After the Great Recession, the Fed should have rethought its entire approach to policy and come up with a more effective regime. It only began this sort of re-evaluation quite recently—too late to help in the current crisis. That was a major institutional failure, and yesterday we all saw the results.

The Cato Institute and the Mercatus Center are planning a seminar to consider alternative approaches for the next crisis. (Click link to register). I’ll be there (electronically).

1. Almost every hour of every day, academics say things that are offensive, often quite offensive.

2. One can certainly imagine an academic saying something so offensive that they deserve to be fired.

3. Academics almost never say things so offensive that they deserve to be fired.

I don’t ever recall hearing an academic saying things as offensive as the garbage Trump spews out. And yet 42% of Americans support Trump. I’m not comfortable with speech codes that say 42% of Americans cannot hold certain jobs unless they keep their mouths shut.

4. Fight offensive speech with wise speech.

The Fed’s new inflation and unemployment projections show that monetary policy is currently way too tight. Unemployment is projected to remain high through 2022. That may be excused by the Covid-19 pandemic, but there is no excuse for the low inflation, especially low core inflation:

The Fed had the option of switching to level targeting, and blinked. That error will be quite costly in terms of both inflation and growth.

Again, unemployment may be beyond the Fed’s control at the moment, but at a minimum they need to target the inflation forecast. I can’t even comprehend the 1.7% PCE inflation forecast for 2022. Does the Fed plan to acquiesce to this sort of policy failure for two whole years, without even attempting level targeting?

PS. The implied 2019-2021 NGDP growth forecast seems to be about 0.9% (total). By comparison, the total NGDP growth from 2008:Q2 to 2010:Q2 was 0.8%. And unemployment was over 9% throughout 2010. Perhaps they are assuming a greater degree of wage flexibility today.

PPS. Is there anything more annoying than talking heads on Wall Street TV shows saying the Fed has already done too much because stocks are recovering?

PPPS. Powell was asked about inflation forecasts being under target, but sort of dodged the question.

The NYT has a story discussing how the WHO has had to backtrack on a variety of claims. They initially underestimated the danger from China. Then they discouraged mask wearing. Then they reported that asymptomatic carriers of the Covid-19 virus very rarely infected others.

At one point they tried to draw a useless distinction:

A key point of confusion is the difference between people who are “pre-symptomatic” and will go on to develop symptoms, and those who are “asymptomatic” and never feel sick. Dr. Van Kerkhove suggested that her comments were about people who are truly asymptomatic.

Back in the comment section, I pointed out that people were mixing up those two concepts. People are highly infectious for a couple of days before symptoms first appear.

I say the WHO distinction is useless because there’s no way to tell if an asymptomatic person is pre-symptomatic or permanently asymptomatic. People read the earlier WHO comments and assumed that someone who doesn’t show symptoms is not a problem. That’s why masks are so important. Today, Tyler Cowen linked to another study showing that masks reduce the severity of the epidemic.

In April, I suggested that the world was dividing up into safe and unsafe regions. In May I suggested that safe areas would link up, allowing travel. Now that’s happening:

Now he has joined hundreds of tourism operators in an appeal for Pacific island nations to be included in an Australia and New Zealand “travel bubble” that could rescue their businesses and some of the most tourist-dependent economies in the world.

“This virus is literally a dagger right through our hearts,” said Mr Whitton, who owns Rosie Group, a family business established in 1974.

“We have had no new cases in Fiji for a month and we are moving towards eradication. I view this travel bubble as our only hope during hopeless times.”

Here’s another example:

Like Vietnam, Thailand is planning to allow international travel, probably initially with other countries with low current levels of Covid-19 infection through designated travel corridors or “bubbles”.

Vietnam is a country of 98 million that has experienced zero deaths from Covid-19. Its economy is set to grow 3% to 5% this year. Thailand has also done well, with almost no community transmission in recent weeks:

The beaches nearest to Bangkok are heaving with visitors. Vietnam’s schools, restaurants, cinemas and nightclubs are open again, while football matches at stadiums packed with cheering spectators have been allowed to resume. Most Vietnamese have stopped wearing masks. 

