Power & Market

It's been a couple of days since my post on deaths per 100,000 in the USA and several other countries.

I'm very much a cautious "measure twice, cut once" type of person, so I went back and updated some of my calculations using more recent numbers.

Specifically, I've updated the third graph in the original post which is the number of deaths per 100,000 at the same point in the timeline since at least 1 case per million population was reported.

In the US, the first day to show more than one case per million population was March 7. So, counting up twenty days we arrive at March 26. On that day, there were 1,295 total deaths in the US. That works out to 0.391 COVID-19 deaths per 100,000. Meanwhile, in Italy, the first day with at least one case per million was Feb 22. Twenty days later, there were 1,106 deaths. That works out to 1.572 COVID-19 deaths per 100,000.

And so on:

And here's how things looked five days earlier, on day 15:

The gap between the US and Spain and the US and Italy became larger over these five days. At day 15, Italy's total for deaths per 100,000 was 3.9 times larger than the US rate. At Day 20, Italy's rate was up slightly at 4 times larger. At Day 15, Spain's death rate was 4.6 times larger than that in the US. At day 20, Spain's rate had grown to 5.6 times larger than the US rate.

As I noted earlier, there are many reasons why the deaths per 100,000 could be higher in Spain and Italy than in the US, Germany, and Switzerland. One may be the quality of healthcare. While the US, Germany, and Switzerland all have health systems with sizable government sectors, they have multi-payer systems that are more competitive and modern than the systems found in Spain and Italy (and the UK, for that matter). Switzerland has a system similar to Obamacare.

Another major factor is demographics. Both Spain and Italy have some of the lowest birth rates in the world, and these relatively elderly populations are lopsidedly affected by COVID-19. These demographic trends can be seen a bit in their population growth:

Note how few people Spain and Italy add each day on average. Spain barely adds anyone at all each day. And Italy is declining in population. (These are historical averages, so this doesn't include deaths from COVID-19.) Italy is simply a country with a very old population and very low birth rate. In fact, Italy's population is projected to fall more than 10 percent over the next thirty years. The US's population growth, while not high by global standards, is certainly more robust than we're seeing in Spain and Italy. This is true both in total numbers and proportional to the population overall. With the exception of Iran and Switzerland, the US is growing faster percentagewise than all these countries.

These trends aren't carved in stone. It's entirely possible that something will happen in which the US's death rate accelerates so fast that it overtakes Spain and Italy in this regard. At this time, however, that is not the trend.

(Net population change data, COVID-19 deaths, and total population data are from Worldometer.)

A reader, A.B. Sterner, writes:

Toilet paper, for reasons I still can’t grasp, is experiencing a severe (in store) shortage in a lot of areas of the country. Yet in some areas price ceilings—in the form of "anti-gouging" laws—have been put in place to keep those prices artificially low, despite the unprecedented increase in demand.

Our family is one who gets a predetermined order of paper and other products delivered by Amazon monthly, through their subscribe and save feature. One of the items we receive monthly is toilet paper. This last delivery, Amazon was unable to fill the order. Thanks to our overestimation and failure to adjust our previous orders, we have been unintentionally hoarding toilet paper for years. When set up initially, we assumed we would use a package equivalent to 56 “regular” rolls of toilet paper each month. As it turns out, we have used an estimated average of 38 regular rolls of toilet paper per month. So even as we did not receive our shipment this month, we still had plenty of stock on hand, the equivalent of nearly 500 rolls, or enough to easily supply our family for at least a year.

We are now faced with a far larger than needed inventory of toilet paper. Our first thought is we should hold onto it, given the uncertainty of when we will be able to purchase more. Given we have more than a year’s supply, there isn’t a likely scenario where this would be necessary. It's a sunk cost, we have the room to store it without sacrificing the storage of other items. The do-nothing approach is the most appealing option right now. But what if we were to try and sell it? We paid roughly $0.30 for each regular roll. It’s $150.00 worth of inventory we are currently carrying. Our subjective value of this toilet paper is at least what our costs were, as of now. As laws to prevent price gouging are in effect, and if we were to try to sell any of our inventory for more than $0.30 per roll would be considered illegal, there is no incentive to let go of our current inventory.

