The COVID19 conundrum – when do we start easing measures?

We understand the advantages of flattening the curve from a health care system perspective and have a realistic sense of the scale of the human catastrophe if we don’t slow the virus.  But questions about, “what then, what happens after that?” are important.  While there are signs that China is indeed slowly getting back to work and some bars and restaurants are opening, this is happening  as stringent restrictions remain in place and the country is prepped for additional “waves”.  Things are still far from “normal”.

If a large percentage of your population hasn’t had the virus, but you still have people who are infected that aren’t identified or isolated, then the virus will continue to spread.  The question is whether you can keep your infection rate below 1 (no infected person passes it on to more than one other person) when borders open and social distancing rules are lifted?   The answer is probably not, which means a “back to work” is probably going to have to co-exist with distancing measures for longer than we hope.

The edge cases

It becomes clear that this is an optimisation problem and that we should start with the edge cases:

  1. Is it a realistic option that we make little attempt to slow the virus, let it spread quickly through the population, “get it done with” and get the economy back to full strength as quickly as possible?
  2. Is it realistic that we keep rigid lock-downs in place for an indeterminable period of time, let economic activity grind to a halt and keep that in place for as long as it takes to get infections to zero (or wait until the entire population has been exposed under “controlled” measures)?

The answer must be no to both edge cases.

Lift restrictions and get back to work?

The first is an abomination.  The virus spreads rapidly, the health care system is overwhelmed, the mortality rate spikes in the absence of hospital beds and the number of deaths skyrocket.  In a place like the US, with a population of 330m, if 60% of the population got infected (80% plus probably required for “herd” immunity) with a death rate of 2%, which is not unreasonable when the health care system is swamped – it could easily be much higher – you are talking about almost 4 million dead people.  Over 90 days, that is 44 000 people per day on average.

Can you imagine US citizens backing Trump’s case for “get back to work” as grandfathers and grandmothers are dying like flies, alone in hospital corridors with their loved ones being denied access (like Italy)?  No, the public outrage reaches a frenzy.  What happens next is you frantically try the isolation game again at a point when you have lost all possible control of the crisis and the economy grinds to an absolute halt anyway.  You can’t even get back to square one.  As an aside, Trump loses a landslide election in November.

Keep lock down in place indefinitely until you stop infections?

Again, the “lock it down for as long as it takes” argument also fails where economic activity stops for too long.  You enter a period where the collective human misery exceeds that of the Great Depression and the social costs for the living need to be weighed against the societal cost of those who will die.  Businesses fail systematically, people forget about paying mortgages and focus on trying to feed their children.  Vulnerable states fail and the risk of political insurrection becomes real.  It takes a decade to get back on your feet and there are unknown risks to institutions like democracy and major shifts in the balance of power globally.

This is not a workable strategy as humans start responding with a Darwinian instinct for self-preservation.  In other words, people will eventually chaotically reject a lock down that seems to have no prospect of ending.

What about keeping a lock-down in place until the health care system is in equilibrium?

In this scenario, controls are kept in place until the whole population is exposed to the virus in a way that minimises the mortality rate until almost everyone has either developed immunity or died.  In this system, the infection rate and recovery rate are in equilibrium with your health care system’s capacity.  That is, new infections requiring hospitalisation come into hospitals at the same rate as recovered people leave.

However, this is not optimal from an economic perspective as the maths of doing this is overwhelming; it simply would take too long, and you are back to the complete economic collapse described above.

What does a sensible outcome look like?

Sensible means buying time.  A hard lock down for a period gives the health care system an opportunity to ramp up massively, policy makers the space develop optimal responses and the economy chance to adjust to a hitherto unknown set of circumstances.  Time also buys an outright option value on medical progress on drugs and ultimately a vaccine.  It gives society a chance to adjust.

Human behaviour in the West on infection control does not reflect behaviour we see in the East, so people’s actions almost force lock-down as the right strategy.  Nevertheless, humans can materially control infections through sensible behaviour outside a lock down environment – in due course.  Where Boris got it wrong was that he thought he could just ask people to be sensible and that would be the end of it. But, as the sense of the severity of the pandemic settles in, humans will change their behaviour and that can be very effective.  Hard controls are required until we sort these things out.

I do not think we will have to wait for the corona issue to be completely resolved before we need to start relaxing controls.   I do think that we will see an uptick in activity in many industries as firms adjust to a new normal and learn to either work remotely or put effective controls into the workspace.  When we get on top of infection control protocols, there are many industries that can start easing back into life.  Until then, we need an enormous effort to protect the most vulnerable and affected.

Even if we do our best at containment, but the virus gets away from us anyway and spreads through most of society, flattening the curve still makes sense and doesn’t create a case for “getting it over with quickly”.  Time reduces the mortality rate, minimises chaos and allows us to optimise our responses.  Even if the peak of infection is just slightly delayed, it is not clear that the economy would be back on its feet any sooner than if we sent people back to work now.

The bottom line is that there isn’t going to be a date when corona just ends, and the world gets back to work.  There is more likely to be a much longer period where economic activity becomes more normal as our lives become progressively less abnormal.

Gently opening the throttle

In other words, we can gently start easing the throttle open after we get the immediate crisis somewhat controlled (not fully solved), but keeping a very wary eye on the pressure gauge – gently edging the throttle backwards and forwards to make sure it doesn’t move back into the red.

The more emphatically we comply with the current lock-down measures, the sooner we can get to this point of starting normalisation and the greater the long-term return we get from this shorter-term pain.  Time will tell what optimal policy choices should have been and new data means our views may change.  But for now, this is a strong economic case for lock-down.