While a second wave of infections is a risk here, as everywhere, the authorities in both countries have been encouraged by a drop in new local Covid-19 infections to zero in recent weeks. 

However Thailand’s economy is depressed by the collapse in global tourism.

I like this picture from Bangkok:

Unfortunately, America won’t be in any of these bubbles. China will.

I use scare quotes because obviously “the” fatality rate for Covid-19 varies widely between countries. In Italy, 23% of the population is over 65, and only 1.1% of Covid-19 deaths have been people younger than 50. In some African countries the share of population over 65 is only 2% or 3%, so obviously they’ll have much lower infection fatality rates than Italy. Nonetheless, it’s worth looking at some data:

Weekly testing by the UK Office for National Statistics (ONS) indicates that 6.8 per cent of the population in England has been infected (and thus developed antibodies to the virus). The latest national survey in Spain published last week indicated that 5.2 per cent of the population had been infected.

Based on current fatalities, those ratios imply a fatality rate of roughly 1.1% in each country. But that underestimates the fatality rate for two reasons. A few of those currently infected will eventually die, and some Covid-19 deaths went unrecorded. So the actual fatality rate is roughly 1.2% to 1.4% in the UK and Spain.

One of the highest confirmed rates was in New York City, where it hit 22.7 per cent, according to a study by NY State Department of Health and NY State University at Albany.

This also implies a fatality rate of roughly 1.1%

On the other hand, all three of these rates seem to be above average:

The “infection fatality rate” — the proportion of those infected who die — depends on local circumstances but is typically in the 0.5 to 1 per cent range. A study by Imperial College London of the epidemic in China found an IFR of 0.66 per cent. Meta-analysis by Australian epidemiologists who pulled together 25 studies around the world calculated that the average IFR was 0.64 per cent.

What explains the difference? First, Western Europe and NYC have older than average populations, so you’d expect a higher case fatality rate. The percentage over 65 in Spain (19%) and the UK (18%) is much higher than China (11%). In places like Singapore and Qatar the illness has hit young and healthy migrant worker communities, and the fatality rate is far below 0.1%.

I’ve generally assumed that the fatality rate in the US (where 16% are over 65) is about 1%, and I’m sticking with that claim. I view claims of 0.3% fatality rates as way too low for the US. Some were based on flawed studies of infection rates in California.

If the US public had not taken any measures to avoid Covid-19 then 100 to 200 million would have become infected and 1 or 2 million would have died. But that was never going to happen, as people do take measures to avoid infection. You can’t do epidemiology without economics. There is lots of social distancing even in countries such as Sweden, which never had a mandatory lockdown.

From the beginning, the debate over lockdowns has been a distraction from the issues that really matter—voluntary social distancing, behavior changes (no hand shaking, washing hands), near 100% mask wearing in crowds and public indoor spaces, test/trace/isolate, etc.

PS. In a choir practice in Washington State, 52 of 61 attendees came down with Covid-19, so I don’t believe claims that most people are not susceptible.

A COVID-19 superspreader unknowingly infected 52 people with the new coronavirus at a choir practice in Mount Vernon, Washington, in early March, leading to the deaths of two people, a new Centers for Disease Control and Prevention (CDC) report finds.

This was an older group, and a younger group would have suffered from less illness for a given number infected. But there’s no doubt the illness is highly infectious.

PPS. Yesterday, I went out to eat at a nice restaurant in Tucson. The diners were mostly old, and almost all arrived wearing masks. The waitress wore a mask. They sat at tables in a large outdoor plaza, generally about 12 feet from the nearest occupied table. There was a brisk breeze. Not a high risk setting.

Off topic: James Hamilton says the actual unemployment rate may be 19.7%, although the improvement in May was real. As flaws in the data get corrected, the fall in the measured unemployment rate will likely be slower than the fall in the actual unemployment rate.