Five things you should know today
1) The pandemic could accelerate the insolvency of Social Security
Approximately 178 million workers pay Social Security taxes to provide monthly benefits to some 64 million beneficiaries. Yet, increases in life expectancy and the number of beneficiaries, as the baby boomers retire, have combined to put the program under significant stress. The last official government projection had the program running out of money to keep paying benefits in full by 2035.
However, the economic impact of the COVID-19 pandemic may change that calculus by accelerating a trend that began with the 2008 financial crisis. According to Politico, the Great Recession shortened the expected life-span of the program by four years as 5% of all eligible adults chose to claim benefits six months earlier than expected, while increased unemployment reduced the amount paid in payroll taxes that sustain the system.
Right now at least 36.5 million people are not paying payroll taxes, while another surge in retirements is expected. That means, “when accounting for the pandemic, that the depletion date will move up from 2035 to 2029”, according to the Bipartisan Policy Institute. Of course, changes in the program structure could help to avoid that outcome. But that appears to require a spirit of bipartisanship that is notably absent from Washington right now.
2) Changes to the Puerto Rico Civil Code deserve further analysis
The Puerto Rico legislature approved last week a bill to replace the island’s Civil Code. The Code governs important aspects of private and public life, literally from the cradle to the grave. Unfortunately, some last-minute amendments were presented during the debate on the floor of the Senate without prior analysis or the benefits of public hearings. Legal scholars have also questioned some aspects of the drafting and approval process.
We understand it has taken over two decades and more than $10 million to get to this point in the process to replace the Code. Precisely because of that significant investment of time, effort, and money, the current administration should go the extra mile and provide additional time for all parties to be heard before proceeding with the final approval of the new Code. We are not naive, we know it will be impossible to achieve consensus on some of the more controversial changes, but respect for good governance, transparency, and the democratic process demand one more chance for everyone interested to express her or his opinion on this important matter.
3) A deep “lake” of coronavirus data
The COVID-19 pandemic has generated a lot of data from different sources. Unfortunately, most of that data is held in different “silos” by academia, businesses, and governments. Axios reports, however, that “an AI software provider has created a sprawling new ‘data lake’ of information about the COVID-19 pandemic for researchers around the world.” This is important because the integrated data set could allow the development of more sophisticated models that address all the dimensions of the pandemic.
The company C3.ai “has produced a data lake that draws from scores of different sources. Researchers can explore areas that may be of interest — like diagnosis or preexisting conditions — as they build out models based on that data.” According to Tom Siebel, the CEO of C3.ai, “this enables scientists to perform very advanced research using AI, accurately predict the spread of the disease, and evaluate the efficacy of social mitigation.”
Artificial intelligence tools, while not a silver bullet, could prove invaluable in the process of analyzing the SARS-CoV-2 virus, understanding how it spreads, and explaining how it affects the human body.
4) Cooperation is the key to a quick vaccine
Vaccine development is an inherently uncertain and complex process. Less than 1 in 10 vaccines that go into clinical trials are eventually approved for use. It is also a time-consuming endeavor. The fastest vaccine ever developed so far, for mumps during the 1960s, took four years from the lab to the doctor’s office. Once approved, scaling up production takes time, specialized labor, and equipment. And given what little we know about COVID-19, quality control and safety protocols could create additional significant delays.
That is why Susan Athey, Kendall Hoyt, and Michael Kremer, writing for Project Syndicate, argue for cooperation among and between nations and corporations in the development of a COVID-19 vaccine. They see four main benefits from such cooperation:
- “each country can reduce its own risk of having not invested in the right vaccine”;
- “international collaboration allows for more resource pooling, which is needed to scale up investments in manufacturing capacity”;
- “global coordination reduces the risk of supply-chain disruptions”; and
- “to maximize the health and economic benefits of a vaccine, health-care workers and vulnerable populations in all countries must have top priority in receiving it”.
The arguments for international cooperation in the development of a COVID-19 are compelling. Advocates of “vaccine nationalism”, though, are prominent in China, the United States, and some European countries. We can only hope that more prudent policymakers prevail in the end.
5) How much testing is enough?
Most public health experts agree that the United States has not carried enough testing for COVID-19 to safely lift social distancing measures and shelter-in-place orders. According to Ashish Jha, director of Harvard’s Global Health Institute, “testing, social distancing, and shelter in place are all exactly the same strategy, you want to keep infected people away from susceptible people. When you don’t know who’s infected and who’s susceptible, you shut everything down. You keep everyone in their homes.” In sum, according to Jha, “every single test you have buys you a little tiny bit more freedom.”
Yet, there is a lot of disagreement as to how much testing is needed. “In mid-April, Jha and his colleagues published a blog post arguing that the country needed to be doing at least half a million tests per day to even think about lifting the mitigation measures that most states have put in place to stop the spread of the disease.” In early May, “they updated that number to nine hundred thousand, and published state-by-state minimum targets.”
However, “among economists and epidemiologists, estimates for the minimum number of daily diagnostic tests required to safely reopen the economy range from five hundred thousand to twenty-five million. Some of this variability can be explained by competing estimates of unknown cases, or by the persistent growth of the epidemic over time.”
Furthermore, there is widespread disagreement as to what should be the objective of testing. Some public health officials want to know when infection levels have decreased sufficiently to make it “safe” for people to venture out. Others seek to completely eradicate the virus, an objective that requires substantially more testing. Add to that the complexity of the virus and the generalized lack of knowledge about it, and it becomes quite difficult to come up with an estimate.
Yet, in the final analysis, all agree that more data about how the disease spreads is needed at this point, if only to avoid new outbreaks and prevent the virus from running rampant. And that means more testing.
Quote of the Day
“The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”
—John Maynard Keynes
Note from the editor
This is not the moment to be shy about public spending or worry about the debt or the federal deficit. The chairman of the Federal Reserve, Jerome Powell, has warned that monetary policy, by itself, will not be enough to address the economic effects of the COVID-19 pandemic. So far, Congress has obliged, enacting four bills since late March, adding up to about $3 trillion in new spending, including direct payments to individuals, assistance for small businesses and large corporations, and help for states facing budget shortfalls.
Yet, economists from both the left and right argue that the magnitude of the economic slowdown will require additional spending. This has caused some concern among the budget hawks. But they are overplaying their hand, in our view. Interest rates are near all-time lows, inflation is negligible, and unemployment is officially at 14.7% (probably higher by now), the highest level in at least 75 years. So if there is a time to run large deficits it is now.
It is true that U.S. debt levels will have to be addressed at some point, after the economy revives, but the U.S. has several advantages in this respect. First, it borrows in its own currency. Second, part of the debt can be “monetized” by selling it to the Federal Reserve. Third, a portion can be whittled away by moderate inflation. Finally, contrary to popular belief, most of its debt is held by domestic investors.
In the end, though, some taxes will have to increase and some spending will have to decrease. This means the main impact will be distributional when the bill comes due, as the repayment of the debt will represent a large transfer of wealth from all taxpayers to a relatively small group of bondholders. But we can worry about that in due time, when the crisis has passed and the pandemic has been brought under control.
This is the end of today’s briefing.
Stay safe and well informed!