In my view, we will learn a lot about Covid-19 over the next 4 weeks from the data coming from various island countries. Many of these countries are now pretty isolated from the rest of the world, and will provide a useful test for certain key questions.

1. Greenland had 11 cases, and now has zero. It was the first island to exterminate the virus.

2. Faeroe Islands had 185 cases. There are only 11 active cases today, and no new infections since April 6. No deaths, and no one is in serious or critical condition. They will likely eliminate the disease within a few weeks.

3. Iceland has had 1771 cases and gets about 10 new ones each day, with the number steadily declining.  They will probably no longer be getting new cases after a few more weeks, and then in another 6 weeks or so will be virus free.  They’ve had 9 deaths.  Iceland is important because unlike Greenland and Faeroe Islands it’s a statistically significant sample.  Within a month or so we’ll have a good idea as to how many Icelanders will eventually die of the disease (I’d guess about 15), and this will begin to pin down the actual fatality rate.  Testing is extremely comprehensive in Iceland, and hence the data is more accurate than elsewhere.

4.  New Zealand has had 1431 cases and gets about 10 new ones a day, with the number steadily declining.  In other words, very much like Iceland.  As in Iceland, active cases are also falling very fast.  They’ve had 12 deaths, a modestly higher rate than Iceland.  This makes sense given that they’ve tested less comprehensively than Iceland, and thus missed a few more cases.  The NZ government intends to drive the case total to zero, at which time normal life can resume.

You see a similar pattern in other islands.  Taiwan had a spike of new cases today from a ship in their navy, but otherwise has almost stopped community transmission. Hawaii has bent the curve more than other American states.  I’d also like to point to some quasi-islands:

1.  Australia looks a lot like New Zealand and nothing at all like Canada (which it closely resembled during the early weeks of the crisis.)  Its active caseload is falling fast, as is community transmission.  The mortality rate so far is a bit over 1%.  That will rise modestly, but of course they missed some cases.

2.  South Korea’s hard border with the North makes it a quasi-island.  Active cases are falling very fast, with rapidly declining community transmission.  The reported mortality rate is over 2%, but of course they missed some cases.

3.  Hong Kong has only 4 deaths in 1026 cases, and only 8 are in serious or critical condition.  Community transmission has almost stopped and active caseloads are falling fast.  Macao had only 45 cases, no deaths, and community transmission has stopped.

Overall, the various island and quasi-island data suggests a far lower mortality rate than what one sees in Europe, or even the US and China.  The obvious explanation is that these islands are missing fewer cases, as demographics alone can’t explain the 13% reported mortality rates you see in some European countries.  Singapore’s particularly interesting, with only 11 deaths out of 6588 cases.  I attribute that to pretty complete testing and the fact that many cases are recent, so some of the infected will eventually die.

Of course recall the previous post.  Everything here could turn on a dime, as infections surge again in some of these countries.  I did not expect the recent surge in Singapore.  But we’ll know much more in about 4 weeks.

PS.  I’ve generally discounted the possibility of “herd immunity” building up to any significant extent.  Not enough cases where I live in Orange County.  But I’m going to change my view on New York.  They look likely to end up with at least 30,000 deaths.  That suggests that at least 3 million New Yorkers will be infected in this wave of the epidemic.  That’s 15% of New York State’s population.  (And the ratio would be even higher in the NYC metro area.)  Furthermore, the infected would skew heavily toward socially active people that interact a lot with others, including the so-called super-spreaders.  The non-infected 85% will have a lower than average R0.  That’s certainly not complete herd immunity, but given the skew toward the socially active, the 15% figure understates the true amount of herd immunity.  The next wave in NYC (next winter?) will be milder, especially if people continue to be cautious, wear masks, etc.

Maybe it’s wishful thinking on my part, but I believe we can ride out the rest of this pandemic (until a vaccine) without any more government-mandated lockdowns after this one is lifted in May.  But people will still be very cautious, and hence I expect a weak economy for quite some time.

PPS.  This picture of Faeroe Islands looks like an optimal optical illusion.  Unfortunately, I’ll never get there:

There’s an old saying in Hollywood; “Nobody knows anything”. That is, no one can predict which films will do well and which films will bomb at the box office—at least back in the days when we had “box offices”.

I’d like to argue that nobody knows anything about the coronavirus epidemic.  Of course that’s an exaggeration; we know a bunch of things.  But it’s striking how little we do know, given how much scrutiny the problem has received.  I recently saw a video of doctors from all over the country saying that they had no idea if the medical treatment they were giving Covid-19 patients in intensive care was doing more good than harm.  