As of now, our subjective value of each roll is probably $0.50, a 67% premium over what we paid for them. If we could receive more than $0.50 per roll, instead of hoarding them, we would put at least a couple of cases up for sale. If we could get $1.00 [per] roll, we would likely put most of my inventory up for sale. If we could get $5.00 per roll, we would sell every last roll and either purchase a bidet or two, or maybe even use warm wash cloths and do quite a bit of unpleasant laundry every day.

I’m sure plenty are thinking that we should do the “right” thing and just donate them to others less fortunate. The problem with this is prices have remained unchanged, thanks to price ceilings put into place by the government. You may not think this would have any effect on our willingness to donate our inventory, but it has a large impact. Donations to a qualified non-profit carry tax benefits. Our $150.00 inventory, if donated, would generate a tax deduction of no more than $150.00, since this is the current artificial price. The actual tax savings to us would be less than $50.00, well below what we paid and far below our subjective value per roll. The incentive isn’t there. If we could deduct $500.00 or $1,000.00 worth of income by donating our excess inventory, because prices were not artificially restricted, there would be an incentive to donate our extra to those in need.

If the price system were allowed to work, even though we would gain more profit from selling them outright, we would more likely donate our excess, because the monetary benefit would be equal to or more than our subjective value. In addition, we would also profit from the psychic benefits we would get, from knowing we were helping those who are in need during this time. So even if we had the opportunity to be selfish, uncaring capitalist dogs, we wouldn’t.We are not the only ones in this situation. Others are have inadvertently overordered their supply of toilet paper and have inventories such as ours. Even more have purchased well more than they need in the short term and have subjectively valued theirs at more than they have paid. If prices were allowed to work, ask yourself, how many of just these rolls of personal inventory would be put back out into the market? The answer is an easy one. It would be more than enough to satisfy the current needs of every American. As we established, there is no shortage of toilet paper out there, just a shortage of toilet paper in the marketplace because of the price ceilings put in place by our philosopher kings. 

Let me make one thing clear—I’m not downplaying the importance of a strong response to this virus. I believe there is a good reason to be overcautious in the short term before we understand the disease better and are able to apply a more surgical approach to its management and eradication.

Social distancing, working from home, avoiding travel, all of those things help us to avoid the overwhelming and potential collapse of the healthcare systems such as we are witnessing in Italy and Spain.

However, all of that comes at a cost. Many people will lose their incomes. Lack of social contact will only worsen the impact of the continuous flow of bad news. Anxiety and depression will spike and have real consequences to people's health and lives.

There is a point beyond which to many people these tradeoffs become unacceptable. People, especially the young ones will rather risk getting the disease than losing their income or even missing out on their gym or their flat white fix. The elderly, who are aware of their limited lifespan even under normal circumstances, might be willing at some point to accept the risk for a chance to hold their grandchildren, to travel, or to socialize with their peers.

And although some of those decisions from some angles will look reckless, they have to be made at the individual or community level so that the people who make them for themselves and their loved ones are the ones with the most information about their personal situations, their risk appetites, and their time preference.

Because. in the end, every individual has the means to protect himself or herself against the virus, but when states get involved and introduce top-down measures across the society at large, there will necessarily be massive unintended consequences that hit everyone, many of the most vulnerable especially.

Currently, US governors and European governments are outbidding each other in the strength of the measures they impose, throwing all principles that the Western society was built on out the window for the sake of political showmanship. Curfews and lockdowns have shown no correlation with success in fighting the disease, yet some governments ban people from even going out in nature or to their own backyards. The surveillance state is growing rapidly, using this rare opportunity to a maximum.

Although all of those things are wrong in principle and create a very dangerous precedent, they also potentially introduce unintended consequences that will make the situation worse in the long and perhaps even short run.

Where it is forbidden to freely move around outside. even where it is not only completely safe but beneficial, some people will congregate in hidden places, which are necessarily much more confined. The Swiss government forced ski centers to close down even though it is very easy to avoid contact with others and by doing that sent everyone home at the same time overnight, potentially increasing what would otherwise have been lower, more natural public transport occupancy. Miami and other places did the same thing with their beaches and hotels, sending everyone onto planes in much more concentrated numbers.

