US, WASHINGTON (ORDO NEWS) — Unfortunately, the global threat did not prompt humanity to face facts – instead, people are trying to find confirmation of their own prejudices and errors in what is happening. Economist Andrei Movchan examines the main misconceptions about the pandemic, its impact on the economy and measures to combat the virus, writes Forbes.
The viral crisis has exposed one of the most important problems of mankind: it is not typical for many people to think, and not with their hands. It is much easier to look for evidence of one’s own desires, fears or beliefs from the universe, and regardless of the level of such confirmations, to believe that they are real.
I’m not talking about those who agitate to be treated for coronavirus with garlic or believe that the Chinese launched the virus to cheaply buy up global assets (surprisingly, this is the first time that no one blames the Jews) – such are still a global minority. I am talking about quite ordinary people who are not prone to conspiracy theories in peacetime, and even smart people. But something in this emotional setting does not work in their logical apparatus, and a person begins to intensively support ideas that do not meet the basics of common sense.
In this regard, I would like to dwell on the six most common, in my opinion, common misconceptions, each of which has its own fierce advocates who do not want to either listen to the arguments of the mind or conduct a conscientious analysis of the situation.
Myth 1: Everyone Has Been Sick
“The data on infected coronavirus is very underestimated, and the incidence growth rate is associated with an increase in testing volumes. In fact, very many in the world are already carriers of the virus, and soon the immunized layer will be enough to end the epidemic.”
We have data almost exclusively about severe patients: they go to the doctor, they are tested in the first place, they are taken into account in statistics. There is no data on the number of asymptomatically ill, infected, but not ill, and even data on very easily ill. Such data can only be provided by universal testing, but it is not yet possible.
But two field experiments (Diamond Princess and Vaud in Italy), where testing was universal or massive, show approximately the same figures: asymptomatic carriers about 45% of the total number of infected, mild symptoms in about 60% of those who are ill, resuscitation is required for about 10% of those who are sick, dies from 20 to 50% of those in intensive care. A recently completed Chinese study in a large sample yields a very similar result: about 80% of those infected either do not show symptoms or show mild symptoms.
We cannot neglect three studies in large samples, different populations, and different circumstances. I have to admit: similar numbers will be observed throughout the population. But to expect that the asymptomatic is ten times more, completely unreasonable. If, for example, we apply statistics to Moscow and assume that only severe and a moderate amount are detected in our country, as of April 13, 11,500 people were positively diagnosed, and this may mean that there are only about 25,000 patients. Together with the asymptomatic, this is about 40,000 infected. The figure, as you see, is far from the size of the “immunized layer.”
There is another important point here. Above, we accepted the results of testing for faith. However, since the number of infected with symptoms in the population is small, even a very small percentage of false-positive tests will give the illusion of a massive asymptomatic course of the disease. So, 2% of false-positive results in an environment where 0.3% of the population is really infected (this is approximately the level of Italy in mid-April) will give us false confidence that more than 2% of those tested are sick (7 times more than reality).
The real answer will be after mass testing for antibodies, with taking 2-3 tests at a short interval. Let’s hope it will be relatively soon. But the likelihood that it will be very different from our calculation is small. Alas.
Myth 2: Mortality is low.
“Mortality from coronavirus is greatly exaggerated, recent mortality data, even in Italy, are not very different from data a year ago, and the natural mortality curve does not differ from the mortality curve from coronavirus. In the world, hundreds of thousands of people die from the flu, from a stroke, from other diseases – and only because of the coronavirus we got so excited.”
Any appeals to the difference in mortality in the foci of infection today and, say, a year ago, are illiterate. They do not take into account the percentage of people infected today: even in the largest foci, the number of residents with diagnosed coronavirus does not exceed a fraction of a percent of the population. The question is not how many die today, but what mortality among those infected. After all, if you don’t take measures, 30-40% of the population will be infected with this virus within months (this data is completely accurate and undeniable, we know the R0 of this virus under conditions of unlimited contacts).
