The Day After Tomorrow: One Bank Sketches Pandemic ‘Exit Strategy’

When will it be safe (or advisable) to restart the US economy?

Relatedly, “what is the value of human life relative to a unit of economic activity?”, as Ray Dalio put it last month.

Howard Marks posed the same question on Tuesday. “It will be very challenging to resolve the conflict between social isolation and economic recovery. How will we know whether the disease merits the cure?”

Taken together, and considered in conjunction with the deleterious psychological effects associated with forcing large swaths of the American public to remain inside their homes, these are the only questions that matter right now.

The assumption is that social distancing measures, shut-ins and lockdowns will result in a “flattening of the curve” and that the death toll will peak, then fall.

Unfortunately, doubts about the veracity of China’s data on infections and total deaths make comparisons difficult, but for now, Hubei can serve as a kind of benchmark for the likely timeframe on the resumption of civic and economic life around the world.

Deutsche Bank’s Jim Reid, Luke Templeman, Marion Labourne and Henry Allen (I’ll simply cite them all under Jim’s name below) take a look at this in a focus piece called “the exit strategy” out earlier this week.

They begin by looking at the three-day growth rate in fatalities across countries with “each time series [starting] at the point at which restrictions were introduced to attempt a closer comparison”. Here’s the visual:

(Deutsche Bank)

One quick takeaway is that the three-day growth rate of fatalities in Hubei fell faster (and more uniformly) than in other countries, even if the trajectories are broadly similar.

“That is because Hubei implemented restrictions earlier in the process of infection than did some other countries with the US being the laggard”, Reid says, on the way to noting that “the six other countries examined have a greater proportion of people in the population that classify as high risk (primarily the elderly)”.

Of course, it could also be that Beijing simply “smoothed” the data, but I’ll leave that aside given all the press the subject is already receiving this week (those interested in more can read here and here).

The high-level takeaway, Reid says, is that “while it is early days, most of the charts indicate each country’s fatality trajectory are now converging (in different stages) with that of Hubei”.

So, what does that entail for the resumption of civi and economic life?

Well, the following visual shows what Deutsche Bank describes as “a ‘football field’ representation of the range of possible timelines for the restart of activity in several countries”. The grey/blue bars are the current lockdown periods, while the light blue bar is a range based on the Hubei experience.

(Deutsche Bank)

Reid goes on to note that “in Hubei, the three-day growth rate in new cases decreased from over 200% to 63% in the 14 days after restrictions were put in place”, but it wasn’t until 63 days later that they were lifted.

Based on the above (and the full note is much more extensive), the following table projects potential dates for the tentative restart of economies and social interactions in the western world.

(Deutsche Bank)

The last column is important. As the footnote spells out, those are “assumed” to represent “a period of two generations of the COVID-19 (max 28 days) in which there are no new cases”. Reid says that in Deutsche’s judgment, the dates in column three are “unlikely for the countries in this analysis” but they are included “as a reference point”.

There are, of course, any number of caveats, and even upon the resumption of something that looks like “normality”, things may never be completely the same.

In the initial stages, Reid says travel will be “the last thing to get back to normal as countries that have made the effort to domestically remove the virus will be very reluctant to open borders without strong evidence that travelers are virus free”.

Extrapolating a bit (i.e., Deutsche doesn’t say this, but I will), COVID-19 and the generalized fear of something worse coming along, will almost surely be exploited by opportunistic politicians whose political fortunes are closely tied to the ebb and flow of nationalism and anti-immigrant sentiment.

The upshot, from Deutsche, is that “the global economy will have to deal with the consequences of countries opening up their domestic economy before their international one [and] this will test the full V-shape global recovery thesis”.

In my view, it may well be that nations never reopen themselves completely. Globalization was already on the back foot thanks to the proliferation of populism and noxious nationalism in the west. The coronavirus may have been the death knell for the post-War order. The interconnectedness of markets and supply chains will get a wholesale rethink on top of what was already underway thanks to the trade war.

