Some slivers of good news? (Plus more on fear recessions)

Yesterday I posted some depressing videos. Given the bloodbath in the markets this morning, I thought I’d offer a few slivers of good news to cheer you up. (If markets recover later today, I take credit. :))

1. The news from East Asia continues to be pretty good. Some places like Taiwan are doing great (San Marino has more cases than Taiwan!), and even the worst affected country in recent weeks (South Korea) has now shown real signs of improvement. It’s not unrealistic to believe that the number of new cases in East Asia will fall to low levels within a week. (But of course it’s also possible that there could be another surge.) China’s data may be questionable, but other countries show a similar pattern.

2. The tropical parts of Asia continue to have a fairly low caseload (but rising), especially poorer countries that presumably have less air-conditioning, such as India. Within a week or two we’ll know more about whether it’s likely to go “exponential” in the tropics. That has implications for the summer in northern countries.

3. There are still no deaths in Germany and Scandinavia. This seems weird to me as Germany has 1164 cases and Scandinavia has 580 more. As each day goes by it seem less and less likely that this is due to the fact that these are new cases and people haven’t yet died. I suspect these are primarily young people—can anyone confirm? The death rate in Korea is also remaining fairly low, so far, but not that low.

4. Outside of China, new cases rose by 4000 on Saturday and 3900 on Sunday. I suspect there will be an even smaller increase today. If I’m right, will this reflect a breakdown in exponential growth, or a slowdown after a previous spurt due to catch-up testing in Korea and Italy, with the underlying infections still growing at exponential rates? I don’t know, but have my fingers crossed.

Anything else I missed?

PS. I wrote this on February 1st:

We are also relying increasingly on complex technological systems. I wonder if the interaction of increased risk aversion and technology will lead to future “risk recessions”, i.e. economic disruption caused by our unwillingness to accept even small risks from pathogens, or computer viruses.

Today, I’d say I underestimated the risk of recession back then, but correctly identified the actual risk factor. If there is a recession, it won’t be caused by supply disruptions, it will be caused by fear of consuming. (Indeed “fear recession” is a better term than risk recession.) That’s a demand shock, but one that’s it hard for the Fed to address in the short run.

I continue to favor a policy that markets expect to lead to 4% NGDP growth over 12 months. But even if it were implemented, I think it’s likely the second quarter (at least) would be quite weak.) Monetary policy cannot work miracles.

PPS. Here’s another reason why we might have a “fear recession” this year:

Shares of Boeing Co <BA.N> dropped 12% on Monday after the planemaker’s proposal to leave wiring bundles in place on the grounded 737 MAX failed to get the backing of U.S. aviation regulators, potentially delaying the plane’s return to service. . . .

There are more than a dozen different spots on the 737 MAX where wiring bundles may be too close together. Most of the locations are under the cockpit in an electrical bay.

Boeing has noted in talks with the FAA that its 737 NG has the same wiring bundles and that it has been in service since 1997, logging 205 million flight hours without any wiring issues.

Well at least we won’t need those extra planes in the near future!!

BTW, don’t use the comment section to lecture me on Boeing; I know the 737 Max was poorly designed.

Update: Italy just reported a huge jump in cases, so perhaps Europe will go exponential. Today’s cases will exceed 4000, and Germany had its first two deaths. My posts get dated quickly. To get a sense of how rapidly the world has globalized, look at the all remote places the virus has already reached:

And that’s not including Faeroe Islands, and other obscure places.



28 Responses to “Some slivers of good news? (Plus more on fear recessions)”

  1. Gravatar of Mark Holder Mark Holder
    9. March 2020 at 08:16

    With respect to fatalities: according to fatalities are coming late due to infections. Being in the hospital for 6-41 days is common for the fatal cases. Given that we probably had low #s of infections in Germany and Scandinavia >10 days ago (10 not 6 as a guess of a time lag from infection to hospitalization), it doesn’t seem like we should be expecting many fatalities there at this point.

  2. Gravatar of John Hall John Hall
    9. March 2020 at 08:26

    On the exponential growth coronavirus argument, I would note that it can be a bit tricky thinking about aggregate numbers, even the sum of confirmed cases outside of China. Even if Korea continues to get cases under control, you might see it offset by outbreaks in France and Germany or other European countries.

  3. Gravatar of ssumner ssumner
    9. March 2020 at 08:29

    Mark, What about France and Spain? Spain’s cases are even more recent, France is about equally recent.

