Flatter but Wiser?

April 12, 2020

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Last week I said that the United States was poised to become the world leader in coronavirus cases very soon. That milestone has now been reached, as our 20,608 deaths have surpassed every other country. That includes China, despite the fact that it is less economically developed, has four times our population, and was first to be hit by what became a pandemic.

However, this week we also had evidence that our steeply rising mortality curve is starting to flatten. Total deaths did increase 142% during the week—that is, they more than doubled—but they had nearly quadrupled the previous week. Deaths are still rising, but the rate of increase declined in almost every state. (The exceptions were Idaho, Missouri and Oregon.)

Nevertheless, the spread of the disease remains alarming. With over 20,000 deaths already, any more weekly doublings would result in astronomical death tolls. Epidemiologists have developed much more sophisticated models for the spread than I can describe here. One of them that has gotten a lot of attention projects that we can hold this year’s ultimate death toll to 60,000. Whether we can do that while quickly putting the country back to work is not as clear.

What have we learned?

What have we learned from experiencing this pandemic so far? Are we drawing the right lessons? In particular, what has President Trump learned? We know that he initially underestimated the problem, and that he continued to treat it dismissively for weeks after being briefed by both intelligence officials and medical experts. We also know that previous administrations—both Republican and Democrat—had developed plans and proposals for dealing with a pandemic, and that this administration chose to ignore them. How much has the President wised up since then?

The first lesson most of us have learned is that a pandemic requires a quick and decisive response, since every week counts. Locating cases and quarantining the infected are crucial.

The second lesson is that a country can slow the transmission of a contagious disease by telling most people to stay home, although that is a crude way of doing it. At the very least that strategy can spread the caseload over a longer time, easing the burden on medical facilities. Hopefully, few states will now experience what New York has just been through.

But then what? How does a country permanently limit the number of people who contract the disease and the number who die from it? The ideal solution is general vaccination, but that appears to be at least a year away. Another possibility is a breakthrough in treatment, to make the disease less life-threatening, but that also appears a number of months off.

Advocates of a quick return to business as usual seem to be relying heavily on “herd immunity,” the idea that once a lot of people have survived the disease and developed immunity, new cases will peter out. We can also use the antibodies in the blood of survivors to treat those who do get sick. But how large would such a “herd” of survivors be? Right now, we have about one death for every 25 confirmed cases. That means that we could get to 60,000 cases with only 1.5 million Americans having contracted the disease, leaving the vast majority of our 330-million population still at risk with no immunity. Of course, the reported numbers of deaths and cases could be wrong. Maybe a lot of deaths have yet to show up, since it is a “lagging indicator,” and some deaths occur at home without being correctly classified. The number of cases could be even more seriously underestimated, since people can have mild symptoms without reporting it as covid-19 at all. But even if the real ratio of deaths to cases is only one in 100, we could have 60,000 deaths from only 6 million cases, still leaving most of the population unprotected.

Most medical experts are dubious about the President’s eagerness to “reopen” the economy. We would be ending the strategy we’ve been relying on to stop the dying, and sending people back into society with no more protection than homemade face masks.

Test, test, test

What the experts do recommend is what should have been done earlier on. Scale up testing to the point where new cases can be quickly identified and selectively quarantined, while other people start to feel safer going about their business. That’s what countries with the most success in halting the epidemic have been doing. In contrast, President Trump’s consistent pattern of over-promising and under-delivering testing is a national embarrassment.

I doubt that the economy can restart with one big rush of people back to work. It’s going to be a while before people are comfortable in crowded workplaces, shopping malls, stadiums, or on buses, subways or airplanes. Given the great variety of workplaces, shopping areas, entertainments and methods of transportation, I suspect we will have a patchwork economy for a time, with some places a lot safer than others. That should make the overall recovery a bit sluggish, especially since the various parts of the economy are interdependent. One business cannot thrive if some other business it depends on cannot operate safely.

