Covid-19 and the economy

Argues harsh lock-down minimizes damage to the economy long run. Need targeted testing to emerge from lock-down.

From the linked paper:

One point that’s come up a couple of times is the expense of imposing serious infection controls. China probably lost hundreds of billions of dollars on controlling the outbreak in Wuhan. Let’s try to make a guess of how much it would cost us, and use that to figure out what the best path forward is


Louisiana issued a stay at home order effective at 5pm.

An interesting take on bailouts from a market source:

"After ignoring the threat posed by the coronavirus, President Trump has become the “handouter” in chief. There is no transfer, no bailout, no intervention that is too big for him. After all, he wants to be reelected and he is not going to spare any tax dollar toward reaching that goal. "

Don’t forget, there is no business Trump talks about that employs fewer Americans than the cruise industry - let your representatives know that a cruise industry bailout transfers your cash to foreign accounts. Treat the American wage earners in that industry like any others but do not allow Trump to send your money offshore. Or, tie any bailout to a requirement to permanantly reflag all ships owned by “American” cruise companies to the American flag.

Give them a build exemption to reflag existing ships but prohibit them from spending a dime on foreign flag ships and foreign crew.


Cruiselines should not be in the conversation. I would suspect everyone on this forum would agree with you - 100%. It’s not just the amount of employees either, the cruise lines barely pay 1% in taxes.


There is a mechanism in place for failing companies and has been used for many years. It’s called bankruptcy court. The business operates, the employees work while the creditors are sorted out. The creditors take a haircut but the business survives. Airlines and many other businesses have declared bankruptcy numerous times as have drilling contractors. To now expect a public handout for mismanagement of many years is ludicrous. The money spent bailing out these fools could be better spent on paying for medical supplies, hospital equipment and medical care for those affected, paying the salaries of those who are sick or must care for family members, paying unemployment at a greater rate than the state pays so that people can survive, save their homes and care for their families. It’s about time working folks got some help instead of socialism for the wealthy, poorly run greedy corporations, banks and hedge funds as happened in 2008-2009. The banks and other “too big to fail” outfits got 15 Trillion in handouts. That printing press that printed those dollars for them can also print those dollars for the rest of us, it just takes Congress to act on our behalf.


My rough initial estimate of the level of U.S. real GDP (and hence national income) that meets this public health objective is up to 50% of normal production. In other words, we need to throttle back the U.S. economy to produce at only half its normal pace.4

It would be inappropriate to characterize that outcome as a recession because it is undertaken intentionally to meet public health objectives. In particular, it is inappropriate to argue for “economic stimulus” intending to ramp up production or create new demand in this situation, as that would work at cross-purposes with the goal of reducing the level of economic activity in order to meet public health objectives. A better concept is that we should strive to “keep everybody whole” during the NPAP, as described in more detail below.5

A normal quarter of production of goods and services in the U.S. recently, in very round numbers, is about $5 trillion. Producing only half would mean that national income is cut to about $2.5 trillion during the second quarter of 2020 when the NPAP is in effect. This is a quarter-over-quarter drop of 50%, well outside historical experience in the U.S.

This outcome is expected and temporary and simply reflects the large investment in public health that will be made in the U.S. This change in magnitude is something to be expected and to prepare for, reinforcing the point that standard business cycle tracking serves little useful purpose in the near term.6 Data during the NPAP will be coming from a special situation.

2. Keeping Households and Firms Whole

The second goal of policymakers is to prevent destruction of livelihoods and firms during the NPAP. This planned, organized partial shutdown will clearly have very uneven effects across households and firms during the NPAP. Some types of businesses are closed down completely, while other types continue to operate.

On the household income side, the goal is to keep households whole. We already have government income maintenance programs, popularly known as unemployment insurance (UI). I recommend using these programs extensively and changing the label on these programs to “pandemic insurance” (PI) during the NPAP to more appropriately reflect what is happening. Heavy use of this facility by individuals—to the extent that it helps to maintain laid-off workers’ income—should be used as a metric of policy success during the second quarter. Heavy use would mean that the government is making the proper transfers to those who have been disrupted by the health objectives of the country. To help accomplish this, benefit replacement rates could be increased substantially from the current average rate in the U.S. of about 45% to a value close to or equal to 100%.

Moreover, every state has a well-established UI system with rules already in place. Stress will be placed on these systems as the number of claims made in the upcoming weeks may be unprecedented; nonetheless, this facility is much better than the alternative of trying to set up a new system on the fly.

My initial estimate of the level of pandemic insurance that may be appropriate during the NPAP period is 30%.7 That is, up to 30% of the workforce could be using this program as part of an optimal policy response to the pandemic.

The intentional, partial reduction in production means capital will also be unemployed during the NPAP. Conceptually, factories will shut down for a period of time and then reopen once the pandemic has passed with the capital intact. National policy, therefore, needs to make the owners of capital whole during this period. Most proposals in this area under consideration in Congress provide loans to businesses, large and small, to tide businesses over until they can start up again after the NPAP.

3. Paying for the Pandemic Response

The third goal is to pay for the pandemic response. If national income falls by 50% during the NPAP, households will not be able to maintain their normal lifestyles. In other words, consumption is likely to be much lower than normal for most households during the NPAP. Most of this reduction will come as a result of the health objectives themselves—many avenues for ordinary consumption will simply be closed, and in addition people are being asked to remain in their homes. To a large extent, national income will be down, but national consumption will be down in tandem with national income. This is the nature of “hunkering down.”8 The federal government is certainly borrowing, but most of this is oriented toward maintaining market functioning and extending loans to businesses to tide them over until full-speed production can once again resume.