    John, I agree, I focus on cases outside China, but Europe does need to be treated separately, as you say.

  4. Gravatar of Gene Frenkle Gene Frenkle
    9. March 2020 at 09:16

    Q1 2014 featured are harsh winter that led to negative growth…but then our strong economy started in Q2. I guess everyone knew generally when the winter would end and could plan accordingly.

  5. Gravatar of SG SG
    9. March 2020 at 09:45

    “That’s a demand shock, but one that’s it hard for the Fed to address in the short run.”

    Et tu, Sumner?!

    Everywhere I look I see commentators making excuses for the Fed’s astonishing lack of sense and urgency, but the last place I expected to take the heat of Powell was TheMoneyIllusion!!!!!

    Seriously, though, I’m not disagreeing that the virus has caused a significant of economic harm, but to me it seems clear as day that we’re in the middle of a massive failure of monetary policy. Inflation expectations (5 year, 5 year forward) are collapsing and still the fed is standing pat! Why in the world didn’t the Fed take rates to zero today? Are they afraid of excessive inflation? It’s baffling. I believe the greatest risk the economy faces is that the Fed is willing to stand by and allow monetary conditions to tighten without adjusting accordingly, just as they did in 2008.

    You’ve pointed out in the past that the Fed follows the consensus views of the economics profession, and right now we need more economists clamoring for the Fed to do its job.

  6. Gravatar of Carl Carl
    9. March 2020 at 10:00

    Curious what your take is on the cure side of the effort. The most promising vaccine seems to be remdesivir which shows promise in monkeys and may have helped cure one person in DC but otherwise has no human testing to go on.

    The purified blood plasma of recovered victims sounds like it may be an effective tool as well, but has challenges of scalability.

  7. Gravatar of Christian List Christian List
    9. March 2020 at 10:00

    I think Mark’s right. Germany had about 14 cases in the beginning, but then we were overtaken by France and Spain for a short time.

    The statistics are not quite up to date either. There are now 2 deaths in Germany. An 89 year old woman died of pneumonia caused by covid-19, she got infected on Tuesday a week ago, as one of the first of the “second wave”.

    Not much is known about the second death so far, there’s a live press conference about the second case going on right now.

    Of course, I could say that our health care system is just so great, but that would be a lie. I ask myself every day how it is working halfway at all, even without corona. And now influenza and corona together. The German system will be stretched to its limits and beyond. This is gonna be a funny, bumpy ride.

  8. Gravatar of Kenneth Duda Kenneth Duda
    9. March 2020 at 10:12

    > the last place I expected to take the heat off
    > of Powell was TheMoneyIllusion!!!!!

    SG, I do not think Scott is saying that current policy is optimal.

    I assume Scott is saying that even optimal monetary policy cannot peg NGDP in the short run — that a sufficient amount of fear will lead to below-target nominal spending even with optimal monetary policy, at least over a short timeframe.

    That said, I would love for Scott to continue applying appropriate amounts of heat to the Fed. He does have this post from March 2: I hope he keeps them coming!


  9. Gravatar of Michael Sandfer Michael Sandfer
    9. March 2020 at 10:15

    Fear is an animal spirit, isn’t it?

    Most of what’s going on in the markets, especially in terms of the collapsing long-term yields, seems likely due to the expected policy regime at the ZLB. This is just a continuation of depression economics.

    That said, it seems some fiscal support is in order. I think the government should guarantee paid leave for anyone placed under quarantine by a doctor, or laid off during the acute phase of the onset of this pandemic.

  10. Gravatar of ssumner ssumner
    9. March 2020 at 10:34

    SG, You said:

    “Seriously, though, I’m not disagreeing that the virus has caused a significant of economic harm, but to me it seems clear as day that we’re in the middle of a massive failure of monetary policy.”

    What makes you think I disagree with you? The Fed has let 12 month NGDP expectations fall much too low.

    Ken, Correct in your response to SG. And yes, there will be much more heat applied to the Fed from this blog. Stay tuned. But I’m also providing constructive ideas. At Econlog today, I have a post recommending the Fed ask Congress for more tools.

