Category: reason

What accounts for the apparently dramatic mismatch between the stock market and the economy?

Unemployment is the worst it has been since the Great Depression. Goldman Sachs says it could hit 25 percent. Gross domestic product could fall by 42.8 percent, according to the Federal Reserve Bank of Atlanta.

Yet as I write this the Standard and Poor’s 500 Index of large U.S. stocks is off by 9 percent or so from its 2019 year-end close. That is significant, but less dire than the predicted decline in GDP or the rise in unemployment.

The journalists are having a hard time figuring it out.

“Have the record number of investors in the stock market lost their minds?” asks a New Yorker headline. The article paraphrases the Yale economist Robert Shiller, a staple of such articles, who, The New Yorker reports, “issued a warning to investors: being in the market at this point is much riskier than it appears.”

The business cable news channel CNBC refers to “the puzzle that is the current relationship between the U.S. stock market and the underlying economy.”

Quartz, a business news website, reports, “If forecasts for a 30 percent to 40 percent decline in gross domestic product turn out to be accurate, then the US stock market’s valuation is more disjointed from the underlying economy than it’s been since the dot-com bubble in 2000.”

Paul Krugman, the New York Times columnist and Nobel-Prize-winning economist, writes of “the disconnect between stocks and economic reality.”

Some of the resilience in the stock market is driven by technical factors such as automated rebalancing of target-date retirement funds or other portfolios that have a fixed stock-bond percentage split. Low interest rates mean that investors seeking income have to seek out dividend-paying stocks, because savings accounts and government bonds are not paying out enough to live on. Investors who lived through the 2008 financial crisis may have learned that apparently dire times are a good moment for long-term investors to accumulate shares at low prices that will eventually recover in value. And stocks, after all, are a promise of a share in eventual future earnings. Most people think the world will recover eventually, the question is just how long it will take.

Stock prices, and dividends, are measured in dollars that are worth less in gold than they were before the virus outbreak, so anyone talking about stock values needs to be mindful of the unit of measurement. Betting that a share is worth more may just be a different way of betting that the dollar it was bought with is worth less; if IBM stock soars to $150 from $100, another way to say that is that the dollar that once bought one-hundredth of a share of IBM now only purchases one hundred-and-fiftieth of a share of IBM. It may be a statement about the decline of the dollar, rather than about the rise of IBM.

The most hopeful story, though, is that investors betting their own or their clients’ money have a different, and more optimistic take on the coronavirus than do the newspaper editors and public health officials.

 The newspaper editors for the most part have an interest in emphasizing the most dire news. No one is much interested in reading articles about mild or asymptomatic cases of COVID-19. Those get buried deep inside the paper. People are interested in reading articles about otherwise healthy 40-year-olds—” cataclysmic spiral from avid skier, cyclist and runner to grievously ill patient,” or the 14-year-old, “previously healthy… hospitalized with heart failure.” You have to read closely to find the newspapers admitting that, as one doctor wrote in The New York Times. “It appears that most COVID-19 patients experience relatively mild symptoms and get over the illness in a week or two without treatment.”

If the news providers have a click-driven financial motive to emphasis the worst news, the public health establishment and the politicians that employ them face similar temptations to emphasize the worst-case risks. That scares people into staying home. It reduces the transmission of the virus. And it justifies some of the more extreme and intrusive measures that have been taken, such as restricting gatherings and ordering the closure of schools, places of worship, playgrounds, and many businesses.

None of this is to question the sincerity or good intentions of these politicians or health officials. COVID-19 is a deadly disease, especially to elderly individuals and those with pre-existing conditions. It’s possible that had the politicians and public health officials taken it less seriously, the virus could have spread more quickly and killed more people.

It’s also possible that investors have a false bias toward optimism because they are in denial, unwilling to confront a grim reality. Investors may be deluding themselves, wishful-thinking style, that the coronavirus risk is less than it is. Maybe someone will look back six months or a year from now and accuse me, or today’s stock-market investors, of that.

For now, though, it sure looks like the wisdom of crowds as expressed in the stock market has a happier outlook about the speed and degree of economic recovery than do the “experts” as filtered by the press. The best-case explanation of the resilient stock market is that it is sending us a positive message about a rapid recovery of both public health and corporate profits.

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Because there’s nothing more important going on in the world right now, the United Nations would like to remind you that the use of gendered words and phrases is super problematic.

“What you say matters,” cautions the international organization in a tweet. “Help create a more equal world by using gender-neutral language if you’re unsure about someone’s gender or are referring to a group.”

