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A battle fought on a million fronts



Like most people, I find it difficult to wrap my mind around complex issues. It’s easiest to boil it down to one or two key factors, and focus on those perspectives. But that doesn’t always work.

Consider global warming. If we are going to address that issue in the most cost effective way it will probably involve:

1. The development of many types of carbon free energy (wind, solar, hydro, nuclear, geothermal, etc.)
2. Conversion of coal plants to natural gas, as an interim method to reduce carbon emissions.
3. Energy conservation occurring in a wide variety of ways, too numerous to mention.
4. Planting lots of trees.
5. Genetically engineered cows that emit less methane.
6. Less burning of forests in Indonesia, Brazil, etc.
7. Geoengineering to block a modest amount of sunlight, as an interim solution.

And I’m sure there are many more. So if you read an article that suggests “It’s hopeless because even if we did X . . . “, ask yourself if they are considering all of the ingenious ways that society could address this issue.

Many of the solutions discussed above could be sped up with a suitable carbon tax/subsidy system that encouraged innovative solutions. When it was first proposed that we reduce sulfur emissions from coal-fired power plants, the estimated costs were quite high. That’s the “engineering approach” to cost estimation.  But once a system of tradable pollution permits was put into place, the genius of market forces quickly discovered far most cost effective solutions, and the final cost ended up being dramatically lower than estimated.

Karl Smith has an excellent Bloomberg piece with the following subtitle:

Even economists tend to underestimate just how dynamic and adaptable U.S. businesses and consumers are.

Smith was not discussing global warming; he was discussing the coronavirus epidemic.  Just so that I don’t sound too Pollyannish, let me concede right up front that there is no obvious equivalent to the carbon tax in the battle against Covid-19.  But some of the broader implications of the global warming battle apply here as well.  This is a battle that should simultaneously be fought on many different fronts.

If with think of the problem in any single dimension, it’s easy to become very pessimistic.  It seems like the only two choices are 30% unemployment lasting for a year or two, or else an epidemic that gets out of hand and overruns our hospital system.  Maybe those are the only two choices, but that’s not obvious to me.

I can imagine this battle being fought on at least 4 fronts:

1. A massive push for treatments such as a vaccine, or a drug to reduce the severity of the illness.  Deregulation would help here, as it’s at least possible that the benefit to society of gains on either front might exceed the estimated cost of mistakes.

2.  A WWII-style push to improve the capacity of our medical system to deal with the issue.  Don’t ever think in terms of “capacity” as being something that is fixed.  Two months ago, Taiwan had the capacity to produce only 2.44 million surgical masks per day.  Now they produce nearly 13 million a day, and have no shortage of masks.  Deregulation of production and removal of price gouging laws (and norms) can vastly speed up the supply response.  Just as the ban on compensating kidneys donors kills tens of thousands of Americans each year (more than the coronavirus is likely to kill), price gouging laws and burdensome regulations are also likely to kill many Americans in this epidemic.

3.  Testing, testing, testing.  There is evidence from South Korea, and also the town of Vo, Italy, that widespread testing can dramatically reduce the spread of the illness.  It does this by determining who is infected, so that those individuals can stay home and avoid infecting others.  If you think I’m claiming that testing will “solve the problem”, you aren’t paying attention, I’m arguing this battle must be fought on many fronts.

4.  New labor management practices for industries such as construction, manufacturing, office work and restaurants.  We should probably just accept that a few industries would stay out of business until a vaccine is developed.  Obviously this includes cruise ships, but perhaps also entertainment events with large crowds.   But there may be industries where new practices reduce the rate of infection to an acceptable level.

The coronavirus is often said to have a reproduction rate (“R0”) of 2 to 3, which causes it to grow at an exponential rate.  But that rate is not a characteristic of the virus itself; it also reflects our social practices.  I presume the R0 was higher during Mardi Gras in New Orleans than in rural counties in North Dakota. It would nice to have a R0 of zero, but our goal should be getting the rate down below one, where the caseload grows at a manageable rate.