Mortality from a coronavirus is quite definable: we already have a very good statistical base. Even references to the fact that a certain proportion of deaths are deaths “with the coronavirus, but not from the coronavirus”, very little changes. As people continue to get sick intensively, we cannot just divide the number of deaths by the number of sick people – some will still die from the sick. But we can’t even divide the number of dead by the sum of the dead and recovered: recovery is slower, and some countries are in no hurry to put the stamp “recovered” on those who have passed symptoms. But we already know that the true figure will lie between the two.
The first indicator is 5.5%, the second – 21%. Now recall that we believe that approximately 40 – 50% of cases of the disease are diagnosed (lungs are almost not diagnosed), and there are 2 times more carriers. Borders are converted to 1.4% and 5.25%. This is an average of 3.3%. This is how real mortality will most likely look when the epidemic passes.
Today, no one disputes that a virus of type COVID-19 can (if not fight it) infect 30 to 40% of the population, like “Spaniard”, and many say about 70%. Let’s assume that we will not fight, and only 30% will get infected (lower bound). This is 2.3 billion people. 3.3% of 2.4 billion people are 77 million people. And this is not the end of the story – after all, there will be 5 times more cases of sick people! 420 million people will have to go through intensive care in a few months – but in reality no more than a few million people can do it.
Suppose that only a quarter of those who needed resuscitation, but did not get into it, would die. This is another 100 million people. And also during this time a couple of tens of millions of those who needed resuscitation for other reasons will die. And also – a couple of tens of millions of those who are not diagnosed with other diseases on time due to system overload. Total already 220 million people in the appendage to 100 million dying per year in normal mode.
Please note that all these figures are based on only two completely reliable entries: (1) registration statistics for 1.9 million diagnosed cases; (2) infection statistics based on the study of mass testing in two isolated groups of several thousand people and one large-scale sample. No reasonable person would call such statistics insufficient.
So everyone was alarmed for a reason. 3% of the world’s population is a universal catastrophe. Imagine that out of every 30 people die 1. Imagine this by the example of, say, your work or home. In the house where I live there are about 400 apartments, probably about 1200-1500 people live in it. 50 corpses. And how much will remain with severe pulmonary fibrosis?
Myth 3: Quarantine is useless
“Quarantines do not bring any benefit – it’s impossible to keep people locked up forever, and the virus will again be recorded in quarantined enclaves and everything will start all over again.”
The authors of this myth do not understand the meaning of quarantines and do not see statistics. Their point is not so much to reduce the total number of cases during the entire epidemic, but to provide the healthcare system with the opportunity to cope with incoming patients and not “lose” those who are ill with other diseases. In “myth number 2” we have already calculated: the difference between 70 million deaths and 200 million deaths arises precisely because of the overload of the healthcare system.
But – and this is very good news – quarantines also work to reduce the total number of cases. Deniers of the danger of coronavirus, who speak of “the same mortality as a year ago,” in fact prove precisely this benefit of quarantines. Today, there is no longer any chance of not noticing that in most countries where quarantine was introduced 4-5 weeks ago or earlier, the number of new diagnostics has begun to decrease (although the number of tested is steadily growing). In China and South Korea, quarantines worked perfectly. Judging by the data that we obtain from more than 100 foci, quarantine measures started at the epicenter before the appearance of 100 diagnosed patients unfold the “exponent” of growth into a linear function in about 3-4 weeks, and after about 6 weeks the decline in the number of patients begins. At the same time, the peak in the growth in the number of registered patients is 1000–2000 times since quarantine was entered. Measures taken later give a greater peak and longer term for reducing the number of patients.
The spread of the virus can be modeled without even knowing the details of the process: for this there is mathematical statistics, the science of how to predict from the past, without understanding it. And these statistics today suggest that social distancing is very likely to allow effective countries to manage around 700 deaths per 1 million people in the first wave of the virus. For Russia, this is 100,000 people, very many, but still it is 0.07% of the population, and not 3% (we must make a reservation that social distance for this should work, not be declared ;; queues in the subway are not social distance) .
