Skip to content
Breaking News Alert Georgia House Guts Bill That Would Have Given Election Board Power To Investigate Secretary Of State

The Wuhan Virus Is Serious, But Shutting Down Isn’t The Long-Term Answer

economic suppression
Share

Lots of people didn’t see the COVID-19 pandemic coming. Many prognosticators who didn’t have since found their way into two camps. In the first camp, the occupants are in full panic mode. We should all shut everything down for the time-being, they say. In the second camp, the occupants are borderline dismissive of the Wuhan virus threat. Both sides are completely wrong.

The camp dismissive of the virus is dead wrong. Many do this to argue a never-ending shutdown is wrongheaded — which is right — but in getting there, they make stupid arguments about how “few Americans have it,” and it’s “really just the flu.”

They forget the law of exponential growth. Because the Wuhan coronavirus spreads so easily, even if contained, the virus is expected to eventually infect at least half of all Americans. Today’s 35,000 infected easily becomes a huge chunk of the population unless people and governments move to limit human interaction.

Tons of people also have the virus, yet they don’t have symptoms severe enough to get a test. The official numbers measure only those who have officially been tested, and China’s official numbers are completely wrong.

We’re also finding that the virus out of communist China can be really nasty, even for otherwise-healthy young people. Common cases in young people are presenting with an initial fever and aches, followed by breathing problems, and severe headaches and body aches that persist after the virus is gone. There is even evidence the virus can have long-term effects, including on a person’s fertility and lung capacity.

Don’t Destroy the Economy

But we can’t kill the economy because of the virus. Many on Wall Street are now forecasting depressionary gross domestic product prints. Goldman Sachs says Q2, which hasn’t even started, will see a GDP contraction of 24 percent — the biggest ever quarterly GDP drop on record. Already, masses of Americans who work in industries requiring face-to-face human contact are suffering layoffs. Economists are forecasting an unprecedented spike in jobless claims as a result, which is just not acceptable either. There is another way.

Going forward, policymakers face a tough choice between what Hedgeye demographer Neil Howe calls suppression versus mitigation. Mitigation is where we go about our normal lives, while trying to segment the at-risk population. This strategy allows for quicker herd immunity, if immunity is even possible, but it overloads the health system, and more people die. That is unacceptable.

Suppression opts for a lockdown to avoid overloading the health-care system and minimize deaths. Suppression only works, however, if it buys time to do something — say, develop a vaccine or an antiviral. But a vaccine or antiviral won’t be ready any time soon, unfortunately. Because of this, long-term suppression just kicks the can down the road, prolonging the shutdown and delaying the pain, even as it does untold damage to the economy. This is also not a viable long-term strategy.

Strike a Balance

What to do? The answer requires a mix of both: short-term suppression, then long-term mitigation. Again, suppression only makes sense as a means to gain time and supplies.

We need a national strategy wherein the federal government, along with state and local governments, develops a specific plan to stock up on supplies during a pre-set period of suppression. Here, we should allow hospitals to build supplies of masks and ventilators. We should also set up programs to deliver food and supplies to at-risk people, assisting them so they can work and function from their homes in near-isolation for some time.

After this pre-set period, which could last even another month, we should transition toward mitigation. This doesn’t mean everything returns to normal, but it means most Americans begin transitioning back into everyday life. The alternative is another depression and no resolution to the Wuhan virus to boot.

Understand U.S. Economic Trends

Is this a silver bullet? Not at all. Many prognosticators, even on the right, unfortunately, don’t understand the economic problems America was facing pre-virus.

Global growth was slowing in 2015 before communist China introduced a massive stimulus that caused a resurgence in global economic indicators. That lasted only for a time, and global growth was again slowing since late 2017. People blamed this on the trade war, but the trade war, which didn’t start until at least 2018, was only a small part of that story.

In America, our growth was strong but began slowing in the back half of 2018. There were problems in the American economy a simple tax cut couldn’t fix. The Federal Reserve responded to a debt-fueled bust in 2008 by incentivizing even more debt. Where the big debt buildup was households and mortgages, it is now in corporate credit. Going into this year, American corporate debt to GDP is the highest in U.S. history.

This explains why stocks have fallen so hard and so fast. It’s just the business cycle, albeit with a Wuhan-virus-sized elephant in the room. Debt is like financial kerosene. It increases the risk of a shock if the economy slows even a little. It also decreases the margin for error when unforeseen events like the coronavirus occur. This is why it’s an ominous signal for America’s long-term economic health that the Fed is looking to buy U.S. company debt. It hasn’t worked in Europe, so why would we double down on an already failed policy?

But America can still choose between an orderly end to the business cycle and the necessary deleveraging that comes with it, or an outright depression. We can have at least a few quarters of somewhat sluggish growth, or unheard-of job-losses and a slide toward socialism. Yes, continue suppression for another couple weeks. But use this time to prepare for a shift to mitigation, meaning the resumption of normalcy for most Americans. We simply can’t go on living like this forever.