I don’t know exactly how this should be done, indeed that’s the whole point of this exercise; no one person knows.  Readers are presumably aware of Hayek’s explanation of how markets allow society to benefit from widely dispersed knowledge.  Yes, the “externality” aspect of epidemics makes this case tougher, but it doesn’t make the Hayekian perspective any less useful.

So without claiming the following would definitely work, let me just throw out an example of the sort of thing I have in mind.  Perhaps some construction sites could have workers wear facemasks and gloves.  I’ve actually done so myself when working on a particularly dusty construction project, such as tearing down old plaster.  Indeed many construction workers are already used to working under those conditions.  The same for certain manufacturing plants.  Perhaps restaurants could re-open with a rule that all groups of customers sit at least 10 feet apart, and someone working in the restaurant had to wipe down door handles and faucet handles with disinfectant every 20 minutes.  Waiters could wear masks and/or gloves.

I do understand that the ideas I’m throwing out don’t “work” in a 100% effective sense.  The goal must be to fight this battle on many fronts.  We need to accept a certain number of cases of coronavirus, because there are tradeoffs between health and economics (something we implicitly acknowledge when we set speed limits at 65 mph, not 35 mph.)  And yet I’m not in the “rip the band aid off” group that suggests allowing the virus to infect half the population to build up herd immunity.  In my view, the medical costs of that approach are too high. I believe we need substantial social distancing for some period of time.

What I’m suggesting is that we should not accept 30% unemployment for a year or two.  Rather if we have 30% unemployment in April, we should aim for something considerably lower in May, and still lower in June, etc., etc., as we gradually learn how to cope with the problem.

Never underestimate the ingenuity of market forces in coming up with solutions.

And read Karl Smith’s excellent piece

PS.  And don’t forget monetary stimulus, so that we have adequate nominal spending once businesses are able to offer goods and services.

Here’s Vo, Italy.

Update:  After writing this post, I noticed that Alex Tabarrok made some similar points.



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Recessions, Bear Markets Need Time to Develop



Is this a Dead Cat Bounce or End of the Bear market?

My method for understanding which is admittedly peculiar: I concoct a novel, often unpopular narrative whose construction yields insight into what is unfolding. It helps if this “variant perspective” is both plausible and not widely held. The less people who share this particular view, the more likely it is not reflected in market prices.

Step two considers the opposite point of view:  What if the counter to this outlook is more accurate, and the entire prior thesis is incorrect? As is so often the case, the truth may be found somewhere between these extremes.

Last week, we considered one scenario: perhaps the Coronavirus didn’t end the bull market. The drawdown is merely a counter-trend rally within a longer secular bull market; it is similar to the 1987 crash, a temporary setback within the longer 1982-2000 secular bull market. If the economy is merely experiencing a temporary contraction, once shelter-in-place orders are lifted, it will quickly recover. Pent up demand will send 330 million Americans, all with a bad case of cabin-fever, out to shop, dine, play and celebrate! Companies will rehire 10 million+ workers. The bull resumes its prior trend, eventually making new all-time highs. Happy happy, joy joy!

My colleague Batnick is somewhat incredulous about this thesis. But our investigation does not end there. Step two in our methodology is to consider the opposite position: What if the economic expansion is over, and the secular bull market is dead?

We have had prior crashes, economic collapses, and recoveries before. Winding our way through this unprecedented period of 10 million jobs lost in a month, and a 35% collapse in market prices (plus the recent 21% recovery), there is simply nothing comparable in prior experience. Pearl Harbor? Stagflation? Tech Wreck? GFC?  None are parallel, but the one commonality in these prior events is time.

These events all unfolded over a long period, both in the run up to- and the subsequent recovery from- each.

As an example, the diplomatic, trade, and economic factors that preceded the Pearl Harbor Attack, bringing the United States into World War 2, were years in the making. The 1960s and 70s bear market had multiple price shocks, high inflation and high unemployment that unfolded against a decades long malaise of the Viet Nam war and the Watergate scandal. Or consider the dotcom boom – by many measures, the market was overvalued years before the peak. The “irrational exuberance” speech  by Fed Chief Alan Greenspan was in 1996. The causations of the GFC were literally decades in the making.

