WHW: Happy Ending, Unhappy Ending, or no Ending?

Amid all the bad virus news there are a few nuggets of good news. How much good news could there be when another 2,000 or more Americans are killed by the virus every day? One set of projections see that increasing to 3,000 a day by the end of the month.

It’s true that the consensus among medical experts is that premature re-openings by nearly two dozen states – prior to an improvement in infections – will ensure the death count stays on a plateau or gets worse. Forty-four states will be reopening to some degree in a few days.

However, the virus, it seems, is not invincible, even without a vaccine. That’s the message from the survey of 27,000 health care workers by the state of New York Governor Andrew Cuomo. In his daily news conference, Thursday said that survey showed “amazingly good news,” that the infection rate among health care workers is less than for the general population.

Gloves, masks and gowns do work. In New York City 12% of health care workers had the antibodies that showed a previous infection. The general population’s rate was much higher, 20%. In Westchester, the rate for the general public was nearly 14%, for health care workers 7%. The assumption had been front-line doctors and nurses would be hurt the worst by far.

On Wednesday the governor disclosed the survey result that 66% of those infected were people supposedly homebound, yet apparently still in personal contact with neighbours, friends and relatives. Many would have been better off properly garbed in a hospital hallway.

Designer masks, gloves, hand-to-face hygiene and social distancing can work pretty effectively to hold down the infection rate. That’s so again, even without an effective vaccine, which more medical experts are saying is really a long shot. When testing and contact tracing is added in, as it is in New York and an increasing number of other states, then the health component of the virus crisis can be contained. Will it be? That’s another question.

On the economic side, the impressive performance of some post-crisis Asian economies showed that at least manufacturing can revive. Apparently Germany, which never closed down manufacturing, is the poster child for early precautions.

While the United States had yet to block travellers from China, German businessmen had learned from their many partner operations in China about the virus and immediately began the disinfection, protective gear and contact tracing that allowed their factories to keep going, at least at about 80% of capacity. Germany’s reinfection rate has worsened again, to about 1.1, when 1.2 infections per virus victim means the infection is spreading again. At 1.1 or less, the virus spread is diminishing, as it is in New York with its 0.8. So even Germany has more work to do.

Yet that country’s manufacturing base was not shut down and won’t be. While the US was about to ban travellers from China, Germany was already contact tracing. By the time the U.S. had blocked travellers from Europe, European visitors, not Chinese, had already spread infection through New York City’s metro area, as Governor Cuomo keeps repeating.

Now as Ford and GM reawaken assembly plants, nearly two dozen meat-packing plants resume operations, US manufacturing and processing industries can resume, hoping demand will revive as well.

The US economy, however, is more than two-thirds dependent on services transactions, needing people both for supply and demand. Manufacturing employs only about 13 million people in a workforce that up until a few weeks ago employed about 153 million. Now more than 30 million have found themselves among the layoffs.

With future income uncertain, the US savings rate is skyrocketing. In March it was over 13% and fresher data will likely show it even higher. Cash hoarders are the enemy of a consumer economy, a sign of the extreme caution that is poison for GDP. But how bad can the economy be on a day when the Nasdaq regained its pre-virus highs? Unfortunately, it’s not unknown for markets to give false signals. That is especially the case when circumstances are incredibly unusual and government is pumping money into the system by the trillions.

High savings are a long-term positive but US public dis-savings – the annual budget deficits – overwhelm private savings. So the net effect is still negative and the US still a net debtor in the world. That’s even more so lately with Treasury borrowing $1.5 trillion in April alone, with another $1.5 trillion already assured for May and June. The national debt climbed past $25 trillion on Tuesday.

Hmm, so let’s review. Many consumers are unlikely to spend a lot of their money and maybe not venturing much outside the house regardless what their governors say to do. Those who do abandon social distancing, or already have, may have second thoughts when they see the death toll failing to improve or getting worse soon.

The result, more government support for a nation failing to shake the damage to health and to the economy- and doing ever more borrowing.

The antidote to all that? A national reinfection rate of 1.1 or less. How to get there? More social distancing and all the rest. Not going to keep happening? Then hunker down. This could be a long slog.



Colin Lambert

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