As a general matter, world-governing authorities should not be in the business of telling people what they should and should not say. Also, the UN’s list of suggested substitute words is kind of bad.

What you say matters.

Help create a more equal world by using gender-neutral language if you're unsure about someone's gender or are referring to a group. https://t.co/QQRFPY4VRn #GenerationEquality via@UN_Women pic.twitter.com/koxoAZZuxq

— United Nations (@UN) May 18, 2020

Where to begin? “Humanity” is a better substitute for “mankind” than “humankind.” A “landlord” and an “owner” are not quite the same thing, nor are “manpower” and “workforce.” The word “representative” is not remotely an obvious synonym for “businessman,” and “partner” has enough other meanings that it doesn’t always work as a substitute for “boyfriend/girlfriend.” A “maiden name” is a woman’s original family name, not any family name.

All in all, a pretty pathetic effort. One hopes the UN takes its actual job—ensuring world peace—more seriously.

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How deadly is COVID-19? It has become increasingly clear that the answer varies from place to place. Local conditions affect not only the percentage of the population that becomes affected but also the percentage of those people who die as a result.

That point has been largely overlooked in the often heated debate about U.S. antibody studies, which has focused on methodological issues such as sampling bias and the accuracy of the tests used to determine who has been infected by the COVID-19 virus. While those issues are important, it’s misleading to assume that we are trying to identify the one true infection fatality rate (IFR) for the entire country, let alone the world.

Two Australian public health researchers, Gideon Meyerowitz-Katz and Lea Merone, recently reviewed 13 studies that used various methods, including virus tests, antibody tests, “excess deaths,” and epidemiological modeling, to estimate the IFR for COVID-19. The estimates covered a wide range, from 0.05 percent in Iceland to 1.3 percent in Northern Italy and among the passengers and crew of the Diamond Princess cruise ship.

The weighted average was 0.75 percent. But “due to very high heterogeneity in the meta-analysis,” Meyerowitz-Katz and Merone warn, “it is difficult to know if this represents the ‘true’ point estimate. It is likely that different places will experience different IFRs. More research looking at age-stratified IFR is urgently needed to inform policy-making on this front.”

It is clear that the COVID-19 death rate varies with age. A study of excess deaths in several Italian towns, based on a comparison of mortality during the pandemic to mortality during the same period in earlier years, found that the IFR ranged from 0.02 percent among people in their 40s to more than 15 percent among people older than 90. Another Italian study found an overall IFR of 1.3 percent, rising to 4.3 percent among people older than 60.

Age demographics help explain why death rates in Italy (median age: 47.3) and among people infected on the cruise ship (mean age: 58) were relatively high. “One reason for the very high heterogeneity is likely that different countries will experience different death rates due to the disease,” Meyerowitz-Katz and Merone note. “It is very likely, given the evidence around age-related fatality, that a country with a significantly younger population would see fewer deaths on average than one with a far older population, given similar levels of healthcare provision between the two. For example, Israel, with a median age of 30 years, would expect a lower IFR than Italy, with a much higher median age.”

Alan Reynolds, a senior fellow at the Cato Institute, argues that age is a proxy for serious preexisting medical conditions, which are also associated with a much higher death rate and become more common as people get older. He notes that underlying conditions such as diabetes, heart disease, liver disease, kidney disease, respiratory illnesses, and immune system suppression have been involved in at least 99 percent of COVID-19 deaths in New York City.

“The absolutely critical and widely misunderstood point here is that ‘underlying conditions’ are THE only risk that virtually all fatal cases of COVID-19 had in common—not age,” Reynolds writes. “That misunderstanding arose because old people are far more likely to have one or more of these conditions (and because more old people die of this and almost every other fatal risk). But it’s about time to stop echoing the fallacy that this virus kills old people, rather than sick people.”

The prevalence of preexisting health problems is obviously relevant in understanding why COVID-19 seems to be especially deadly in some places. Another widely cited explanation is the quality and capacity of the local health care system. Other things being equal, it makes sense that a jurisdiction where hospitals are stressed by a large number of COVID-19 cases would see not just more deaths but a higher IFR.

Antibody studies in New York and Indiana have yielded estimated IFRs of about 0.6 percent, three times the estimates from antibody studies in Miami-Dade County, Los Angeles County, and Santa Clara County. Some of that gap may be due to methodological problems with the latter studies, which could have exaggerated the prevalence of infection and therefore underestimated the IFR.