Another widespread prediction is that technological means of interacting and producing without face-to-face interaction—automated production, teleconferencing, online shopping, etc.—will get a permanent boost from this experience. But reorganizing along those lines will take time, and it will require some upgrading of the skills of many workers if they are to remain employed.

Instead of a quick return to “normal”, we should expect a painstaking transition to a new normal.


Beyond the Sheer Numbers

April 5, 2020

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This has been a week in which hospitals in New York and many other states began to be overwhelmed by the exponential growth of coronavirus cases. When every patient counts and every death is a tragedy, the sheer number of cases is daunting.

Having said that, epidemiologists have to look at rates and growth trends as well as sheer numbers to understand an epidemic, and so do the rest of us. In last week’s post, I used the concept of doubling time to compare mortality trends in different countries, based on data from Our World in Data. The good news this week is that the doubling times in days are increasing a little in most countries, meaning that the rate at which deaths are multiplying is slowing. The bad news is that exponential growth curves are still very steep in many places. Deaths are doubling every four days in the United States and United Kingdom, apparently the fastest growth in the world. The doubling times are five days for Germany, six days for France and Netherlands, seven days for Spain, and ten days for Italy.

To appreciate the implications, if Italy’s deaths would keep doubling every 10 days for the next 30 days, its 15,362 deaths would double three times, increasing by a factor of 8 to 122,896. But if US mortality would keep doubling every 4 days in the same period, its 8,501 deaths would double at least 7 times, increasing by a factor of 128 to 1,088,128. To put that in perspective, 405,000 Americans died fighting World War II. No one knows what the real numbers will be, since no one knows how much and how fast we can bend the growth curve. What is clear is that the United States is poised to become the world leader in coronavirus deaths very soon. How the country that prides itself on the world’s most advanced health care system could accomplish that feat is a topic for another time.

State mortality rates

Within the United States, death rates also provide additional perspective to raw numbers. As of this morning, the ten states with the highest number of deaths are New York, New Jersey, Michigan, Louisiana, Washington, California, Illinois, Massachusetts, Georgia, and Florida, based on data from the Washington Post. Taking into account state size by using deaths per 100,000 population changes the picture somewhat. California’s 289 deaths no longer look so large, and Vermont’s 20 deaths become more significant. California’s rate of less than 1 death per 100,000 drops it down to 30th in death rate, while Vermont’s 3 per 100,000 brings it up to 7th. Illinois, Georgia and Florida also drop out of the top ten, to be replaced by Connecticut, Colorado and the District of Columbia. The number of deaths in a small state may get less attention, but it can have a large proportional impact on the smaller number of medical personnel and hospital beds.

Not only do states differ greatly in total deaths and death rates per 100,000 to date, they are also adding deaths at very different rates. Most of the states with the most deaths—either raw numbers or deaths per 100,000—have also had relatively large percentage increases over the past week. Increases of 300% or more are common—New York’s is 331%—but Michigan and New Jersey have seen increases over 500%. One notable exception is Washington, which has the sixth highest death rate so far, but one of the slower rates of weekly growth, 67%. The virus hit Washington first, but stay-at-home measures seem to be working. California has both a low rate of death and a below-average rate of weekly increase, having been the first state to issue a stay-at-home order.

Meanwhile, other states have had relatively low numbers and rates of death so far, but now have above-average rates of growth. Tennessee’s mortality rate is less than 1 per 100,000, but its deaths increased from 7 to 50 in a week, an increase of 614%. Other states that experienced significant jumps from low beginnings were Alabama, Kentucky and Maryland.

Given the potential for exponential growth to change the situation with dizzying speed, current low numbers are no excuse for complacency, anywhere in the country.


No Time to Lose

March 28, 2020

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In my state of North Carolina, Governor Roy Cooper has now issued a statewide stay-at-home order to slow the spread of the coronavirus. Effective March 30 to April 29, the order prohibits gatherings of over ten people, requires people to remain six feet apart, and limits activities outside the home to visits to essential businesses, outside exercise, and assistance to relatives.