And yet, Deutsche says that by June, “workers within countries will have resumed their jobs, retail stores will be open, and restaurants functioning”, even as the effects of the pandemic will linger in the form of occupancy restrictions and the persistence of what one might call “soft” social distancing guidelines.

It’s also possible that a kind of dystopian, post-COVID reality will ensue. Here’s Deutsche:

Once an individual takes a test and determine that they either have already had COVID-19, or currently do not have it, then they can be cleared to resume normal life. This proof of this could be managed through the use of smartphone-based technology (a bio-passport?) if privacy concerns can be addressed. At the same time, those who either have the virus, or who are in higher-risk groups, can continue to self-isolate.

So, social stratification and the passing of smartphone, bar code tests as a prerequisite for leading a normal life. It sounds like science fiction – but here we are.

Although Deutsche’s Reid strikes a generally hopeful tone, he reminds you that “one of the great unknowns with COVID-19 is the extent to which it will return after the 2020 summer”.

After all, he cautions, it’s often “pointed out that when the 1918 flu returned, it was more deadly than at the beginning”.


 

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8 thoughts on “The Day After Tomorrow: One Bank Sketches Pandemic ‘Exit Strategy’

  1. And if China’s data of 0 new cases really means dozens of cases but they have engaged sufficient monitoring and testing to isolate them rapidly… we may not get a summer reprieve. Given this is a novel virus we cannot assume a warm humid summer will stop transmissions meaningfully.

  2. This is very bad for peoples attitudes. Very many people will have no work to go back to and those with money will be too shocked by all this to trust spending their money. After 9/11 Bush made a good case for going out and spending for the good of America. I think leeriness will be the attitude. The President must have become aware of this timeline. Many Governors also. I already knew this from the Medical communities conjectures. Everyone is hoping it truly does slow for the summer.

    1. Unfortunately unlike 9/11 this is more than attitude. Going out and spending money only works if the treat is realistically small. In 9/11 there was minimal if any real ongoing threat. Getting out and spending was safe. Now… it very well may not be and we need to think about what we do if that’s true because if we wait until it is then many people will suffer needlessly.

  3. As I’ve caveated remarks for decades, I’m no epidemiologist, but I wonder if the time frames Jim Reid et al hypothesize might be different in the US, given the size of the country, and the widely disparate regimens enforced by different states, so that we end up with rolling outbreaks, with Washington state perhaps through its moment in the barrel, to coin a phrase, before OK has begun its. So that late to the party states might be struggling well after that third column June 19 date.

  4. As I mentioned in a comment yesterday, the lockdown in Hubei was far more draconian than anyone here seems to realize. People were forbidden to leave their homes for fear of arrest for two months. The government brought food to your door. There was NO movement. I don’t think it can serve as an actual analogue to anything in a country with less social control because that is simply not possible in nearly every other country.

    We might accept that if the death rate were 10% and included far more children. People will do anything for them. But I have seen and heard a lot of discounting of the lives of the elderly. It’s not in people’s word’s always. You can even see it in their faces when they realize the age range of those at most risk. Even when they are of that range.

    I also agree that China lied about the numbers of infected and dead. Enormously so. But that doesn’t mean that when they realized the actual scope of the problem they didn’t do whatever it took to stamp out the infections.

    (Mostly)

  5. Does anyone know of the development of a smartphone app? I hear about that as an important part of restarting, but haven’t heard of an actual product.

  6. Play with this dashboard. Earlier on the John Hopkins dashboard was best. Play with all the features. Go to the bottom right and look at projections. We could keep this to 100,000 dead. The President already mentioned 200,000 dead so that is what he is shooting for. He will be all about Texas as he is already playing that hand forcing his way inyo OPEC. SAD, very sad

    https://medpage.maps.arcgis.com/apps/opsdashboard/index.html#/c7dafaae988f4c07a13a9ede90e43a47

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