About 6 weeks ago, the virus was seemingly under tight control in Singapore, and completely out of control in South Korea.  Even worse, Korea’s in the temperate zone most prone to high infection rates, and Singapore’s a hot humid place right on the equator.  Even worse, Singapore has far more “state capacity” than South Korea.  Even worse, Korea never shut down its economy.  So raise your hand if 6 weeks ago you predicted that the two places would go in completely opposite directions.  I’d guess that among the 7.8 billion humans on Earth, exactly zero predicted Korea would quickly control its epidemic and Singapore’s would spiral out of control.  And even after it happened, no one knows why.

Cafes bustled with customers, parks teemed with sunbathers, and the first Apple store to reopen outside China had lines snaking out the door as many South Koreans — almost all wearing masks — emerged from months of self-isolation.

The scene in Seoul on a picture-perfect Saturday contrasted sharply with other nations where major cities look like ghost towns as governments lock down huge swaths of the population or impose strict restrictions on social gatherings.

Initially one of the hardest-hit with the second-highest number of cases globally, South Korea has managed to curb the spread without taking measures that were too severe. It didn’t require businesses to close or restrict travel.

Despite government pleas to remain indoors with a warning of a flare-up, many Koreans ventured out Saturday, saying they believe the worst of the pandemic is over.

And since no one knows anything, I have no idea whether this will still be true in another 6 weeks, or if it will reverse again, with Singapore under control and Korea out of control.  No one knows.

PS.  I will say that mask wearing was far more widespread in Korea than in Singapore.   🙂

For months, Singapore’s leaders urged citizens to wear masks only when ill, especially after locals panicked and rushed to stores to grab bundles of the essentials as the coronavirus spread. Now, they’ve shifted tack.

In a live address to the nation Friday afternoon, Prime Minister Lee Hsien Loong said his government will stop discouraging the general public from wearing face masks in public.

And this:

Taiwan’s Ministry of Foreign Affairs (MOFA) confirmed on Wednesday (April 7) that Singapore is among the New Southbound Policy (NSP) nations that it will be donating over 1 million medical masks to.

A commenter recently asked:

The whole expectations idea strikes me as weak. What proportion of households are going to run out and buy consumer durables or book an extra holiday just because the Fed announces it will “do whatever it takes”? My guess is less than 5%.

The purpose of monetary stimulus is not to encourage consumption. Indeed if the stimulus is successful, then consumption as a share of GDP will generally decline (and the saving/investment share will rise.)

The purpose of monetary stimulus is to boost NGDP.  Full stop.

If nominal wages are sticky, and if we are not at full employment, then this rise in NGDP will also lead to more employment and more production of both consumer and investment goods.

But monetary stimulus is aimed at raising the product of M and V, not encouraging people to go shopping. After all, the funds for investment come from saving.

When there’s a big apple crop, then NGDP measured in apple terms will rise. But that’s not because a big apple crop causes lots of people to shop for a new washing machine. Rather it’s because it reduces the value of apples, which raises NGDP in apple terms.

Similarly, a big crop of money causes the value of money to fall, which raises NGDP in dollar terms. If nominal wages are sticky, that leads to more employment as a side effect. Getting people to go shopping has nothing to do with it.

The problem during a recession is not too much saving; it’s too much hoarding of base money. So the Fed needs to do things to either increase the supply (QE) or reduce the demand (forward guidance) for base money.

PS.  People often say that bad times lead to shorter life expectancy.  But is that true?

PPS.  The Chinese government recently confirmed my earlier claim that the death toll from coronavirus was underreported, just as in Western countries.

PPPS.  This FT story caught my eye:

“Maybe some other island nations can learn from New Zealand but it is probably too late for other countries to adopt the strategy at this stage,” said Prof Wilson.

In Australia, which has recorded fewer than 50 cases per day over the past few days, some experts have urged the government to adopt an elimination strategy.

But on Thursday, Scott Morrison, Australia’s prime minister, said the eradication approach taken by New Zealand would have entailed even greater economic restrictions.

“That is not seen to be in our view a wise trade-off in how we are managing the two crises that we are facing: the economic one and, of course, the health one,” Mr Morrison said.

The “suppression” path was best for Australia, he added. 

I predict that New Zealand’s plan will work, and I also predict that once it does work the Aussie government will be under strong pressure to copy New Zealand and go for zero.

PPPPS. Tyler Cowen recently linked to this news story:

INTERNATIONAL BAT APPRECIATION DAY

Each year on April 17th, National Bat Appreciation Day reminds us of the roles bats play in our daily lives.

Yes, today we should all think about the role that bats are playing in our daily lives.

And then kill them all.

(Just kidding, animal lovers.)

Many people are puzzled by my views on Fed purchases of assets. Long before the current pandemic, I was pleading with the Fed to ask permission of Congress to buy a wide range of assets in a crisis.