One might ask why a state with only four deaths, in contrast to over 600 in the state of New York, is taking such drastic action, with obvious economic implications. Why not wait until the situation is more clearly a crisis? Why not do as President Trump recommends—try to identify “low-risk” counties where life can be allowed to go on as usual?

Exponential growth

I think that such objections reflect a misunderstanding of the problem. They underestimate the power of exponential growth to turn a numerically small problem into a major disaster very quickly. We should have learned that lesson by now from observing what happened in Italy (which leads the world in coronavirus deaths) or New York (which leads the states).

The numbers of cases and deaths are changing as I write this. Within a few days, the numbers I cite in this post may well have doubled. Infections and deaths from infectious diseases increase exponentially rather than linearly. They increase not by the same increment every day, but by an increasing increment every day. The greater the number of people already infected, the greater the number of others who can contract it from them, until the virus runs out of people to infect.

At first, the rate of exponential growth can be extremely high, with infections doubling every day or two. This is especially true for a new virus, for several reasons. No one has immunity yet; there isn’t widespread testing to identify and quarantine the infected; and countermeasures like physical distancing have not yet been adopted. Eventually, the rate of spread will slow because all these things change. Many people have recovered from the disease and are now immune; testing becomes more routine; and people take more precautions.

The best way to grasp the implications of exponential growth is to consider the time it takes infections to double. If they double every six days, they will double five times in a month, which is an increase by a factor of 32. A hundred cases would grow to 3,200 cases in a month. But if infections double every two days, which is quite common in the initial stage of the process, that is fifteen doublings in a months, or an increase by a factor of 32,768. At that rate the initial hundred cases grows into 3,276,800!

Slowing the growth rate by increasing the doubling time by even a day or two can make the difference between a serious problem and a catastrophe. Graphically, it is known as bending or flattening the curve. That spreads the cases out over a longer time, so that health care facilities are not overwhelmed. After all, most hospitalizations are resolved either by recovery (hopefully) or death (sadly) within a few days or weeks. In addition, the longer people can put off getting sick, the greater the possibility of a better treatment or even a vaccine.

Mortality trends

Now for some real numbers. I’ve taken these mortality numbers from Our World in Data for countries, and The Washington Post for states. Again I caution that they are changing rapidly.

Coronavirus deaths for the world as a whole are currently doubling every six days. Doubling times are shorter for the most affected countries—three days for the United States and Germany, four days for Spain, France, United Kingdom and Netherlands. A glimmer of hope is that Italy, the country with the most deaths so far, has now increased its doubling time to seven days. China, where the virus apparently originated, has flattened its curve even more, although the official numbers may not be entirely reliable.

The United States is now the leading country in known infections. Its rapid growth in deaths will probably make it the mortality leader as well in the near future. The US response has been scandalously slow, especially in the area of testing. Our failure to test and quarantine suspected cases has made a general lockdown more essential.

In the states with the most rapid growth in infections, such as New York, New Jersey, Michigan and Louisiana, deaths are doubling every two days. On the other hand, the state with the first big surge in mortality—Washington—has flattened its curve somewhat and is now doubling only every six days. More states need to move in that direction.

Safe places?

The most important point is that a relatively low caseload at the moment is no reason to carry on business as usual. What matters is the rate of growth, and states like North Carolina need to take preventive measures now to keep it as low as possible.

Nor can we assume that the rural counties or states with fewer cases so far are not at risk. If the distribution of mortality turns out to resemble that of flu, then states like Nebraska and the Dakotas will eventually exceed more urbanized states in death rates, perhaps because of more limited access to hospital care.

Governors like Roy Cooper are doing the right thing by telling people to stay home throughout the state, not just in areas initially affected, like Charlotte and Raleigh-Durham. More complacent governors ought to pay attention.