And, of course, there will be second, third, and fifth quarantines. Before the invention of the vaccine, outbreaks will occur here and there. But the system learns quickly, and outbreaks will be local, quickly localized, and suppressed. And then with a high probability a vaccine will appear.
Myth 4: Quarantine destroys the economy
“Quarantines will be too expensive for the global economy. “We are going to destroy economies, which will entail more deaths than from coronavirus, for the sake of a dubious saving lives from a viral infection.”
Quarantine means stopping the activity of a certain number of enterprises and the loss of income by a certain number of people. It also means a drop in demand for a number of goods and services related to a small social distance, for a period significantly longer than the quarantine period due to phobias being formed. Quarantine means a fall in total demand due to a drop in income, which occurs due to the suspension of part of the economy. Finally, quarantine means logistical problems due to the fact that some of the producers in the chains stop.
We can now more or less accurately assess the aggregate indicators of a quarantine economic change – according to demand from different countries. In general, final demand falls by about 30-40% and stabilizes during quarantine; it will recover approximately 3-5% per month after quarantine. Industrial demand will follow the end with lag (the business runs on fairly long contracts). Government demand will not fall at first, it will even grow during the quarantine period and immediately after – but a decrease in tax revenues in about six months will cause a fall in government demand, comparable in depth to other components. As you see, I admit that the states themselves will not financially help, but simply cut back state programs. Of course, in practice this will not be so, and the situation will be even milder.
In total, we get during the first 12 months from the beginning of quarantine a decrease in aggregate demand by about 23%, during the second 12 months, excluding recovery demand, by about 2%. That is, if we believe in one big quarantine, then already during the period April 2021 – April 2022, demand will almost return to the level of 2019. Accordingly, if we believe in two, we need to lay another drop in demand, of course, less strong than the first, but the recovery will simply be postponed for 3-6 months.
Of course, recovery will happen quickly enough if two problems do not happen: (1) the business structure will not be destroyed and (2) social maladjustment will not occur due to the falling of large masses of the population into poverty and the loss of substantial savings by a large mass of investors. In order to prevent this from happening, most countries are now introducing large-scale measures to help the economy, which consist in keeping the majority of businesses alive, providing income-losing means comparable to lost income, and maintaining the value of investment assets at acceptable levels.
If everything works out, the world will pay to save a couple of hundreds of millions of lives (according to some forecasts, it will be possible to manage “only” 1-2 million victims) by losing a quarter of the world’s annual GDP, or about $ 25 trillion – $ 125,000 per person saved. These $ 25 trillion in lost revenue will be distributed more or less evenly across the Earth’s 7.7 billion population. Each of us will pay in one form or another $ 3250. Are you ready to pay $ 3250 to save 200 million people?
Myth 5: No business support measures needed
“Financial measures to support the business are redundant. There will be no big problem if all these barber shops and cafes go bankrupt – after the epidemic they will grow again like mushrooms. But the states will save resources for financing real tasks, including supporting low-income people and developing state projects.”
Part of the answer to this myth is contained in the answer to myth No. 4. But you can discuss the topic and more.
The drop in demand during quarantines was not due initially to the fact that households had fewer funds or fewer needs – they were simply forbidden to fulfill their demand or they were afraid to do so. But a drop in demand naturally causes a drop in the revenue of businesses whose goods have fallen in demand. A tactical look at the question suggests: businessmen are people like everyone else; let them close their businesses, fire people, we will give them and people benefits so that they survive quarantines. And then…
This is where the tactical look ends and the strategic one begins. But the strategic one says: firstly, far from all businesses can simply be closed. There are long production cycles, if you close it, a lot of product will be lost. There are businesses that you can’t “cover up for a while” – then you won’t open it. Many businesses operate on credit (in reality – almost everything, only in small business there are about 70% of these), that is, if they are closed, their assets will go to banks. Banks then will not sell them, so as not to show losses, since putting them on the balance sheet, they will evaluate them significantly higher than the market. So, they will not work for a very long time. The equipment of the closed and ownerless enterprises will most likely be plundered, the production will be dismantled. It is impossible to fire people, leave them unemployed for six months, and then reassemble them again. The team building process will take months
There is even worse news: stopped, closed, bankrupt businesses will almost always be part of long value chains and always part of long chains of income redistribution. Three months later, a small enterprise for the production of plastic plugs will close and not open – and after six months, the car factory will not be able to produce cars. A small logistics operator will go bankrupt – and suddenly hospitals in the whole region will be left without tubes for droppers.
