Today is March 19th. There are a reported 9,500 COVID-19 cases in the US. The real number is likely much higher due to a lack of testing. I hoped by now that everyone would have taken this crisis seriously. Unfortunately, watching kids on beaches for spring break, reading idiotic questions and theories on social media and looking at polls tells me that not everyone “gets it”. So, here is my attempt to make the rest of the population understand.
I have worked in health care for over 30 years and have spoken to several doctors over the last few days. I am also an economist so I understand the incredible economic damage we could suffer from this virus. These are the reasons we have to close schools, restaurants and practice social distancing:
The first reason is to combat rapid spread of the virus. Right now, the infection count is increasing at a rate that would double the number of cases every 2.5 days. We know a big part of that number comes from increased testing – so don’t freak out. However, it’s helpful to think about what would happen if that rate continued for the next 30 days. Given the nature of the virus, without closures and social distancing we could see that kind of infection rate continue. If the number of cases continue to grow at the current rate, and they doubled every 2.5 days, we would have over 300,000 cases in just two weeks. That would mean somewhere around 60,000 cases requiring a hospital bed. As many as 12,000 people would die. In 30 days at that kind of infection rate we would have almost 10 million cases, need almost 2 million hospital beds and as many as 400,000 people would die. That is why every doctor and health care expert is so emphatic about social distancing. The only way to keep this kind of crisis from happening is to slow the infection rate and that means following all the steps and advice from the experts. Doing anything else in my opinion is not only idiotic but also dangerous and selfish.
Now let’s look at the economic impact of this crisis. It seems at least highly likely that this crisis is going to produce a recession. The length and depth of this recession is most likely tied to how we handle the infection spread. Right now, our leaders in Washington are passing economic stimulus bills and there is talk of injecting one trillion dollars into the US economy, including sending checks directly to individuals who are hardest hit. We all remember the last economic crisis in 2008 when the housing industry caused a financial crisis. During that time the Federal Government injected $750 billion into the economy under the TARP program. I would argue that this crisis is poised to be much worse if we don’t get in front of things.
The factors working against us this time are how much of the economy is impacted, the current debt situation for our country, and the worldwide impact of COVID-19. In 2008, when the housing industry failed, it dragged down much of the rest of the economy. Economic growth went from 2.9% in 2006 to -2.5% in 2009. Our unemployment rate went from 4.9% in 2006 to 9.9% in 2009. That recession was bad. This one could be much worse. First of all, a much larger segment of the economy is being impacted. Everything from retail, to tourism, to travel and entertainment and beyond are all being impacted almost overnight. The of breadth of impact now is much more far-reaching than what we faced in 2008. Another point to consider is the recession of 2008 was isolated to this country. Our recession dragged other countries down with us. In this crisis, the virus is worldwide. Other countries are dealing with the same kind of economic impact we are. In China right now they are worried about the very same issues we are, so the global economic impact could be significantly more severe. Finally, we need to consider our debt situation. In 2008, when the government injected $750 billion in cash into the economy, they were in a much better situation to do so than we are now. In 2008 our debt to GPD ratio was 64%. After the TARP program and the recession that ratio went up to 83% in 2009. The problem is that unlike other recessions and depressions we kept spending and offering tax cuts so our current debt to GDP ratio is now 106%. The only time in history that our debt to GDP ratio has ever been over 100% is in the two years right after WWII. With this new injection of cash into the economy, and the economic recession that is likely to quickly follow, our debt to GDP ratio will increase to the highest levels in history. This could cause interest rates to rise, as China, dealing with its own economic crisis, is reluctant to buy our debt. This will cause inflation and unemployment rates to rise.
This is not just my opinion. Nobel award winning economist Paul Krugman recently used a term that I have never heard from an economist. He is now talking about a “Permanent Recession”. Treasury Secretary Steve Mnuchin, a pretty bright guy, has warned that if we don’t do something, we could see unemployment rates of 20%. Only one time in our history since the Great Depression have we ever seen unemployment rates over 10% – and that was for one year in 1982. Can you imagine the impact if unemployment rates get twice as bad as they did in 2008/2009?
Here is another thing to consider. While there are no statistics that everyone fully agrees upon showing the correlation between unemployment rates and increases in the death rate in this country, we do know there is a positive correlation. The best studies show that even after adjusting for social differences a male who is unemployed is almost 2 times more likely to die than a male who is employed. Several conservative models suggest that for every 1% increase in the unemployment rate an additional 1,500 people die per year that otherwise wouldn’t have. So, while we watch the fatality numbers from the coronavirus increase, and we mourn every one of those individuals, we also need to think about the fatalities that would be caused by an economic collapse. If our current unemployment rate of 4% did go to 20% that would mean a fatality rate of 24,000 people per year.
So, the next time you see someone doing something stupid or someone wonders what the big deal is, try to enlighten them. This is a big deal. It will be a big deal for a long time. It’s up to all of us to do what we can to minimize the impact of this virus and help each other out as much as possible.
I have a friend who was in the navy. He told me that on a ship everyone has a job when it comes to fighting a fire. The reason is that if a ship sinks everyone gets wet. People, we are all on this ship and we are all going to get wet unless we put this fire out as quickly as possible.