Trump Beyond Reach of Law

February 3, 2020

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Let me get this straight. The House of Representatives has impeached President Trump for abuse of power and obstruction of Congress. The abuse of power is that he allegedly made assistance to Ukraine–a contrary invaded by Russia–conditional upon its government’s initiation of investigations that would help Trump’s reelection campaign. That scheme included illegally holding up military aid already authorized by Congress. The obstruction of Congress involved refusing to comply with lawful subpoenas for witnesses and documents related to the investigation of the abuse of power.

The response of Senate Republicans to the obstruction charge is to assist Trump in the obstruction by blocking any attempt to obtain the very witnesses or documents that Trump is withholding. That makes Senators accomplices to the obstruction. Majority Leader Mitch McConnell admitted as much when he promised to coordinate the Senate trial with the White House to get Trump acquitted, just before he raised his right hand and swore an oath to consider the evidence impartially.

The response of Senate Republicans to the abuse of power charge was first to deny that it happened. Now it has evolved into an admission that it happened, but Trump should be acquitted anyway. Why? Because his intent was only to get reelected, which he thought was in the “public interest.” And because the people should decide his fate in this year’s election. You know, the same election that Trump has been trying to corrupt. And what’s to stop him now? We have a justice department that says that a sitting president cannot be indicted. We have a Senate majority that says that he shouldn’t be impeached. We have a Congress that can’t even exercise oversight because Trump acknowledges no obligation to provide witnesses or turn over documents.

The Senate has failed to fulfill its constitutional obligation for a fair trial. That’s not too surprising, considering that it has not been functioning as a democratic institution for some time. The Majority Leader refused to provide even a hearing for a highly respected, moderate Supreme Court nominee who had previously been praised by both parties, despite the constitutional obligation to “advise and consent.” Meanwhile, he fills the courts with judges whose views are far to the right of most Americans. Few bills passed by the House or sponsored by Senate Democrats are even debated in the Senate. That includes bills to protect the integrity of our elections against foreign interference. This Senate will go down in history as an enabler of the most serious assault on our democracy in our lifetimes.

One can only hope that our faith in democracy–although shaken by this administration and its congressional enablers–will not be destroyed. Very often in public affairs, the tide does turn. Truth comes out; corruption is revealed; the rule of law is strengthened; would-be dictators fall; and commitments to democratic principles are renewed.

Don’t forget to vote, or at least try to!


Prosperity (part 3)

October 4, 2019

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Here I will summarize Colin Mayer’s ideas about the relationship between the corporation and the government.

Law

The idea that a corporation is more than a profit-making machine requires a new way of thinking about corporate law.

It should not simply be considered as a set of rules that define rights and responsibilities and what firms can and should do, but instead as a way of allowing different parties to commit to the common purposes that the corporation promotes. The remarkable contribution of corporate law has been to provide commitment devices that bind people and organizations together in such a way that they fulfill purposes that would otherwise be infeasible.

The commitments Mayer is talking about are more than contractual obligations. They are “self-imposed restraints” that build trust in such relationships as employer-employee or supplier-customer.

Corporate law affects commitments by “establishing the range of relations a corporation can sustain.” It:

  • Enables corporations to adopt a range of forms for different purposes
  • Empowers various parties, no longer just corporate directors and shareholders
  • Enforces the rights of different parties through such means as “voting within their particular class, voting corporately in conjunction with other classes, initiating class actions, or publicizing the opinions of members of the class in social media.”

If this seems rather abstract, that is typical of the book, which is stronger on general principles than on practical examples. An example of at least the first point is the innovation of the “benefit corporation,” which is allowed by the laws of thirty-five states and the District of Columbia. This B-corporation is similar to a C-corporation, except that it requires its directors to consider the impact of its activities on employees, customers, the community and/or the environment.