Time might just be the most important, yet least well-understood aspect impacting how investors behaved during these prior market crashes.

We are pattern-recognizing creatures, looking to make sense out of a jumble of confusing and often contradictory information. Out of the chaos, the human primate confabulates a comforting narrative (as I try to do above). We are so uncomfortable with the idea that our lives are random, we desperately seek a storyline that is cohesive, understandable, and fair. We collectively lose our minds when some form of rationality is not present.

We find repeatable patterns.

Our psychology is such we keep doing what works until it no longer does. Since the end of the great financial crisis in 2009, the “Buy the dip” mentality has been amply and consistently rewarded. Every pullback has eventually led to new highs; each 10, 15, 20% drop has proven temporary, at least so far.

Traders recognize this pattern, whether it turns out to be random, temporary, or destined to eventually fail. When confronted with what trade set ups that have worked in the past, we mice run through the maze to get our pieces of cheese. This behavior is unlikely to stop until the behaviors stops getting rewarded.

Consider what traders did following the tech peak in March 2000. It took several years to see the dip buying behavior end. Before that top there was nearly two decades of new all-time highs. (Even the 1987 crash was a temporary 31% setback within the longer 1982-2000 secular bull market). When the Nasdaq peaked at 5100, the subsequent fall saw repeated recover attempts. The Nasdaq 100 Index, a popular trading ETF of the era, fell 30% from 107 to 75, rallied back 30% to 101, fell 15%, then rallied 18% to 102, before saw-toothing all the way down to a ~80% drawdown at $22 in October 2002.

Hope springs eternal among those who have been rewarded in the past for their faith. It takes time to break those money-making habits.

It is unclear if this has occurred yet.

The speed of this collapse is part of the reason why. Psychological damage that occurs in “normal” bear markets typically takes time to surface. Consider the Great Financial Crisis (GFC). U.S. equity markets peaked in October 2007; they made their final lows in March 2009. Over the course of those 18 months, investors became worn down by a relentless flow of bad news. Banks were imploding, massive layoffs were being announced, mortgage defaults were exploding. It really felt like the economic world was ending. But that did not happen in a month – it took 18 months before investor negativity turned into panic, culminating in capitulation. The definition of the word capitulation is surrender: Investors simply give up. They had to do something, anything, to stop the pain. This exhaustion of sellers is how lasting bottoms are made.

We have yet to see anything remotely like that in 2020.

The post Recessions, Bear Markets Need Time to Develop appeared first on The Big Picture.

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The COVID-19 Fraud – It’s Massive




Whenever the government creates a program, they alter the incentives within society. I mentioned I have a friend in London whose mother went to the hospital and he knew she was near death. After two days, the hospital claimed she died of the Coronavirus. He said how since she did not go in with that? The joke in London is that COVID-19 is the miracle cure. Nobody in London has died from a heart attack, only COVID.

Senator Dr. Scott Jensen of Minnesota came out to expose how the AMA is encouraging American doctors to overcount coronavirus deaths across the US. He showed a 7-page document coaching him, as a doctor, to fill out death certificates with a COVID-19 diagnosis without a lab test to confirm the patient actually had the virus. Why? Because of the package for this relief, hospitals are paid more to attend this virus. NOBODY is dying of the flu any more – only COVID-19

The numbers will then be used to justify keeping the money flowing to misrepresent this as an epidemic. This fraud will then come back to justify keeping the economy locked down longer and the AMA is now contributing to the destruction of everyone’s livelihood, pension, and this exposes the corruption that always emerges with government programs.

