2.2 Million American Deaths from Covid-19?

You have probably seen the headlines. The Intercept, for example, blared: 2.2 MILLION PEOPLE IN THE U.S. COULD DIE IF CORONAVIRUS GOES UNCHECKED. A Nicholas Kristof column was headlined The Best-Case Outcome for the Coronavirus, and the Worst Will we endure 2.2 million deaths? Or will we manage to turn things around? Kristof reported, “Dr. Neil M. Ferguson, a British epidemiologist who is regarded as one of the best disease modelers in the world, produced a sophisticated model with a worst case of 2.2 million deaths in the United States.” News reports suggest that President Trump’s Covid-19 advisers told him about the 2.2 million death worst-case scenario, and that helped spur him to extend federal social-distancing policies through the end of April. He has also suggested, falsely, that if we fall far short of 2.2 million deaths, it would mean that his policies have been successful.

Given all the attention the 2.2 million “worst-case scenario” figure has received, it’s worth exploring where it came from. On March 16, a group of public health specialists in the UK published on March 16th what has become known as the Imperial College study. I’ll leave it to the professionals to debate whether their math regarding virus spread and so forth is right, what I want to focus on here is something that requires no expertise to discuss, which is the underlying assumption that drove the 2.2 million figure. Here is the relevant paragraph from the study, with the key assumption in bold:

In the (unlikely) absence of any control measures or spontaneous changes in individual behaviour, we would expect a peak in mortality (daily deaths) to occur after approximately 3 months (Figure 1A). In such scenarios, given an estimated R0 of 2.4, we predict 81% of the GB and US populations would be infected over the course of the epidemic. Epidemic timings are approximate given the limitations of surveillance data in both countries: The epidemic is predicted to be broader in the US than in GB and to peak slightly later. This is due to the larger geographic scale of the US, resulting in more distinct localised epidemics across states (Figure 1B) than seen across GB. The higher peak in mortality in GB 16 March 2020 Imperial College COVID-19 Response Team is due to the smaller size of the country and its older population compared with the US. In total, in an unmitigated epidemic, we would predict approximately 510,000 deaths in GB and 2.2 million in the US, not accounting for the potential negative effects of health systems being overwhelmed on mortality.

You got that? The 2.2 million figure was a projection based on a scenario where not only do the government and private companies not engage in any “control measures,” but individuals don’t on their own change their behavior to avoid contracting or spreading the virus. The study refers to this possibility as “unlikely,” but let’s be blunt: it’s entirely fanciful. The notion that no one is going to do anything different even as the death toll from the virus mounts into the five and then six figures is not “unlikely,” it’s entirely contrary to common sense and common human experience, not to mention data about how people said in early February they would react if the virus spread. (I, for one, started carrying around and using hand sanitizer and trying to avoid crowds in late February.)

Some will argue that the statistic was worth putting out there anyway, just to give us an idea of what toll a completely uncontrolled virus spread would look like. Perhaps. Unfortunately, the media generally failed to make clear that this was not a real-world projection, and were abetted in that malfeasance by the lead author of the study, Neil Ferguson. For example, Dr. Ferguson told the New York Times on March 16th that the potential health impacts were comparable to the devastating 1918 influenza outbreak. That outbreak killed approximately .6% of the U.S. population, which today would amount to around two million people, or very close to the fanciful 2.2 million projection. Nor does Ferguson seem to have made any effort to correct Kristof et al. when they wrongly claimed that 2.2 million was a realistic worst-case scenario.

And the media continues to misreport what the study said. For example, here is Wired yesterday: “The report, which also predicted 2.2 million American deaths if the government [what about private parties?] did nothing…” (One of the few journalists to get it right was Jacob Sullum of our own Reason.com: “Although those horrifying numbers got a lot of attention, they were never plausible, as the paper itself said, because they were based on the clearly unrealistic premise that ‘nothing’ is done to contain, suppress, or mitigate the epidemic.”)

When I pointed out on social media that the 2.2 million figure was fanciful, some accused me of being in league with virus deniers and/or Trumpism. Now that Trump has embraced the figure, perhaps we can lay that one to rest. Others have argued that to the extent the figure spread and scared people, that was a good thing, because it spurred governments and individuals into necessary action. Perhaps in the short-term that’s true. In the long-term, providing false or exaggerated information to the public that supposedly reflects the judgment of “experts” will erode confidence in both those who are reporting those judgments and in the experts themselves, a prospect which may have devastating public health consequences in the future.