Regulation

Mayer sees an inverse relationship between the level of commitment and trust in the economy, and the need for government regulation. The UK, described previously as an economy dominated by widely dispersed corporate owners, is a low-commitment economy. Many other countries, on the other hand, have various ways of building commitment:

Nordic countries confer control on long-term owners, in particular families, who are actively engaged in the oversight of corporations. These long-term owners are able to uphold self-regarding commitments. Central European countries, such as Austria and Germany, confer control rights on stakeholders, in particular employees, as well as shareholders through workers councils and co-determination on supervisory boards. These allow Austrian and German corporations to offer credible communal commitments beyond those that are self-regarding. In the industrial foundations of, in particular, Denmark, founders of corporations relinquish control rights to a board that is responsible for ensuring that the corporations act in trust for the philanthropic benefit of other members of society. The foundations are therefore able to offer social as well as communal and self-regarding commitments.

Where the Friedman doctrine is most influential, in the UK and US, it has tended to erode social commitments and encourage calls for government regulation.

We need to break out of this destructive spiral of declining commitment and intensifying regulation by conceiving what corporate commitment is capable of achieving and creating the context within which it can realize its full potential to perform communal and social as well as self-regarding purposes.

Government regulation is no substitute for corporate cultures with pro-social purposes, self-imposed constraint and trust. External regulation without internal commitment leads corporations to find ways of evading the laws. For example, banking regulations have fostered the rise of financial institutions that perform banking functions without being classified as banks because they don’t take a traditional form (with depositors).

Mayer suggests that regulations be based more on function than on form. Institutions performing similar functions should be regulated in similar ways, or else activities will move from a regulated sector to an informal unregulated sector, like “shadow banking.” “This will potentially be a cause of a systems-wide financial failure that will be more serious than the financial crisis of 2008.”

A second principle is that regulations be based on a clearly defined public purpose. An emerging purpose today is verifying the security of data storage systems.

A third principle is that regulations must address past failures, such as the failure to recognize and manage the risks of highly leveraged hedge funds, or derivative securities like collateralized debt obligations.

Partnership

Conflicts between the private and public sector have gotten in the way of providing many public goods, such as adequate infrastructure. “There is a chronic under-provision of it around the world,” including in some of the wealthiest countries.

Part of the problem, noted in the last post, is an accounting system that excludes many social costs from private accounting, while excluding many social benefits from public accounting, thus exaggerating both private profits and public deficits.

When the public sector relies on private companies to help provide public goods, the two sectors have a conflict of interest: “Governments and regulators want maximum quality at lowest prices for the largest number of, in particular disadvantaged, consumers. Companies want the highest revenues from the provision of the lowest-cost projects and services.”

Mayer recommends that public obligations be specified in company articles of association, somewhat as they were when monarchs and parliaments granted charters to build canals or railroads. Complete freedom to incorporate and operate “may or may not have been appropriate for private companies that were not supplying public goods, [but] it is most certainly not right for the provision of infrastructure.”

For its part, government needs to engage the private sector in the design and regulation of infrastructure services. Corporate responsibility cuts both ways, conferring some legitimacy as well as obligation.

As I noted in the first post, the Friedman doctrine seems to be based on the assumption that the pursuit of private interest ultimately serves the public interest through the miracle of free-market competition. Mayer views this as naive, overlooking the enormous power of the corporation to enrich its shareholders at the expense of the public good. The profit-making machine rolls on, increasingly out of control, while the democratic state struggles to remain viable. The times require a thorough rethinking of the corporation, so that private gain may be reconciled with the well-being of society and nature.

The corporation is a conscious entity that has values. But when its sphere of operation is public not private, when it interacts with others in fulfilling its function, and when it is collectively part of a bigger whole, its consciousness has to embrace its environment, not just itself. That is the challenge of the twenty-first-century corporation, government, and world, and it is what will make the subject of the corporation one of the most fascinating for many years to come. We await the coming of the [next] age of the corporation as the trusted corporation.