Living with Risk Daily Briefing – April 7

Published on April 7, 2020 / Leer en español

Center for a New Economy

Edited by
Sergio M. Marxuach


Five things you should know today

1) Living With Risk: A conversation with Robert Olshansky

In this first Living With Risk Conversation, we are joined by professor Robert Olshansky, a global expert in post disaster planning and reconstruction. Olshansky provides thoughtful answers to a series of key questions, such as: how is this COVID-19 disaster different from other catastrophes he’s studied? How does post disaster recovery looks like for the coronavirus pandemic? And can Puerto Rico bounce back from yet another disaster? The conversation between Olshansky and Deepak Lamba-Nieves, PhD, CNE Research Director, took place on April 3, 2020.

Click the image below to view some highlights, or click here to listen to the full conversation (audio-only).

Listen to the full conversation:

2) COVID-19 in Puerto Rico: We know basically nothing

According to the most recent data published by the Puerto Rico Department of Health, 5,513 persons have been tested for the SARS-CoV-2 virus; of those tested some 3,966 have yielded “negative” results; 968 tests are still pending in the lab; another 573 have yielded “positive” results; and 23 people have died from COVID-19 in Puerto Rico. These numbers, however, can give us a false sense of certainty, for the following reasons:

  • First, the number of tests is too small, relative to the population, to have any meaningful statistical implications.
  • Second, by failing to carry out contact tracing, we may be significantly underestimating the infection rate in Puerto Rico.
  • Third, by testing only a small subset of those with symptoms, we are probably overestimating the case fatality rate of the disease.
  • Fourth, we don’t know, at least not publicly, the expected rate of “false positives” and “false negatives” of the tests being administered. This is important because some tests used in the United States, for example, are known to have expected false negative rates between 20 to 30 percent. That’s why some doctors are telling symptomatic patients who test negative, to behave as if they had tested positive and self-isolate for fourteen days.
  • Fifth, we don’t know the real number of fatalities caused by the virus because we don’t know when the virus first appeared in Puerto Rico.

In sum, we know basically nothing about the COVID-19 pandemic in Puerto Rico. If we ever get around to doing sufficient testing, it is important to keep in mind that absolute figures, while important, do not tell the whole story. Indeed, as explained in this story from El País, the key to understanding what is going on in a pandemic is to keep an eye on the rates of infection, hospitalizations, and deaths.

3) How do we know it is safe to reopen the economy?

Many people are concerned about when will the economy be open for business again, which is understandable. But as this piece from The New York Times reminds us, perhaps the more important question is how will we know it is safe to lift shelter-in-place restrictions, while minimizing the risk of a “second wave” of infections. Here are four criteria according to the experts consulted by the Times:

  • “Hospitals in the state must be able to safely treat all patients requiring hospitalization, without resorting to crisis standards of care.
  • A state needs to be able to test at least everyone who has symptoms.
  • The state is able to conduct monitoring of confirmed cases and contacts.
  • There must be a sustained reduction in cases for at least 14 days.”

By those criteria, Puerto Rico, as well as many states in the mainland, still have a long way to go before it is safe to lift shelter-in-place restrictions.

4) Payroll Protection Program gets rolling

The recently legislated Payroll Protection Program (“PPP”), designed to provide relatively inexpensive credit to small businesses, officially began on Friday, April 3. By most accounts, the PPP got off to a bumpy start. But to be fair, that was to be expected. It is a massive $349 billion program to be administered by the Small Business Administration, which has never been in charge of overseeing any program even close to that size. The Treasury was late in issuing the guidelines for lenders. And bankers need time to understand the new rules. In any event, once fully implemented it should provide much needed low-cost working capital, in the form of loans that can be forgiven under certain circumstances, to millions of small businesses that are currently facing severe financial stress. It is widely expected that Congress will expand the PPP if and when it gets around to legislating another economic relief package. And this is the time to do it. At the close of this edition, the ten-year Treasury note was yielding 0.67%, which means the U.S. Treasury can borrow $100 dollars for ten years at a cost of only 67 cents per year.

5) The Federal Reserve is doing its part

According to a Financial Times analysis, the Federal Reserve’s assets “expanded by $1.14 trillion, between March 18 and March 31, a pace of $1 million per second.” And some analysts estimate it has room for further expansion, from approximately $5 trillion today to $9 trillion by the end of the year. When the Fed buys financial assets in the open market it pays for them with dollars, thus increasing the money supply, which should lead to lower interest rates, more lending, and eventually economic growth. So far it appears to be working, as there are currently no signs of low liquidity in the financial markets. Remember, though, that monetary policy is only one component of economic policy. It needs to be coordinated with expansionary fiscal policies (deficit spending) to stimulate both the supply and demand sides of the economy.

Quote of the Day

There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy.

—William Shakespeare, Hamlet (I, 5, 167-8)

Note from the editor

Pandemics, in the words of economic historian Walter Scheidel, have been one of history’s “great levelers” (the others being war, revolution, and state failure). Meaning that social inequality has tended to decrease after such events. For centuries, plagues affected the wealthy and the poor more or less with equal force. As Angus Deaton reminds us, there was very little 14th century dukes could do to protect themselves from the plague any better than their fieldworkers. That started to change with the invention of vaccines, and by the 18th century there were clear differences in life expectancy and well-being between European aristocrats and everyone else.

Those disparities have become particularly stark in the United States, which is the only industrialized country without a national health system. And they are quite important these days when we are asking people to shelter in place and practice social distancing. Not everyone has the same capability to work from home or to shelter in place for an indefinite period of time. Indeed, those in the bottom quartile of the income distribution may not even have that choice: workers that clean our streets, dispose of medical waste, deliver our dinner, or dispense medicines behind the pharmacy counter. Keep that in mind the next time you see them. Saying thank you would also be nice.

This is the end of today’s briefing.
Stay safe and well informed!