Moreover, while the spread of exaggerated predictions may compensate to some extent for “virus deniers” and other forms of underprediction, there are also some immediate costs. If the government overreacts, there is the toll on the economy from unnecessary precaution. Beyond that, overprediction feeds anxiety disorders, and also leads to asymptomatic people or people with minor symptoms demanding testing, going to the emergency room, etc., which not only helps overwhelm the medical system, but may itself increase the spread of the virus when these people leave their homes to seek medical attention. At the very least, we should recognize that exaggerated projections reported without caveat have significant potential costs.

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Wake Forest Dean Apologizes for Constitutional Law Professor’s Quoting the Word “Nigger” from a Leading Supreme Court Case

Brandenburg v. Ohio, one of the most important First Amendment precedents, involved the prosecution of a KKK leader for their speech at a rally, and, unsurprisingly, the rally included some not very nice things. To quote the opinion, one of the films of the KKK rally

showed six hooded figures one of whom, later identified as the appellant, repeated a speech very similar to that recorded on the first film. The reference to the possibility of “revengeance” was omitted, and one sentence was added: “Personally, I believe the nigger should be returned to Africa, the Jew returned to Israel.” Though some of the figures in the films carried weapons, the speaker did not.

Another film included,

“How far is the nigger going to—yeah.” “This is what we are going to do to the niggers.” “A dirty nigger.” “Send the Jews back to Israel.” “Let’s give them back to the dark garden.” “Save America.” “Let’s go back to constitutional betterment.” “Bury the niggers.” “We intend to do our part.” “Give us our state rights.” “Freedom for the whites.” “Nigger will have to fight for every inch he gets from now on.”

Michael Kent Curtis, one of the leading historians of American free speech, was teaching the case in his constitutional law class, and, unsurprisingly, quoted portions from it that included the word “nigger.” Some students complained, and here is how the Dean responded:

As some of you know, a number of students reached out yesterday to the Dean’s Office about Professor Michael Curtis’ use of the “n-word” when teaching Brandenburg v. Ohio in Constitutional Law I.

First, for the students attending that class, please know you have my most sincere, heart-felt apology for the pain Professor Curtis caused many of you when he read aloud the footnote in Brandenburg detailing racist statements made at a Ku Klux Klan rally, which included the most offensive word in the American language — the n-word. Confronting America’s discriminatory past through case law can be challenging enough without hearing your professor read that word aloud in a class. Wondering how the word will be treated in the class where your attendance is required can be a painful experience as well. I also want to offer that same apology for students who learned about the incident and were also hurt. Words matter and the consequences of words (not just the intentions behind words) matter. On behalf of Wake Forest Law, I am sorry.

Second, please also know I spoke with Professor Curtis last night, and on reflection, he realized that it was sufficient to have students read the footnote with care and that the n-word need not be said out loud. He sent his students an email last night. As he noted, “I was saddened to learn of and I regret the deep pain that hearing the words read aloud caused some of our students.”

Third, I want to reaffirm my commitment to your learning in a diverse, inclusive, and equitable learning environment. At Wake Forest Law, diversity — the mix of different perspectives and experiences that make up a healthy, stimulating classroom — is of paramount importance. Our community shares a tradition that embraces freedom and integrity, acknowledges the worth of the individual, and promotes a democratic spirit arising from open-mindedness and discourse. Yesterday, we failed to carry out that tradition. Together going forward, I want to minimize our failures.

We will continue our commitment to training our students and faculty. For the second year in a row, we offered implicit bias training to all first-year students. This year we also had two workshops for faculty on how to create inclusive classrooms to follow up on the implicit bias training we had the previous year.

More work is needed, and I am committed to planning and executing that work. I have already been in touch with student leaders and will continue to consult the leadership of diverse student organizations in our discussions on how best to improve the experience for all students at Wake Forest Law I have sought the counsel of the Chief Diversity Officer at the University level. Lastly, I am asking Alison Ashe-Card, who chairs our faculty Diversity & Inclusion Committee, and Wendy Parker, Executive Associate Dean for Academic Affairs, to work with students and faculty to submit proposals to me about next steps by April 24, 2020.

I am committed to marshaling all of our resources to ensure a diverse, inclusive, and equitable legal education experience. Only then will our students be prepared for the challenges our world faces.

I think the Dean’s reaction was quite wrong (as was a similar reaction by the dean of Stanford Law School to a slightly different incident some months ago). My view is that, in class readings and in-class discussions (as well as in outside-class discussions), professors ought to mention what actually happens in a case or incident, without euphemism or expurgation; and students should feel free to do the same. If professors and students feel uncomfortable with saying those words themselves, I wouldn’t condemn their decision to use an expurgated form (see, e.g., Prof. Geoffrey Stone’s decision along these lines); but I think the better approach is to accurately quote.