  11. Gravatar of Ray Lopez Ray Lopez
    9. March 2020 at 10:35

    @SG – don’t criticism Sumner for being uncharacteristically humble and realizing monetarism’s limitations when he says “Monetary policy cannot work miracles”. It’s a fact. Look up Bernanke’s 2003 FAVAR paper that found, using VAR analysis, that Fed policy shocks since 1959 caused, in variables such as GDP, employment, inflation and the like, a mere 3.2% to 13.2% (out of 100%) change (with VAR correlation is not causation but assumed so, hence it’s an ‘at best’ analysis). In other words, monetarism and the Q.T.O.Money (a medieval notion first proposed by Copernicus) only account for, at best, around 10% of the total change. The rest is other factors like fiscal policy. While Bernanke found Fed policy is statistically significant given this 10%, i.e., money is not short term neutral, it’s also, objectively speaking, not such a big deal (the other 90%). True, you could say the Fed has never tried Sumner’s NGDP LT, so monetarism ‘could be’ a big deal, but to date it’s not been a big deal. For those scholarly types that want to know more about VAR as proposed first by C. Sims (1980), which won him a Nobel prize, see this survey:

  12. Gravatar of Mark Holder Mark Holder
    9. March 2020 at 10:49

    ssumner: Looks like I was probably quoting a number that is too small for the early range of most fatalities.
    In Scott Gottlieb says “…But the time to death is three to six weeks…Time to hospitalization is nine to twelve days”
    I *think* this means that most of the deaths we’re seeing in Europe are from infections during a time when most infections weren’t detected. It wouldn’t surprise me if it is possible for people who are dealing with other health issues to succumb much faster than the typical trajectory. That might explain the a fairly large number of deaths in France and Spain while few cases are known there. But I am not an expert, so I don’t know if that is the case. I don’t know the any details about those deaths.
    I certainly hope that low death rates persist in places where the rates are low, but I’m just not convinced that the low totals in Scandinavia and Germany are signs that the death rate will end up being lower there.
    It does seem like the really high CFR in Wuhan was associated with the health care system being overwhelmed. Hopefully, that experience will be an outlier.

  13. Gravatar of Brian Donohue Brian Donohue
    9. March 2020 at 10:51

    Ray, heliocentrism is also a medieval notion first proposed by Copernicus.

  14. Gravatar of Michael Rulle Michael Rulle
    9. March 2020 at 10:51

    Those videos were horrid—I am glad you decided to take a peak on the optimistic side (actually, you have been there all along—net). We can all play games with compounding.

    While no politician who wants to stay in office would ever suggest we let this virus “float” free, as we do with Influenza, I am not so sure China did not do that outside of Hubei—

    Italy hot spot is 3 northern provinces, 1/3rd the size of Hubei and 1/3rd the size in population—so similar density—also has 1/4th the number of cases (adjusted for population—actually 1/13th).
    82% of Italy cases is in these 3 adjacent provinces.

    The most important stat we can track is the growth rate of cases,”cures”, and deaths— and the change in growth rate of these variables (visually easy to see just by using log graphs) in the various countries and/or regions. Then, secondly, try to equalize by charting these changes from when we conclude they began.These can be updated as we get more info too.

    Of course, that is the one stat we do not have—at least I cannot find it.Everything else is apples and oranges—we have it–we just do not show it.Its all about the minute by minute counting—granted 1% of all people even know what this method means—but 50% of all educated people do (probably high) and perhaps 90% can understand “preliminary conclusions”

    Anyway, time will tell as it always does

    But wouldn’t it be nice to say—–“given how we have seen this disease evolve so far, this is what we project—even as this could change in the future”.

    Instead we have nervous sweaty doctors, bad communicating pols, a media which is not helpful, and worse of all—a potential self fulfilling prophesy in the making on the economic front.

    It is hard to be in panic mode forever–which requires a perception that things are getting worse at a higher rate than previously expected. My optimistic view—absent that everything we know is wrong, is this will happen within gradually within months

  15. Gravatar of Mark Holder Mark Holder
    9. March 2020 at 10:53

    oops. I missed Christian’s reply. The example in that comment certainly argues that fatalities are possible relatively soon after infection. I just don’t know how typical that trajectory is.

  16. Gravatar of Justin Justin
    9. March 2020 at 10:55

    So many questions. I’ve read that possibly the virus is worsened by air pollution and lung damage from smoking (and long term air pollution exposure). The Swedish tendency to use snus rather than smoke could thus explain the low death rate, but that doesn’t explain Germany, which is more polluted and where the older people have a history of smoking. Russia doesn’t have many cases, despite some air pollution around the big cities and a strong history of smoking among older men.