This is when the lawyers need to see the dollar floating in the air. It is time for a class-action lawsuit against the AMA for misrepresenting this virus which is destroying small businesses and drastically increasing unemployment. Come on – we have plenty of lawyers reading this. Now’s the time to do something constructive. What the AMA is encouraging is FRAUD and to classify a death to COVID-19 without testing is actionable FRAUD. This is no different from Medicare Fraud which is a crime – For Medicaid and Medicare fraud, federal law establishes (1) a civil statute of limitations of six years (42 U.S.C. § 1320a-7a(c)(1)), and (2) a criminal statute of limitations of five years (18 U.S.C. § 3282).

Student Loans are a classic example. If you want to become a billionaire, it is simple. Create a product that is ABSOLUTELY worthless, nobody will ever use, get politicians to support it, and then claim it is so vital to the future that the fools who sign up can never go bankrupt on it and will have to pay for the rest of their lives.

This is how our future is utterly destroyed by the corruption inspired by such governmental programs.

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The next coronavirus relief package must include funding to safeguard our democracy



An essential component of any ‘phase four’ coronavirus relief and recovery package must be additional investments to protect our right to vote. Lawmakers must act now to establish safe, alternative voting methods—like vote by mail and online voting—especially before November’s general election.

The CARES Act included $400 million in “election security grants” to prevent, prepare for, and respond to the coronavirus domestically for the 2020 federal election cycle. This is far less than fair election advocates argued was necessary to protect our elections during the pandemic. The Brennan Center for Justice, for example, released a plan calling for a $2 billion investment to ensure that the 2020 election is free, fair, accessible, and secure.

As more states explore alternative ways of casting ballots, Congress must provide resources responsive to the magnitude of the challenge. A failure to provide sufficient investments to safeguard elections is the most successful effort at voter suppression and disenfranchisement since the expansion of the franchise. We must demand investment in our democracy infrastructure and more voting options.

While most people think of voter suppression as voter ID laws, felon disenfranchisement, and gerrymandering, our archaic voting system also routinely suppresses votes. As our ancestors have done for hundreds of years, we are required to vote in person, despite many other aspects of our lives being updated to include newer and more convenient methods. We can complete the 2020 Census survey online or by mail. We can order groceries online and have them delivered. We can file our taxes or deposit checks from our smartphones. We can have prescriptions refilled by mail.

Yet, some politicians—like Republican lawmakers in Wisconsin—want us to risk our health in order to have a chance to cast a ballot. It shouldn’t have taken a global pandemic for us to realize that we need more accessible voting methods.

One promising alternative method is a vote-by-mail system. Five states—Colorado, Hawaii, Oregon, Washington, and Utah—already conduct their elections through mail. Several voting rights groups have expressed support for a vote-by-mail system for the general election. Democrats included a proposal for a national requirement of 15 days of early voting, no-excuse absentee voting, and mailing ballots to all registered voters during an emergency in their relief bill. However, Republicans blocked consideration of the measure.

Online voting must also be considered. While online voting may seem farfetched, it has already been successfully implemented in some U.S. elections. For example, earlier this year, the greater Seattle area held the first election in U.S. history where all voters could cast a ballot by smartphone, while West Virginia has allowed voters living overseas to vote using a mobile app. Given that 81% of Americans own smartphones, studies show that online voting could dramatically increase voter turnout.

So, why have these voting methods not been implemented? The most prevailing and unfounded belief is these methods are risky and fraudulent. But these methods have already been implemented in various states with no evidence to support a claim of greater risk. Instead, this unsubstantiated narrative has kept Americans with limited voting options, all while voter rolls are purged, long lines form in primary elections during a global pandemic, and economic policies are enacted that do not benefit all Americans.

Some politicians believe it is risky to make voting easier. Last week, President Donald Trump admitted that if voting were easier “you’d never have a Republican elected in this country again.” But it shouldn’t matter which party Americans vote for. What matters is that we have a healthy electorate that represents all Americans.

Congress must include investments in our archaic voting system to make it easier for everyone to participate in our democracy, and funding for a vote-by-mail system and other alternatives must be included in a ‘phase four’ recovery and relief package. A failure to do so amounts to voter suppression.

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