Professors certainly shouldn’t use epithets, racial or otherwise, to insult people themselves. But when they are talking about what has been said, I think it’s important that they report it as it was said. This is often called the “use-mention distinction,” see, e.g., Randall Kennedy, How a Dispute Over the N-Word Became a Dispiriting Farce, Chron. Higher Ed., Feb. 8, 2019; John McWhorter, If President Obama Can Say It, You Can Too, Time, June 22, 2015 (distinguishing “using” from “referring to”).

Thus, when I have talked in my First Amendment Law class about Cohen v. California, I talked about Cohen’s “Fuck the Draft” jacket, not “F-word the Draft.” When I talked about Snyder v. Phelps, I talked about Phelps’ signs saying things like “God Hates Fags.” When I talked about Matal v. Tam, I talked about a trademark for a band called “The Slants,” which some view as a derogatory term for Asians. I suspect many, likely most, law professors do the same; they should certainly be allowed to.

To turn to speech hostile to a group I belong to (Jews), when I talked about a rare recent group libel case, the Montana State v. Lenio case, I noted that Lenio said, “I think every jew on the planet deserves to be killed for what kikes have done to our #dollar and cost of living Killing jews > wage #slave ….,” “#Copenhagen [referring to the then-recent Copenhagen shootings, including at a synagogue] It’s important to note that jews hate free speech & are known bullsh-ters, could be #falseFlag So Hope for many REAL dead kikes,” and “Now that the holocaust has been proven to be a lie Beyond a reasonable doubt, it is now time to hunt the Nazi hunters.” (As it happens, both my parents came close to actually being killed by Nazis in World War II; my father was trapped in besieged Leningrad [civilian death toll about 1/3], and my mother was a Jew in Kiev [likewise, death toll about 1/3 or more] who would likely have been slaughtered with the other Ukrainian Jews if she hadn’t been evacuated to Siberia. Nazi rhetoric and symbolism: Not my favorite.)

We have had readings or slides discussing cross-burning, and depicting swastikas and Confederate flags connected to cases or problems. Likewise, leading First Amendment cases (Brandenburg v. Ohio, Virginia v. Black, NAACP v. Claiborne Hardware, Board of Ed. v. Pico, and more), the recent Connecticut racial-ridicule prosecution that I discussed in my Con Law II class last Fall, and materials in cases that my students and I have dealt with in our First Amendment Clinic have involved the word “nigger”; readings have accordingly mentioned that word, and I have used the word in those discussions. Unsurprisingly, I think Prof. Curtis was quite right to do so as well, for several closely related reasons:

[1.] First, the law school is part of a university, where we should try to discuss the world as it is, the evil as well as the good, whether in law classes, history classes, literature classes, or elsewhere. This strikes me as a fundamental feature of the modern university: The right (I think the duty, but at least the right) to accurately present and discuss the facts of the world around us.

[2.] Another reason is that, once a rule is set forth that you can’t use “nigger,” naturally people will assume that this reflects a broader principle. What about “fag” in “God hates fags” from Snyder or the other Westboro Baptist Church cases? What about swastikas or Confederate flags or “Negro,” in law school classes or history cases or other classes in which these are parts of the relevant materials? Normally, we expect students to accept candid discussions of awful things (and history and law are chock full of awful things). But once one word that bitterly insults one group is made taboo, it’s human nature for other groups to expect equal treatment for themselves. A categorical principle that we can quote all words, precisely because we are reporting the facts rather than using the words pejoratively, strikes me as a much better approach, and one that will help decrease the extra hurt feelings that will arise if, say, gay students were told that “fag” can be quoted but “nigger” can’t be.

[3.] Beyond this, a good deal of history and of crime is much more painful than mere racial hostility (even the bitter hostility that many actual uses of “nigger” reflect). Genocide. Slavery. Rape. Child molestation. Lynching.

Some students may understandably find being reminded of such things to be much more painful than just hearing a quote from some racists. To give one concrete example, some years ago several law school administrators at a Top 20 law school told students designing a moot court problem to remove a case from the readings. (Moot court problems often focus on writing and oral delivery rather than research, and therefore give students a closed set of precedents on which they can rely.) The problem was about the First Amendment and threats. The case that they were told to remove was the most important precedent in the field, Virginia v. Black. The reason given to remove the case was that it involved cross-burning, which might be seen as too traumatic for some students. The result would have been pedagogically nonsensical, Hamlet without the Prince. Indeed, it would have taught the wrong message—and, I think, would have been humiliating for the students and the school when outside judges asked the students in the oral arguments why they hadn’t discussed the key precedent.

