daily confirmed cases and generally follows the daily confirmed cases curve by about 3 to 5 days. Since the highest number of daily confirmed cases was on April 15th, the number of daily deaths peaked around April 18th. In addition, in the early days of the onset of the virus, the death rate tended to be low—somewhere between 0.02% and 0.05% of the number of confirmed cases. However, while the spread of the virus is being slowed, the percentage of deaths tends to rise to between 0.5% and 1.0% of the number of infected persons. What this tells us is that to gauge the future it is instructive to look at the number of confirmed cases of the virus. That is why epidemiologists are now concerned that the daily number of new confirmed cases has again started to rise. If fact, the backside of the daily new case curve is no longer gently declining, but has begun to rise –an ominous sign.
The nation’s economy is generally measured by its gross domestic product (or GDP) which tends to move in tandem with the nation’s level of employment. Stated another way, when unemployment rises, the GDP goes down; and when unemployment declines, the GDP rises. It is for this reason that when the May unemployment numbers took a sharp turn downward, it was greeted as a sign (at least by the President and those who follow the stock markets) that the nation’s economy had embarked upon a “V-shaped” recovery and that the virus and the recession that began in February would soon be a thing of the past. To paraphrase Mark Twain, “the reports of the end of the nation’s economic decline appear to have been greatly exaggerated.”
First, it’s important to understand just what the May jobs report--reflecting a 2.5 million increase in the number of employed persons-- actually reveals. Of course, while it’s good news that the nation’s economy has begun to recover, it doesn’t mean that we will experience that cherished “V-shape” recovery with each of the next few months producing similar gains in employment. In fact, there are a number of reasons why that is not likely to happen. First, the May unemployment figures treat as being employed those individuals who have been furloughed from their jobs but are still receiving paychecks under the Paycheck Protection Program. That program will expire at the end of July; and if those workers have not been recalled, they will return the the ranks of the unemployed. Secondly, a very significant percentage of Americans work in the restaurant, hospitality and entertainment industries; and those industries are not likely to undergo a significant recovery until Americans feel safe in venturing back into public spaces, something which may not happen until there is a vaccine or cure for the virus. Equally important, many of those businesses have relatively high fixed costs and will simply not be able to operate profitably at less than 80% capacity. Thus, a large number of them may stay shuttered for some time to come.
Lastly, economies are symbiotic in nature. Thus, when Person A’s purchases goods or services from Person B, Person B will receive income that will allow him or her to purchase goods and/or services from Person C. However, if Person A is unemployed and unable to make those purchases, Person B’s income is diminished and he or she is then not able to make purchases of his or her own. This is an extremely important factor in the U.S. economy, since over two-thirds of the nation’s GDP consists of domestic consumption. This is the principal reason underlying the Congress’ rushed to see that monies continued to flow to Americans while business activity was being curtailed. However, when those monies run out, if there are no jobs waiting for the roughly 26 million workers who are still currently unemployed, economic growth will languish and unemployment may start to go back up. Thus, even though unemployment dropped sharply in May, at best, its future decline is likely to be much slower with a corresponding slow-down in the re-growth of GDP. In short, that hoped for “V-shaped” recovery is more likely to turn out to be a dreaded slow “U-shaped” recovery or even an “M-shaped recovery with unemployment going back up before it ultimately declines.
As noted above, however, there is yet another dark cloud on the horizon in the form of a resurgence in the virus resulting from premature efforts to relax social distancing requirements and the mass public protests taking place all across the country. While I expect that most states will continue to slowly and systematically relax those restrictions, a few are in danger that the growth in the spread of the virus will overwhelm their medical resources in which event they will have no choice except to again restrict many, if not all, non-essential businesses. There are already a few states, such as Arizona, North Carolina, Alabama and Texas, which are approaching this threshold. Another looming problem is that so far we have only been focused on what the IHME refers to as the first wave of the virus which it has projected will end on August 4th. At that time, the virus will only have affected about 20% of Americans, leaving over 260 million who will have not been infected, many of whom will be subject to attack in further waves of the disease, the first of which could begin in the Fall. Any further restrictions on business activities will also slow the nation’s economic recovery and the reduction in unemployment.
Not all of the news, however, is dire. There is one very important curve that rarely gets mentioned and that is the “learning curve. We now understand a lot about the coronavirus that we did not know in March when lockdown orders first began to be promulgated. Perhaps the most important thing we have learned is the virus’ preferred mode of transportation—via moisture droplets expelled into the air when we sneeze, cough or simply exhale. This means that we no longer have to be paralyzed by the thought that touching a handrail or a doorknob could be as lethal as touching a downed power line. In addition, a very high percentage of the risks can be alleviated simply by wearing face masks, washing our hands and observing simple social distancing rules. It is my belief that this single piece of understanding is why a new surge in virus cases did not materialize when some states began to reopen their economies without observing the CDC’s three requisites for doing so.
We have also learned the conditions that are most dangerous (like cruise ships, nursing homes, prisons and meat processing facilities) where people are kept together in confined spaces for long periods of time. Those situations require stricter regulations and constant efforts to test for the presence of the virus and remove infected persons as soon as the virus is detected. We have also learned that those situations in which people are constantly expelling air by singing in a choir or cheering in a packed auditorium or stadium have a high propensity for spreading the virus. This means that most retail establishments can operate safely with everyone wearing a mask and maintaining a reasonable distance from each other and avoiding being in anything approaching close proximity to others for more than a few minutes. Having learned these simple lessons will allow many of the nation’s businesses to resume at least some of their prior activity.
This brings us back to the question of whether we need still need to buy more time. To a large extent the answer is “yes.” The monies that have been appropriated to support the efforts of state and local governments to fight the virus are clearly inadequate. Over 500,000 government employees have already been terminated and the states and cities will be forced to terminate many more unless they get further financial support from the federal government. The large protests that have taken place in almost every state have only added to the extraordinary costs that have been visited upon state and local governments over the past five months. If that aid is not forthcoming we can expect to see the decline of government services that we rely upon each day. Fewer police will be on the streets, garbage pickup will be reduced; there will be fewer fire stations in operation; schools will have to be closed; lines at the motor vehicle bureau will be longer, etc. Similarly, hospitals have had to absorb enormous costs in treating virus patients placing many of them in economic jeopardy. They will need government assistance just to stay in operation. This is particularly true of rural hospitals.
Beyond providing federal assistance for hospitals and state and local governments, there is the issue as to whether financial assistance should be continued to those who have lost their employment as it may still be several months before unemployment recedes below the 10% level. While House Democrats have already voiced their position on these issues, Republicans have been much more reticent to acknowledge the need for further federal assistance. While many Republican legislators are frightened by large budgetary deficits, others simply have an aversion to using taxpayer money to benefit anyone who does not contribute to their election campaigns. Right now, Mitch McConnell has signaled that he will not entertain any further economic stimulus legislation until the Senate reconvenes in the latter part of July. This may be too late for many employees of small businesses and state and local governments. It also may be too late for businesses that are forced to suspend their operations as a result of a second round of lockdowns.
While I thoroughly expect that Congress will ultimately appropriate additional monies to keep the nation’s economic moving forward, that will only come at the 11th hour and too late to prevent a substantial amount of suffering, particularly among the nation’s most vulnerable. Unfortunately, that’s the way our government operates. While we have a government “of the people”, it remains to be by the wealthy and for the wealthy.