Just as incoming macroeconomic data should be interpreted in light of the unprecedented nature of the public health policy response to COVID-19, so too should the macroeconomic policies be understood and conducted. For example, the phrase “stimulus” may not be entirely appropriate now: Many people may not want to fly out of caution or be able to dine out because of legal decree. The goal of macroeconomic policy, at this stage, is not to “stimulate” them to do these things. Rather, at this stage, macroeconomic policy could be better described as maintenance and support, more a matter of insurance than stimulus. For example, enhanced unemployment benefits help maintain the income of workers temporarily laid off because of a change in demand in the sector where they had been employed.

Looking ahead, July 1 may provide an important checkpoint. At that point, there is a reasonable chance that public health needs will be reduced, allowing health authorities to ease the throttling down of U.S. economic activity. As of today, the situation remains fluid, and the views expressed here could easily change with events in the days and weeks ahead.

Notes and References

1 Any views expressed are my own and do not necessarily reflect the views of the Federal Open Market Committee.

2 I take as a baseline for my analysis Ferguson et al. “Impact of Non-Pharmaceutical Interventions (NPIs) to Reduce COVID-19 Mortality and Healthcare Demand.” Imperial College, COVID-19 Report 9, March 16, 2020.

3 I recommend the following analogy: Suppose you are driving your car down the freeway at 70 mph, but then you encounter a construction zone. You have to slow down in the construction zone, perhaps quite significantly, work your way through the construction zone, and then resume your previous speed. There is nothing wrong with your car, but you nevertheless have to slow down.

4 I intend to update this value going forward as it becomes clearer which parts of the economy actually shut down and which parts do not.

5 Macroeconomic policy should seek to align household and business incentives with national health goals, not to work against those goals.

6 For example, economists often translate quarter-on-quarter growth rates in variables, such as GDP or consumption, into annual rates by (roughly) multiplying by four. In the current environment, one could see a quarter-on-quarter change in a variable of 50%. Annualized, this would be called a “200% decline.” Annualizing serves little use in the current environment.

7 I intend to refine this estimate going forward based on pandemic developments.

8 This may also be viewed as what macroeconomists call “home production,” that is, the movement of production from the market sector, where it is counted in GDP, to the home sector, where it is not counted in GDP. Famous and familiar examples of services that move back and forth between sectors are meals, which are sometimes eaten outside the home and sometimes produced in the home, as well as child care, which is sometimes provided at home and sometimes provided in a market setting.

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The following considerations will come into play at some point along the line. We are turning the world upside down and forcing the economy to its knees to extend the lives of a very small group of people. Some consider that this is an insane price to pay. What will a financial stress from an economic crisis do to health? We should not only listen to doctors, but also let economists have a say. Think about the consequences, which are probably many times greater than now in healthcare.


I try to look at it objectively, doing quite a bit of this cost benefit analysis in my own mind, and I definitely can see the wisdom in thinking that we’re not getting much for our efforts.

The mainstream thinking wants to think-shame this kind of analysis. They are horrified that every life wouldn’t be considered precious and deserving of protection. This kind of baffles me, as foreigners are so easily sacrificed.

If the political will were there, ideally I’d like to make the protection focused on the most vulnerable, without taking everything down to do it. It would be great if we could get these one-hour tests out in bulk, and use them strategically.


I’m not able to judge this analysis but it’s worth a look:

The dashed line is the total cost, all in billions of dollars. Note that with no controls, our estimate of the total cost to the US is $14.8 trillion dollars, or about 2/3 of the total US GDP.

There are two local minima on the total cost curve. The first is right around R0=1.50. This makes the spread slow enough that hospital capacity is never overloaded, greatly reducing the number of deaths and thus the cost of the disease. This reduces total cost to $7.45 trillion dollars, just about half of what the uncontrolled cost would be.

Stealing this from a twitter reply:

‘We must let the virus run wild rather than accept a recession. I am just being a hardheaded realist… No, I don’t have any data, research, or citations handy, why do you ask?’


Quoting the author:

It’s probably too optimistic. My model is assuming 900,000 available hospital beds every day, that 5% of infections are critical and need hospital care, and that they need it for 12 days on average. 5% is probably about right for ICU-level care needed, but it looks like 20% total hospitalization is more accurate, and the Italians have been saying that some critical cases have needed beds for weeks.

Going back to that nurse I quoted earlier, he said that the shortest time to recovery they’d seen once a patient needs ventilation was three weeks.

No comment required, the article speaks loudly enough.

Kinda seems like the worst of both worlds there.

I’m just gonna come out and say it, “SOYLENT GREEN”!


Another factor; is the assumption being made that if schools etc reopen and the lock-down is lifted life will return to normal?

The shipyard employs about 6,800 workers from all of Maine’s counties.

Of course, no one thought of it before but it’s so simple. Let’s cut to the chase and just shoot people as they reach the age of 55. Lots of side benefits in addition to reducing the load on hospitals: no more need to waste money doling out social security payments, no more traffic jams caused by old farts driving too slow. Probably other benefits I can’t think of right now. :crazy_face:



Since that would take the blue-hairs off the cruise ships a load of social security cash could be used to feed those parasites. Gotta support “American” business, right?


These feeds right into my “Old Farts Preserve” project down here in old Mexico. Get your reservations early before the bullet with your name on it comes out!


Chill bro, the crazy emoji face should tell you it’s sarcasm i.e., the use of irony to mock or convey contempt. See also gallows humor: making light of a life-threatening, disastrous, or terrifying situation. If you think this is bad, better avoid partying with spec ops types.

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I got it. My exclamation point was faux outrage. Thank you for over explaining though, in case I was that dense.additionally I spent 21 years in rhe Army Infantry so I get sarcasm…


Oops, my mistake. Apologies

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