Fortunately, the decision was ultimately reversed. But this is where we go with the logic of compulsory expurgation of racially offensive material from sources that include it.

[4.] Moreover, law schools are training people to become lawyers.  Lawyers have to deal with facts as they are, regardless of how unpleasant those facts may be.  They need to read cases that contain nasty words and describe nastier actions.  Do a Westlaw search for nigger & da(aft 1/1/1990), and you will find a bit more than 10,000 such cases, and there are many cases that quote other epithets as well; nor is the pace slowing down.

And that’s just in the cases that lawyers may have to read and discuss.  On top of that, lawyers have to listen to witnesses who report what they heard.  They have to listen to opposing counsel who quote cases and evidence.  They have to hear judges who do the same. (Westlaw archives far fewer oral arguments than cases, but a search through its limited trial transcript and oral argument database for likewise reveals hundreds of mentions of “nigger.”)

And indeed every day, lawyers of all races, religions, ethnic groups, and sexual orientations handle cases—whether in criminal law, employment law, education law, civil rights law, family law, or elsewhere—in which they hear extremely offensive material.  They handle these situations with professionalism, and don’t let the casual cruelty, callousness, and hatred that they read or hear about get them down.

I do not for a moment think that black lawyers allow themselves to be debilitated by hearing material about racism, gay lawyers about hatred towards gays, Jewish lawyers about anti-Semitism, and so on, whether that material describes violent attacks, contains epithets, or whatever else.  I think that, as law students and law professors, we should follow this example.

[5.] Indeed, the implicit message of the claim that black law students, in particular, need to be protected from hearing cases that contain the word “nigger,” because they find it so “painful” and especially “challenging” or even traumatic, is that young black lawyers will likewise be sharply disturbed by hearing the word in the everyday reality of their practices—in courtrooms, in depositions, in witness interviews, wherever it is part of the facts of a case or of a relevant precedent. If this were true, then this would suggest that black lawyers are going to be less effective than white lawyers, because they are so pained, challenged, disturbed, and distracted by simply hearing the word.

As I mentioned in item 4 above, I do not for a moment believe that black lawyers actually are less effective lawyers, precisely because I do not believe that they are so easily wounded simply by hearing the facts of a case. But I also don’t believe that black law students (or other law students) are likewise so easily wounded. I believe that students and lawyers of all identities are perfectly capable of handling the often ugly reality of the world, as reflected in the precedents and in the cases before them. And I think it does them no service—it does not help them be “prepared for the challenges our world faces”—to tell them that they are somehow entitled to be so shielded from that reality that they don’t even hear some aspects of that reality.

For more on this subject, see Randall Kennedy’s book Nigger: The Strange Career of a Troublesome Word (2003), as well as Randall Kennedy, How a Dispute Over the N-Word Became a Dispiriting Farce, Chron. Higher Ed., Feb. 8, 2019; John McWhorter, If President Obama Can Say It, You Can Too, Time, June 22, 2015, which I also mentioned above.  Disclosure:  Students have at times faulted me from quoting the word “nigger” in class discussions (and, in one instance, in an overheard discussion with a law professor before a speech she was giving); as you might gather, I stand by my approach, for the reasons given above.

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U.K. Cops Remind Us Why We Should Resist the Government’s Coronavirus Power Grabs

When the U.K. Parliament sought out broad new authorities to surveil and control people to fight the spread of the coronavirus, leaders insisted that these powers would be used responsibly and specifically for public health matters.

It took all of a weekend for a police department in England to show exactly why citizens shouldn’t trust officials to wield power responsibly.

Last Thursday, Parliament passed a bill forcing citizens to shelter in place, restrict their movement, and close down non-essential businesses and commerce. Fines for violators start at 60 pounds ($75) but can escalate up to 960 pounds ($1,200) for repeat scofflaws.

The law is full of exceptions. People are not prisoners in their own homes. But apparently the police in Derbyshire decided they knew what the law said without closely reading it. People need to stay indoors! So over the weekend, they sent their drones out to snoop on and attempt to shame people who had driven out to a park or gone for walks. Then they posted a video on Twitter:

Here’s the problem, beyond the creepy secret surveillance: These people in the video are not in violation of this new law. The Derbyshire Police are in the wrong. The section of the law that lists restrictions on movement for U.K. citizens provides an exception “to take exercise alone or with members of their household.” That is what all the people in this video appear to be doing. There are no large congregations of people in the video risking spreading the coronavirus to each other at all. Rather than shaming people, this video shows that the cops have no idea what this law they’re enforcing actually says.