    Why northern Italy but not southern Italy or Austria? Why not Vietnam or Indian? Two weeks ago I was expecting we’d be seeing ICUs filling up in many US cities, but that’s not happening yet.

  17. Gravatar of Michael Rulle Michael Rulle
    9. March 2020 at 12:10

    PS: Is Ignorance Bliss? The following is about the 2009 pandemic.

    “the H1N1 epidemic of 2009-2010,….700 million to 1.4 billion people became infected worldwide and upwards of 500,000 died”

    What is the over/under on this—-maybe we should put it on hyper-mind?

    Source: Forbes 3/8/2020

  18. Gravatar of John Hall John Hall
    9. March 2020 at 12:46

    It occurred to me later wrt your point about hard to prevent a decline in economic activity in either Q1 or Q2 due to the coronavirus shock that that could have provided an opportunity to talk about the importance of level targeting. If we have 1-2% NGDP growth (annualized) in Q1 or Q2, then that is the point where monetary policy can play a role in playing catch up in H2 2020 or H1 2021.

  19. Gravatar of Student Student
    9. March 2020 at 12:48


    The morbidity rate for the 2009 h1n1 pandemic was 0.01% to 0.08%. Covid19 is estimated at 2% or so. Let’s say it ends up being 1/4 of that (0.5%). Let’s assume the reproduction rate (R0) for h1n1 is the same (about R0 = 1.5-2.0). By those, we would expect about 2.5 million deaths. I’d put the over/under there. If the morbidity rate stays up at about 2% for covid, that would be about 10 million deaths. Yikes.

  20. Gravatar of Student Student
    9. March 2020 at 12:53

    Note, I used a morbidity rate of 0.1% for h1n1 to assume the high side.

  21. Gravatar of ssumner ssumner
    9. March 2020 at 13:54

    Michael, You said:

    “What is the over/under on this—-maybe we should put it on hyper-mind?”

    My biggest fear isn’t that the death toll will be in the millions, rather it’s what we’ll have to do to prevent the death toll from being in the millions. And what will that do to the economy?

  22. Gravatar of yersinia pestis yersinia pestis
    9. March 2020 at 14:15

    when i read the montebanks, pettifoggers, arm-charir quaterbacks and fools who comment on this blog about that which they have no expertise, I am reminded of: “Tomorrow, and tomorrow, and tomorrow,
    Creeps in this petty pace from day to day,
    To the last syllable of recorded time;
    And all our yesterdays have lighted fools
    The way to dusty death. Out, out, brief candle!
    Life’s but a walking shadow, a poor player,
    That struts and frets his hour upon the stage,
    And then is heard no more. It is a tale
    Told by an idiot, full of sound and fury,
    Signifying nothing.

  23. Gravatar of Steve Steve
    9. March 2020 at 18:34

    Monetary policy can’t work miracles, but it can keep inflation expectations stable and on target. Do you think the Fed will ever do that?

  24. Gravatar of Pietro Pietro
    9. March 2020 at 20:17

    Do you have a link for the image?

  25. Gravatar of Erik Erik
    10. March 2020 at 01:26

    The Swedish cases probably are younger: most are tourists returning from Italy after the “Sportlov” (sports holiday). This is a week where schools are closed to allow families to go skiing basically, different weeks for different areas of the country. I believe Stockholm is two weeks after Gothenburg, which might explain the about three times the number of cases per capital for the former given the further progression in Italy during these weeks.

  26. Gravatar of Student Student
    10. March 2020 at 06:17


    I wish I shared your confidence, but the response has been dismal. I think yesterday was the beginning of the response. We as a group need to sacrifice some of our stored provisions to keep R0 as low as possible because we might not be able to do much about morbidity at this point.

    My biggest fear is that millions die and the economy takes a big hit. In fact, I’d place a real bet given an over/under at 1 million souls. So let us know if it’s up on hypermind.

  27. Gravatar of ssumner ssumner
    10. March 2020 at 10:55


    Thanks Erik.

    Students, I think the US is too risk averse for that outcome. We’d go “full China” before that happened. Just shut everything down.

    Agree the response has been awful.

  28. Gravatar of Student Student
    13. January 2021 at 10:17

    For the record, deaths in the 3,500-4,500 range a month will put us over a million by summer. It seems we got a destroyed economy and will likely eventually hit 1 million deaths as well, given the current pace of vaccination.

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