The New COVID-19 Base Case is Shutdown, Suppression, Backstop the Entire Economy, Hammer & Dance

The New COVID-19 Base Case is Shutdown, Suppression, Backstop the Entire Economy, Hammer & Dance

The disruption caused by the virus is a surprise attack by an enemy. The enemy is invisible and strikes without warning. It snuck across our borders while we celebrated stock market highs and a Kansa City Super Bowl win. It is here, not far away on the shores of Normandy or the hills of Okinawa. Let’s stop calling it a recession or a depression. Reframing this challenge as a war is a better approach. Our national leaders, many exposed as profiteers, will fumble toward this realization. Once they do, I expect the base case to be:

  1. A National Shutdown
  2. An Embrace of Suppression, not Social Distancing
  3. A Backstop of the Entire Economy
  4. Hammer and Dance Mitigation

In tandem, every other part of society will need to also go to a war footing:

  • Private industry across every sector will dedicate production capability, intellectual capital, real estate, and financial capital to fighting the war
  • Wall Street will open the spigots of lending, backstopped by the Federal Reserve
  • Disrupted people will find opportunities to repurpose their skills to fight against the enemy
  • Society will harden itself to some sacrifice. The kids will sacrifice too and they will be fine. The Spanish Flu of 1918 and the Great Depression produced America’s Greatest Generation

Step 1: A National Shutdown

It’s time for a five-week national shutdown. That’s what Yaneer Bar-Yam says, and if you had listened to him, Joe Norman, and Nassim Nicholas Taleb in January instead of the so-called experts, we wouldn’t be here today. They are experts in complex systems theory. Almost everyone else you respect is not. Pandemics are complex systems on steroids. From January 29th:

It will cost something to reduce mobility in the short term, but to fail do so will eventually cost everything—if not from this event, then one in the future. Outbreaks are inevitable, but an appropriately precautionary response can mitigate systemic risk to the globe at large.

Norman, Bar-Yam, Taleb, Systemic Risk of Pandemic via Novel Pathogens

So listen to them today.

Step 2: Embrace Suppression, Not Mitigation

This has already begun to happen in the largest population centers of the U.S. Let’s speed up.

Read this article from the Atlantic for a full understanding. Here is a summary of what they want you to understand. Note, full credit for this list goes to the article writers. I am paraphrasing them:

  1. Current social distancing will slow things down by the summer. That is good
  2. These current measures almost certainly will bring the virus back with a vengeance in the fall and winter. Like the Spanish Flu of 1918, the second wave will be much worse
  3. Some are proposing an 18-month lockdown – this will end society as we know it. Others are proposing letting everyone get infected. This will kill millions and then end society as we know it.

The authors argue that there is a Third Way. Quoting directly from the article:

Suppression refers to a campaign to reduce the infectivity of a pandemic, what experts call R0 (R-naught), to less than one. Unchecked, the R0 of COVID-19 is between 2 and 3, meaning that every infected person infects, on average, two to three others. An R0 less than 1 indicates that each infected person results in fewer than one new infection. When this happens, the outbreak will slowly grind to a halt.


How do we do Suppression?

“We need to be vigilant, and willing to quarantine people with absolute diligence.”


With that done, focus on:

  • Testing: We could develop tests that are fast, reliable, and ubiquitous. If we regularly screen everyone, we can let most people return to a more normal life.”
  • Healthcare facilities: “We can build health-care facilities that do rapid screening and care for people who are infected, apart from those who are not.”
  • Medical Infrastructure: “We will need to massively strengthen our medical infrastructure. We will need to build ventilators and add hospital beds.”

These steps will have an incalculable effect on the entire country. So how do we keep society afloat?

Step 3: Backstop the Economy

  • The government needs to backstop the entire economy. It can do that, simply by suspending the economy. Suspend all debits and credits. Declare Article 5 of NATO and do this with the G-7 or G-20.
  • Don’t ask people and companies to pay for anything. If you don’t have to pay anything, you are much less likely to worry about your income. So allow people not to pay rent, mortgages, internet bills, electric bills, etc. What about the landlords who collect rent? They don’t have to pay their mortgages, and so on and so on. As hedge fund manager Bill Ackman said, the country takes a collective spring break
  • Provide direct cash payments to people who need help procuring food and medicine
  • Maintain essential services such as food, water, electricity, internet, healthcare, safety, and anything else that ensures a functioning society

Step 4: Hammer and Dance to Bring People Back Online

Once the above steps are implemented, people can gradually come back online this summer. But, governments and people will need to be constantly monitoring themselves and their health. This is the dance part of this strategy. Read some details about it here and if you agree, sign this petition.

As the Atlantic article says:

If we choose the third course, when fall arrives, we will be ahead of a resurgence of the infection. We can keep the number of those who are exposed to a minimum, focusing our attention on those who are infected, and enacting more stringent physical distancing only when, and in locations where, that fails. We can keep schools and businesses open as much as possible, closing them quickly when suppression fails, then opening them back up again once the infected are identified and isolated. Instead of playing defense, we could play more offense.


Step 5: Produce a Vaccine

The above steps give us time to find a vaccine. This one’s pretty simple. Pour billions into this. Someone will get it done.


Better Prepared for Next Time

This will happen again and what if the mortality rate of the next one may be much higher. Think infectiousness of COVID-19 and mortality rate of Ebola. That is game over for the human species.

Restored Faith in the Government

None of this is possible without the hardest thing, right now. The federal government needs to reclaim the trust of the American public. This may require new leadership. While speed has increased, Americans enter the weekend with the President lashing out at a reporter for asking a normal question about how we would reassure the American public and stories of potential profiteering by members of Congress AND their staffs in the face of confidential briefings.

The government has already turned to the private sector for support. For example, Treasury Secretary Mnuchin will be reaching out to Wall Street executives. Other officials have already reached out to retailers, pharmaceutical companies, and technology providers, etc. The elite of this country must step up and restore faith in government. They must push for actions that support the common American, not enrich themselves in the process. Only with the faith restored, will Americans accept the shared sacrifice ahead.

Shared Sacrifice Will Produce Great Things

I know many people who have kids. They worry that their kids are entering an uncertain life. It’s the adults you should worry about. Kids are adaptable. The kids will be fine.

This personal blog and its articles are written because of the author’s passion to advance his understanding of deep learning, complexity science, and major global events in markets, politics, and society. Any opinions or forecasts contained herein reflect the personal and subjective judgments and assumptions of the author only, not those of any organization or entity that the author is affiliated with. There can be no assurance that developments will transpire as forecasted and actual results will be different. The accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.