We have already heard from officials that due to non-deliveries of wire from China, we are not able to produce surgical masks. This should teach us an understanding of how important it is to keep the business fabric from tearing. Its restoration will take years, and small holes in it will be stopped by huge chains and lead to huge losses in GDP.
Myth 6: Distributing money leads to inflation.
“The distribution of money by monetary authorities will lead to hyperinflation. Today, the authorities of developed countries distribute from 1 to 10% of GDP in the form of cash, this is an unprecedented increase in the money supply. Hyperinflation will collapse economies.”
The idea that the issue of money always leads to inflation is completely wrong. This is described in sufficient detail even in the “popular economy” by Ray Dalio . Inflation occurs when monetized demand exceeds the amount of available supply. Of course, if you are in a situation of unsatisfied demand and low supply, you won’t be able to save the situation by issuing money – the money will go to increase consumption much faster than it could be invested in increasing production. As a result, commodity prices will rise rapidly, foreign currency will rise in price, the share of imports will increase, domestic investment will decrease (it will be more profitable to simply buy currency).
But in the current quarantine situation, there is a sharp drop in monetized demand (since 20-30% of the workforce is deprived of income) with a significantly smaller reduction in supply (there are stocks, in addition, the main industries continue to work despite quarantines, production falls mainly where, respectively demand is falling). This means that the money “gets up” and does not ensure normal exchange of goods. A natural solution is to replace the “risen” money with others.
A banal example: the bartender lost his job during quarantine. He will not receive a salary and will not be able to go buy food. The retailer will not receive money for products from the bartender and will not pay salaries to his employees, will not pay rent, and will not pay products to suppliers. The chain continues throughout the economy. And she began with a visitor to a bar who did not come to him – his money remained in his bank account. To give the bartender money is to start the whole chain in a new way, but not to start new chains. The launched chain will not only provide all participants with today’s income – it will preserve economic relations and allow them to work independently at the moment when the bar visitor enters the bar again after quarantine.
Will there be “more” money? Of course. Will it affect prices? During quarantine, no, because we gave money to the economy “instead of” those who stopped.
And after quarantine removal? Maybe it will, but only if monetized demand exceeds supply. How to avoid this? Firstly, save the proposal (we did just that by running as many chains as possible). Secondly, withdrawing “excess” money from the economy upon the end of quarantines, growth in demand and inflation. In order for this money to be withdrawn from the economy, it is necessary to lend the maximum share of subsidies or withdrawing it from “reserves”.
Therefore, the largest countries in the world give most of their assistance to companies in the form of long-term interest-free loans, including with the right of tax credit, to ease the burden. When the difficult time passes, the funds will be returned to the state, and it will be returned to the central bank or to reserves.
Another type of state assistance consistent with our logic is the repurchase of liquid assets. The state buys them temporarily from the market at falling prices, giving liquidity to sellers, and after the crisis it will sell it more expensive, taking excess liquidity from the market.
Finally, states today have powerful weapons to fight inflation – the very one that has “exhausted itself” in the struggle for economic growth: these are interest rates. Today they are zero, they provide an opportunity to increase liquidity by markets and smooth out volatility. But if inflation begins to rise above the Fed’s target, the refinancing rate will rise, and credit liquidity will leave the markets. The amount of money in the economy will decline. Zero rates are the best point for anti-inflationary policies.
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