The Santa Clara County study, which was conducted by researchers at Stanford University, has been widely criticized. The authors respond to that criticism in the latest version of their preprint. One of the study’s harshest critics, Columbia University statistician Andrew Gelman, offers a mixed review of the revised version.

One outstanding issue regarding the Santa Clara County study is its solicitation of subjects through Facebook ads, which may have biased the sample toward people who were especially eager to be tested because they were especially likely to have been infected. The researchers in Los Angeles County and Miami-Dade, by contrast, used random samples designed to be representative of the local population, as did the researchers in Indiana. The New York subjects were randomly selected from shoppers, which could have created a bias in either direction.

Another major issue is the accuracy of the antibody tests—in particular, their specificity, which indicates how often they correctly identified negative samples as negative in validation tests. Even a seemingly high specificity (say, 90 percent) can make a big difference when researchers test subjects from a population in which the prevalence of infection is relatively low, potentially generating more false positives than true positives.

The New York study used a test developed by the state health department that has been validated by the Food and Drug Administration (FDA). According to the FDA, that kit has a specificity of 98.8 percent, meaning it incorrectly identified negative samples as positive about 1 percent of the time. Assuming that 5 percent of the population has been infected, the FDA says, the New York test has a positive predictive value of 79.4 percent, meaning roughly one in five positive results will be wrong. The Indiana study used Abbott’s IgG test, which according to the FDA has a specificity of 99 percent and a positive predictive value of 84 percent when prevalence is 5 percent.

The Los Angeles County and Santa Clara County studies both used tests manufactured by the Chinese company Hangzhou Biotest Biotech and distributed in the United States by Premier Biotech, which is based in Minneapolis. The manufacturer reported a specificity of 99.5 percent, but that rate has not been validated by the FDA, and the Stanford researchers who conducted the Santa Clara study independently tested just a small number of validation samples. The actual specificity of the Premier Biotech kits, which is important in the prevalence calculation and therefore the IFR calculation, is a major point of contention between the Stanford researchers and critics of the study.

The Miami-Dade study used tests produced by the North Carolina company BioMedomics. The company reports that its test, which has not been validated by the FDA, generated 12 false positives out of 128 samples from uninfected people, meaning the results were erroneous more than 9 percent of the time. If the true prevalence of infection were 5 percent, the BioMedomics test would generate more false positives than true positives. It’s not clear whether and to what extent the University of Miami researchers who conducted the study took false positives into account. That study—like the New York, Indiana, and Los Angeles County studies—has not been published, even as a preprint.

In short, methodological weaknesses—in particular, low test specificity—could help explain why the California and Florida studies generated much lower IFR estimates than the New York and Indiana studies. But that is not the whole story.

The crude case fatality rate (CFR)—known deaths as share of reported cases—is substantially higher in New York (nearly 8 percent) and Indiana (6.2 percent) than in California (4 percent) and Florida (4.3 percent). For reasons that may include overburdened hospitals, COVID-19 patients seem to have fared worse in New York and Indiana than they have in California and Florida. In other words, the divergent results may to some extent reflect actual differences in fatality rates.

The authors of the Santa Clara County study note that the IFR may “be substantially higher in places where the hospitals are overwhelmed (e.g. New York City or Bergamo), or where infections are concentrated among vulnerable individuals (e.g. populations without access to healthcare or nursing home residents). For example, in many European countries, 42–57% of deaths occurred in nursing homes and
the same appears to be true for 25% of deaths in New York. Infection fatality rate estimates may be substantially higher in such settings.” While this interpretation is obviously appealing as a response to the study’s critics, that does not mean it is wrong.

There are similar variations in IFR estimates from Europe. Antibody tests in Gangelt, Germany, covering some 80 percent of the local population, found that 15 percent of residents had been infected, suggesting an IFR of 0.4 percent—half the estimate for France and less than one-third the estimate for Northern Italy in studies considered by Meyerowitz-Katz and Merone. The difference is not surprising, given that Germany’s crude CFR (4.6 percent) is much lower than the crude CFRs for France (15.7 percent) and Italy (14.2 percent).

In Sweden, meanwhile, the Public Health Authority recently raised its IFR estimate to 0.6 percent, which is similar to the estimates from New York and Indiana but still substantially lower than the estimates from Italy and France. Not everyone agrees with the new estimate for Sweden. “State epidemiologist Anders Tegnell and Anders Wallensten have both said they believe the mortality rate is below 0.4 percent,” Sveriges Radio reports.

