COVID-19 Update from Mark Skidmore

Information about the COVID-19 crisis and a summary of economic implications moving forward.

(This comment represents my own assessment and does not necessarily reflect the views of the USDA)

Colleagues:

We are all responding the COVID-19 crisis as best we can.  Many of us have been asked to “shelter in place”, and so we take care of family and try our best to continue working from home.  We are doing the same here at the NCRCRD.  With this update, I will share information about the crisis itself as well as a summary of economic implications moving forward.

Primary news outlets offer a perspective that the crisis will worsen significantly before it improves, highlighting ongoing efforts to “flatten” the curve, which have resulted in social distancing, quarantines, and the corresponding associated dramatic reductions in economic activity.  Before discussing the economic implications of COVD-19 and the corresponding policy responses, I will first share information from health experts about COVID-19 that one might not be aware of.  On Friday, an article by Dr. Anthony Fauci (Director of the National Institute of Allergy and Infectious Diseases and a leader on the White House Coronavirus Task Force) published the article “COVID-19 – Navigating the Uncharted” in the New England Journal of Medicine (Fauci, New England Journal of Medicine, 3/26/2020) in which he states:  

If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as the number of reported cases, the case fatality rate may be considerably less than 1%. This suggests that the overall clinical consequences of Covid-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%) or a pandemic influenza (similar to those in 1957 and 1968)...

With this statement, Fauci appears to be suggesting that the outbreak is not nearly as severe as he had initially believed it would be.

Imperial College of London’s Professor Neil Ferguson initially estimated that the Coronavirus would result in 500,000 deaths in United Kingdom (UK).  He now predicts that the virus will result in about 20,000 fatalities.  In fact, the British government recently downgraded COVID-19 from being a high consequence infectious disease.

A number of infectious disease scientists have expressed concern over the dramatic measures being taken to slow the spread of COVID-19.  As one example, consider Dr. Sucharit Bhakdi who is a specialist in microbiology at Johannes Gutenberg University in Mainz and head of the Institute for Medical Microbiology and Hygiene.  He is one of the most widely cited research scientists in Germany.  In this nine-minute interview, he says:

We are afraid that 1 million infections with the new virus will lead to 30 deaths per day over the next 100 days. But we do not realize that 20, 30, 40 or 100 patients positive for normal coronaviruses are already dying every day.

[The government’s anti-COVID19 measures] are grotesque, absurd and very dangerous […] The life expectancy of millions is being shortened. The horrifying impact on the world economy threatens the existence of countless people. The consequences on medical care are profound. Already services to patients in need are reduced, operations cancelled, practices empty, hospital personnel dwindling.

All this will impact profoundly on our whole society.

All these measures are leading to self-destruction and collective suicide based on nothing but a spook.

I encourage you to listen to Dr. Bhakdi’s thoughtful and measured interview.  I highlight these perspectives about the health crisis because they receive little exposure and yet are very important to public debate about the significant policy actions being taken here in the United States and around the world, especially in light of the dramatic social and economic impacts.

Turning to the economic ramifications of the pandemic, our immediate health-policy response as well as the fiscal and monetary responses are having significant impacts.  Since the global financial crisis of 2007-2009, governments and central banks across the globe engaged in significant actions to reestablish some measure of economic stability and to preserve the current global financial system.  These measures included extraordinary fiscal and monetary interventions. 

Here in the United States, between 2009 and 2019 federal government debt increased from $12 trillion to $23 trillion.  The Federal Reserve Bank (FRB) engaged in an unprecedented policy action called Quantitative Easing, which resulted in FRB purchases of $3.5 trillion in government debt and mortgage-backed securities (see graph below).  For clarity, the FRB purchased this debt with funds created by its own volition/authority.   Between 2008 and 2015, the Federal Reserve balance sheet increased from less than $1 trillion to about $4.5 trillion. 

fed
Fed Reserve

Source: Federal Reserve

As shown in the graph above, between 2018 and the second quarter of 2019, it reduced it balance sheet (by selling bonds and mortgage-backed securities) to under $4 trillion.  Then beginning in the third quarter of 2019 (before COVID) it once again started purchasing federal debt by roughly $60 billion per month.  The fact that the FRB reinstated Quantitive Easing is evidence that the economy was beginning to falter before COVID-19.

When COVID-19 emerged in the United States and health researchers recommended the imposition of social distancing and quarantine measures, economic activity slowed dramatically.  Last week, it was reported that a record 3.28 million people applied for unemployment, and that figure was likely suppressed because the computer systems were overloaded, preventing many from submitting applications.  According to a recent survey by the National Restaurant Association, 3% of all restaurants nationwide have closed permanently, with an additional 11% expected to close permanently within the next 30 days.  These two illustrations offer a glimpse of what is happening to the economy.

In response, the FRB announced that it would engage in new round of unlimited Quantitative Easing where it signaled that it would purchase federal government debt, municipal debt, corporate debt, and mortgage-backed securities.  Over the week of March 23-27, the FRB purchased $622 billion in debt in to stabilize the financial markets.  In addition to taking near full control of interest rates through this action, it also paved the way for the approval of the $2 trillion federal government response to CV-19) as it guaranteed a buyer for the coming $2 trillion in new federal debt.  I anticipate that nearly all the new debt will be purchased by the FRB with electronically created money.

The health policy response to COVID-19 will have lasting economic impacts as demand for goods and services, employment, and income are reduced.  As with most economic downturns, lower income groups will be disproportionately affected.  A recent study “Social Distancing Strategies for Curbing the COVID-19 Epidemic” was published by Harvard University scientists recommended “intermittent” lockdowns and “widespread surveillance” to slow the spread of the virus.  If this approach is taken, then expect ongoing disruptions to social and economic life in both rural and urban places.  I also expect significant ongoing volatility in the financial markets as investors deal with the uncertainties and adjust to new realities.  The impacts of fiscal and monetary policies on people and communities will depend greatly on where and to whom the funds will flow.

Our role as educators and researchers includes engaging in thoughtful dialog, sharing information, conducting research, and serving people and communities in our respective states through the crisis.  There are many questions we can ask and help answer, and much practical work that we can do as people and communities navigate the uncertainties before them.  As more data and information become available, perhaps the most important question regarding the quarantine policy we can help address is this:  How do the societal benefits of the quarantine (minimizing COVID-19 fatalities) compare with the societal costs of the quarantine (increased suicides, overdose and alcohol-related fatalities, lost economic productivity, lost personal autonomy) relative to other viable health policy options?  This type of evaluation can help the country move forward with the best possible course of action.  The NCRCRD will be a steadfast partner with you in this work.

Best regards,

Mark Skidmore

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