The perfect storm of central banking induced an everything bubble, the economy brought to a screeching halt by overzealous governments. The unprecedented fiscal and monetary interventions keeping it on life support while the measures last will be felt not for months, but probably years. Given the dependency of health and life expectancy on economic prosperity, this impact might end up costing more life years than the disease itself.

And finally, the massive infringements of our privacy, our basic human and property rights, might not fully scale back for years, if ever, because of how convenient they will be for the states. Imagine the next time Catalonians so much as utter a thought about independence—how long will it take for the central government to diagnose a person in Barcelona with something and lock the city down?

We have a long battle for our liberty and prosperity ahead of us. As Philip Bagus wrote earlier in this space, there is a shortcut to serfdom. It’s called fear. When we have good reasons to stop being afraid of the virus, we will have to constantly remind those around us of the freedoms they gave up in fear. Otherwise we will not get anywhere close to the imperfect state of affairs before this crisis. It will become this generation’s 9/11, and those under the age of ten will not even believe the levels of freedom we had before it started.

China and Russia are open for business and working at close to capacity as America shutters most all business and industry in states such as Pennsylvania, New York, California, New Jersey, and Connecticut. In many cases only select manufacturing companies are allowed to operate, which means that most manufacturers will be short of parts and services necessary to produce goods.

Our leaders are creating an economic crisis and a major national security risk with limited data. The cure is far worse than any perceived impact from COVID-19. Our economy is both fragile and interdependent, an economic reality not understood by our leaders as they order mass closings of many states’ business and industry.

Thomas Sowell wrote, “There are no solutions. There are only tradeoffs.” Sowell was informing us that wise and sound judgments are imperative during any crisis.

An opinion piece by John P.A. Ioannidis, professor of medicine, epidemiology, and population health at Stanford University, is headlined, “A Fiasco In the Making? As the Coronavirus Pandemic Takes Hold, We Are Making Decisions Without Reliable Data.”

This season the flu has killed 22,000 Americans versus 388 dead from COVID-19. This the hard data available. There has been no national discussion about the flu but complete panic on the coronavirus.

The restaurant industry, which is the largest employer in America, is closed in most states. Now we will begin to witness the industries that support restaurants and hotels begin to shutter.

Marriott Corporate in Bethesda, Maryland, has furloughed 66 percent of its employees and cut the pay of the remaining employees by 20 percent. Such actions by major employers will have a devastating impact on the US economy.

The Big Three automakers and their suppliers are closed, which means hundreds of thousands of workers are laid off and at home. This will quickly lead to more layoffs and many small business failures. There is no amount of government money that can make up for an economy closed and workers staying home.

We all know that food and supplies are critical to families. Most individuals assume these products and services will be available. But as we have witnessed, when demand exceeds supply and businesses are shuttered, supply runs out.

Supply of goods and services is quickly becoming a more important national issue than the COVID-19 panic. The virus will not adversely impact most Americans, but they will sustain substantial financial losses, and at some point supplies will run out.

Schools can shut down, and sick people should stay home, along with older or at-risk individuals, until the panic subsides, but the healthy must be allowed to work.

Every family, state, city, and business can make the best decisions during this crisis, but we cannot have simplistic top-down mandates.

We are quickly moving toward a supply problem. Just-in-time inventory means we make products as needed. If the producers are closed, we run out of goods quickly.

Wiring $3,000 to most Americans may seem like a solution, but unless we have a supply of the goods families need, the money will not help. The best way for families to have income is for America to be open for business and not risk shortages and civil unrest. It is noteworthy that liquor, ammo, and guns sales are robust.

The federal government has no money and is $23 trillion in debt. Now Congress contemplates a $2 trillion economic bailout, which is pushing the limits of how much Congress can borrow and will eventually create a major financial meltdown. The solution is a robust economy producing goods, services, and financial stability.

All healthy Americans who want to work must be allowed to return to work no later than March 30. This commonsense approach will allow new production and for the healthy to support those in need.

I urge President Trump to speak to Americans from a Midwest manufacturing plant, away from the Swamp, and appeal to all governors and Americans to overcome their fears and take reasonable precautions, but allow America to open for business by March 30.

Originally published by American Spectator.