Will This Be An Economic Winter?

Despite all the public warnings from governments and health experts all over the world, there are still people out there thinking that the SARS Cove-2, also known as Covid 19, the entire situation is being over-blown, that this is no more dangerous than the flu. The UK government was taking a very passive role up until a couple of days ago when they made a dramatic shift in strategy. The clearly saw some new information, some studies that scared the heck out of them and decided a change was appropriate.

Think about it, Italy had 4,200 new cases and 475 deaths yesterday, and has been averaging about 350 deaths a day for several days before that. These are huge numbers. If we scaled that up to the size of the United States, we’re talking deaths of over 2,000 people a day, and many times that in intensive care. These are huge numbers. Their health care system is crumbling under the weight of the new cases coming in requiring intensive care. Clearly some action is needed to slow down the progression of the disease to protect the health care system. Governments have been telling people that they need to eliminate social interaction for the next two to three weeks. The general population can handle a few weeks. They’ve been told that they don’t need to stock up for more than just a few days.

On today’s show we’re talking about the scope of the economic shutdown that we’re currently in the middle of. Many people are asking the question “How long?”.

I’m wondering, is this an economic blizzard, or an economic winter? In an economic blizzard, everything grinds to a halt, the community bands together, cleans up the situation and not long after, life is back to normal. An economic winter is an entire season. It could be a deep freeze, and hopefully not an ice age.

In a world of social distancing, businesses all over North America and Europe are either closed or operating with telecommuting. Some areas have allowed restaurants to remain open at 50% capacity.

The mortality rate is incredibly high compared with the flu. Since we don’t have a cure, nor a treatment, social isolation is key to prevent the spread of the disease. The big question is how long. If the goal of the isolation is to completely suppress the virus and eradicate it much like we have managed to do with Polio, then it will take an extensive period of social isolation, aggressive testing and aggressive contact tracing. Only when we have a vaccine that has been proven and manufactured in quantities will we be able to resume normal social interaction. But that’s at least nine months away, even if we had a vaccine today which we don’t. The process of introducing a vaccine requires a pre-clinical trial for 90 days, followed by a limited clinical trial, followed by volume manufacturing, and then the time it takes to immunize millions of people.

In mitigation, the virus is present in the population. As soon as you allow people to interact again, the rate of infection picks up where it left off and we will overwhelm the healthcare system in a matter of weeks.

So here too, the period of isolation ends up being extended for quite a while. While governments have not been sharing this perspective with the general population, the mathematical model to simulate the spread of the virus through the population is no great secret. The simulation is quite straightforward. If unchecked, the virus would envelope the population in 120 days, and governments aren’t trying to prevent it from happening. They are only trying to slow it down. So let’s say they’re trying to slow it down to no more than one percent of the population gets infected in a single week. That would take 100 weeks, or nearly two years. Italy’s health care system has been crushed in a very short time period. And penetration of the population is estimated to be no more than 1%.