The plausibility of relatively low IFR estimates ultimately depends on the plausibility of the prevalence estimates on which that calculation relies. The latest version of the Santa Clara County study, for example, estimates that nearly 3 percent of the local population had been infected by early April, about the same as the prevalence estimate for Indiana in the last week of that month. Since Indiana reported its first COVID-19 death on March 16, more than a month after the first confirmed death in Santa Clara County, the prevalence estimate for the latter jurisdiction seems, if anything, surprisingly low.

It is still possible, of course, that the Stanford researchers substantially overestimated the prevalence of infection in Santa Clara County, depending on the impact of sampling bias and the actual specificity of the antibody test they used. Yet even if their IFR estimate is too low, it seems likely that the true IFR in Santa Clara County (and in California generally) is lower than the estimated IFRs in New York and Indiana, given the relatively high death rates among known cases in both of those places.

In other words, the contrasting results of the antibody studies may reflect both methodological issues and differences in the underlying reality. That possibility tends to get lost in the argument between people who uncritically embrace low IFR estimates and people who automatically dismiss them.

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The U.S. Supreme Court has an unfortunate habit of shortchanging certain constitutional rights.

When the justices hear a case involving a possible infringement on the right to free speech, they generally presume that the regulation at issue is unconstitutional and force the government to justify its actions. That is as it should be.

But when the Court considers a possible infringement on the right to economic liberty, it grants the government a broad degree of deference, not only presuming the regulation to be constitutional but also forcing the regulated party “to negative every conceivable basis which might support it.” In other words, the Supreme Court tips the scales heavily in favor of the government in economic liberty cases.

Fortunately, several state supreme courts have stood up where SCOTUS has fallen down on the job. In Patel v. Texas Department of Licensing and Regulation (2015), the Texas Supreme Court voided an occupational licensing scheme for eyebrow threaders, on the grounds that the regulation served no legitimate health or safety purpose and violated the economic liberty secured by the Texas Constitution. As Justice Don Willett observed in concurrence, “this case is fundamentally about the American Dream and the unalienable human right to pursue happiness without curtsying to government on bended knee.” (Disclosure: Willett favorably cited my book Overruled in his Patel opinion.)

The Georgia Supreme Court gave economic liberty its due in a case decided today. Jackson v. Raffensperger arose from a 2018 law that required lactation consultants to obtain an occupational license from Georgia’s secretary of state before they are permitted to offer professional advice about breastfeeding. Mary Jackson, a veteran lactation consultant with decades of experience, challenged the requirement in state court, arguing that it lacked a genuine public health or safety purpose and violated her right to earn a living under the state constitution. The Fulton County Superior Court dismissed her case, arguing that the Georgia Constitution protects no such rights.

The Georgia Supreme Court disagreed. “The trial court erred,” the state high court said today. “We have long interpreted the Georgia Constitution as protecting a right to work in one’s chosen profession free from unreasonable government interference.” Thanks to that ruling, Jackson’s case against the occupational licensing law has been revived and will now move forward.

It’s a shame that SCOTUS doesn’t show the same fidelity to the economic liberty that’s secured by the federal Constitution.

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You’ve completed your masterful brief, a 50-page model of persuasion. Now a sobering moment of reflection: How much of this eloquence will the judge remember? After all, judges are only human and we humans forget much of what we read—not just the words but also the concepts. Like every advocate, you want the judge to remember the concepts critical to your argument.

Consider how people in other fields try to persuade. Advertisers spend millions trying to set their product apart so that we’ll remember it. Though the product may seem irresistible, the advertiser has flubbed if we forget the message.

The same is true of an advocate’s message. Though your advocacy may be eloquent, it is wasted unless remembered. Think about how masterful communicators have created memorable sentences, using alliteration, metaphor, simile, and rhyme to ensure that readers will remember particular points. We call these memorable sentences “aphorisms.”

Consider Chief Justice Roberts’s opinion condemning an expert witness’s consideration of the defendant’s race as a risk factor for recidivism:

There were only “two references to race in [the expert witness’s] testimony”—one during direct examination, the other on cross. But when a jury hears expert testimony that expressly makes a defendant’s race directly pertinent on the question of life or death, the impact of that evidence cannot be measured simply by how much air time it received at trial or how many pages it occupied in the record.

Buck v. Davis, 137 S. Ct. 759, 777 (2017). With this explanation, the Chief Justice closed with an aphorism, crystallizing a key point through alliteration and metaphor: “Some toxins can be deadly in small doses.” Id.