But I also suggested that I didn’t believe this would be necessary. Rather the purpose was to insure that a Fed “whatever it takes” approach to NGDP stabilization had credibility.

So was I the guy who favored having the Fed buy risky stocks and bonds, or was I the guy opposed to the Fed buying risky stocks or bonds? Perhaps this Bloomberg article will clarify the point I was trying to make:

The Federal Reserve’s planned foray into the $4 trillion exchange-traded fund market may be over before it ever began.

The U.S. central bank’s surprise announcement that it intended to purchase investment-grade ETFs as signs of a liquidity crunch mounted drove up demand from investors trying to front-run the central bank. . . .

For now, the Fed’s signal alone has been enough to loosen the cash crunch that had squeezed global bond markets amid spreading coronavirus fears. . . .

“Certainly anecdotally, finding buyers of the underlying bonds was becoming harder,” said David Mann, head of global ETF capital markets at the issuer. “The market has interpreted that announcement by the Fed as ‘OK, they’re going to be stepping in, so we can go back to normal,’ and if the threat of them acting was sufficient, then they don’t necessarily even have to act.” . . .

With the “healing process” already taking place, the Fed may not have to follow through with ETF purchases, according to Barings.

“Unless that high-yield market rolls over and comes under additional pressure, the Fed may never venture into buying high-yield ETFs,” said Scott Roth, a high-yield portfolio manager at Barings. “The signal that they could buy may be enough to achieve its desired effect.”

Just to be clear, the Fed still hasn’t adopted my suggestion of a “whatever it takes” approach to level targeting.  And they may ultimately need to buy these assets.  Nonetheless, this example certainly illustrates the basic idea that monetary policy is 99% about expectations, about credibility.  In a very limited way, the Fed won a battle without firing a shot.  This is sometimes called “the Chuck Norris effect.”

HT:  David Beckworth

Republicans believe that Trump’s done great things for America, whereas Democrats think he’s been a disaster for the country. Trump is the worst president in American history, but his impact has been surprisingly small. This story helps us to understand why:

“Why don’t we let this wash over the country?” Trump asked, a question others told the Post the president has raised repeatedly in the Oval Office. Fauci, the head of the National Institute of Allergy and Infectious Diseases, realized with surprise that Trump was serious, the Post reported. 

“Mr. President,” Fauci responded, according to the Post. “Many people would die.”

Trump’s public comments during that time also indicate he was considering such a scenario to get the economy moving again — despite the toll. He said repeatedly that the “cure cannot be worse than the problem itself,” implying that saving lives could be less important than saving the economy. He has claimed without evidence that more people would die from a weak economy than from a pandemic.

Trump would gladly sacrifice the lives of a million Americans if it could help him get re-elected, and thus boost his ego. That much is obvious. And it’s also clear that Trump’s herd immunity approach would be a disaster, leading to the needless deaths of many Americans. But Trump’s not in charge, so this strategy was never going to be tried.

Many people conflate social distancing with government-mandated lockdowns. In fact, the two concepts are quite different. Even if the federal government and all state governments had gone along with Trump, there’s no way the private sector would have cooperated.

Given the severity of the epidemic, social distancing was inevitable, and that means the deepest depression since the 1930s was inevitable. Indeed even if the lockdown is removed on May 1; many firms have made it clear they have no intention of going back to business as usual.

So when people tell me that the one million deaths figure is nonsense, and that nowhere near that number would die in the absence of a government mandated lockdown, my response is “of course”. But that’s because people don’t want to die, and would practice social distancing on their own. So that doesn’t help Trump to avoid an economic depression.

On the other hand, if Trump could use his powers of persuasion to magically convince Americans not to social distance then we could avoid a depression, but we really would have an enormous number of deaths. There’s no easy solution here, given that we failed to take the crisis seriously early on, in the way that Taiwan, Iceland, South Korea and others took it seriously.

In the past, Trumpistas have asked me how I could possibly believe that Trump is the worst president in American history, given that the country was doing so well. In response, I often claim that presidents explain only about 3% of outcomes, and the other 97% is due to other factors.

My response now would be, “What do you mean the country is doing well; we have tens of millions of Americans losing their jobs?” To that, the Trumpistas might reply, “But Trump had nothing to do with that!”

Exactly my point. I’m glad we finally all agree.

PS. And don’t say the earlier gains were due to Trump and the recent loses were bad luck. We all know that most of the 2017 rebound in manufacturing was supplying capital goods to a fracking industry that rebounded for reasons having nothing to do with Trump. It’s fine to use the “bad luck” argument with coronavirus, but not if you don’t acknowledge the earlier good luck he had.