Justice Kagan also used metaphor to create a vivid image when dissenting in American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 252-53 (2013) (Kagan, J., dissenting). There Justice Kagan argued that the majority had miscast the issue as one involving the suitability of class certification:

The Court today mistakes what this case is about. To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled. So the Court does not consider that [the petitioners’] agreement bars not just class actions, but “other forms of cost-sharing … that could provide effective vindication.”

570 U.S. at 252–53 (italics added).

Both aphorisms pack the argument into a concise sentence, creating an image easily recalled and readily linked to the writer’s key point. You needn’t aspire to the rhetorical heights of wordsmiths like John Roberts or Elena Kagan, but you can use metaphor, simile, alliteration, rhyme—and other tools in your rhetorical toolbox—to create durable images for points of special emphasis.

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The extent and severity of the COVID-19 economic shutdowns vary from place to place, but the one thing almost all of them have in common is that they’re not really enforceable.

We may have reached the point where most people are realizing that.

Case in point: The Texas Department of Licensing and Regulation has decided to drop 200 enforcement investigations into barbers and cosmetologists who returned to work in recent weeks, The Dallas Morning News reports. The department is also dropping 180 cases that had not moved past the complaint stage—so stop tattling on your neighborhood salons, Texans—which seems like a clear admission that enforcing the shutdown is simply untenable.

The turning point, in Texas at least, probably came a few weeks ago when a Dallas salon owner, Shelley Luther, was sentenced to seven days in jail for reopening her business on April 24. The outrage over Luther’s arrest and sentencing eventually convinced Gov. Greg Abbott, a Republican, to remove jail time as a punishment for people who violated the state’s stay-at-home order.

The licensing department has now gone a step farther, saying it will allow “the reopening of cosmetology and barbering establishments retroactively to April 2,” wiping out any violations from the past six weeks.

In Wisconsin, where the state Supreme Court last week struck down a statewide stay-at-home order, counties are lifting their own lockdown orders due to “mounting confusion” over their legality. But the bigger question, again, might be their enforcability. I’ve seen a lot of coverage of Wisconsinites heading to bars in the wake of the Supreme Court ruling; I haven’t seen much evidence that people are getting arrested for violating local shutdown orders.

And in Washington, more than 25,000 complaints about alleged lockdown violations were filed across the state, but as of May 8 the state had revoked exactly one business license.

As the days go on, expect to see more anecdotal evidence like this:

Update:Just now a local Bellmawr Police Lieutenant walked up to front door& owner of Atilis Gym&said “You’re all in violation of Governor’s executive order. That being said stay safe&have a nice day.” And walked away&crowd of supporters let out a loud cheer ⁦@FOX29philly⁩ pic.twitter.com/M3XvbHfvV0

— Steve Keeley (@KeeleyFox29) May 18, 2020

The government’s role in all of this has always been more limited than either the bureaucrats drafting stay-at-home orders imagine or the protesters shouting about tyranny fear. Since forcibly quarantining 330 million people was never really possible, the lockdowns that have wrecked the economy and slowed the spread of COVID-19 over the past two months were ultimately based on voluntary compliance.

Don’t get me wrong: There’s been plenty of heavy-handed enforcement—in New York, in California, in Wisconsin, and in plenty of other places. But it’s been ineffectual and perhaps even counterproductive, given that cops who get close enough to issue a citation or make an arrest are hardly practicing social distancing. (Imagine what a public health disaster it might be if they were somehow capable of detaining or fining everyone who broke quarantine.) It certainly isn’t the reason people have been practicing social distancing. Research from FiveThirtyEight has shown pretty conclusively that most state-level stay-at-home orders came days or even weeks after most Americans were already staying home.

That remains true in places where governments are fighting to maintain lockdowns as compliance frays—like in Pennsylvania, where Gov. Tom Wolf has threatened businesses with the loss of their licenses if they go along with county-level reopening plans that move faster than his state-issued directives. And it remains true in places where lockdowns have already been lifted: In Georgia, restaurant reservations are still 90 percent lower than they were at this same time last year, according to data from OpenTable, even though Gov. Brian Kemp has lifted the lockdown.

The biggest benefit that comes from lifting stay-at-home orders is an end to the charade that such lockdowns can be enforced. Kemp didn’t “reopen” Georgia. All he did was give people consumers and businesses permission to choose their own acceptable levels of risk—something they’re doing anyway in every state.

Governments at all levels should continue to provide accurate information about what’s relatively safe (like going to the beach or drinking outside) and what isn’t (getting together in big groups, using public transportation). But enforcement should be reserved for where it can actually work. An official order closing stadiums and the like seems reasonable. Jailing salon owners does not.

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