Over at Spiked, Deputy Editor Tom Slater takes note of how British police are rushing out and deciding for themselves what the law means in ways that are stupid and controlling—and also wrongheaded. He notes that government officials have said that part of the law “means” that people are supposed to take exercise near their homes and only once per day. But that’s not what the law actually says, and Slater notes that police have confirmed that it is not a violation to drive out to somewhere isolated to get your exercise in. And, of course, busybody neighbors are now flooding police with calls whenever they see somebody outdoors.

But at least there’s a certain logic behind the belief that British citizens are forbidden to travel to parks to exercise, even if this interpretation of the law is incorrect. Less understandable is an effort by some U.K. police officers to attempt to control what products individual stores sell. Several convenience stores across England have said police and health officials are attempting to order them to stop selling chocolate Easter eggs because they say these goods are not essential.

But again, police are misreading the law. The law doesn’t declare that some goods are or are not essential. It declares that some shops are essential or non-essential. The shops that are allowed to remain open are largely permitted to sell whatever they want. Chocolate eggs are not a vector of coronavirus transmission!

These stupid examples are exactly why people resist government authority, even in times of great crisis.

Meanwhile, here in the United States, government officials are threatening people with jail time for violating quarantine orders. This is both a nastily authoritarian and particularly stupid response: Jails and prisons across the United States are becoming vectors of COVID-19 transmission. If you’re a mayor or police chief and you want to signal that you value “being in charge” over protecting actual public health and safety, dragging people to jail for violating your curfews should do it. Serious people don’t fight the coronavirus by threatening to expose more people to the coronavirus.

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Spanish Flu Experience Might Indicate That Public Policy Interventions Don’t Have Long-Term Economic Effects

Pandemics have substantial economic costs, but the things governments choose to do (or stop doing) to ease the pandemic can do economic good even beyond lowering mortality, according to a new preliminary study posted on the Social Sciences Research Network, authored by Sergio Correia (of the Federal Reserve Board), Stephan Luck (of the Federal Reserve Bank of New York), and Emil Verner (of Massachusetts Institute of Technology).

While it is very hard to feel good about the short-term economic outlook now with so many businesses, people, and industries deprived of the ability to earn income for an indeterminate period, their findings do provide some historical grounds for something short of utter despair about restrictions done to slow the pandemic spread.

A series of pre-COVID-19 economic analyses on the economic effect and aftermath of the 1918 Spanish flu pandemic, reviewed previously at Reason, were short on granular discussion of how government or social reactions to the disease influenced economic outlooks or recovery. This new study, “Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu,” out just last week, tries to do that.

The authors look at “non-pharmaceutical interventions” (NPIs) during last century’s Spanish Flu pandemics and note “NPIs implemented in 1918 resemble many of the policies used to reduce the spread of COVID-19, including school, theater, and church closures, public gathering and funeral bans, quarantine of suspected cases, and restricted business hours.”

After considering these interventions, they find “areas that were more severely affected by the 1918 Flu Pandemic see a sharp and persistent decline in real economic activity.” But don’t blame the NPIs, since “early and extensive NPIs have no adverse effect on local economic outcomes. On the contrary, cities that intervened earlier and more aggressively experience a relative increase in real economic activity after the pandemic.”

Checking data on 43 distinct cities with differing reactions to the pandemic, they found that “cities that implemented NPIs for longer tend to be clustered in the upper-left region (low mortality, high growth), while cities with shorter NPIs are clustered in the lower-right region (high mortality, low growth).” The authors find “that NPIs play a role in attenuating mortality, but without reducing economic activity. If anything, cities with longer NPIs grow faster in the medium term.”

Among the typical economic problems the pandemic seemed to cause, the authors found “more severely affected areas experience a relative decline in manufacturing employment, manufacturing output, bank assets, and consumer durables” and that the 1918 pandemic “led to an 18% reduction in state manufacturing output for a state at the mean level of exposure. Exposed areas also see a rise in bank charge-offs, reflecting an increase in business and household defaults.”

The analysis of NPIs, though, is of perhaps more instant interest as we watch economic activity frozen by pandemic-related interventions. As the authors note, “All else equal, NPIs constrain social interactions and thus economic activity that relies on such interactions” so a first guess might be they’d impose long-term economic damage.

Despite that initial intuition, on digging they found:

Comparing cities by the speed and aggressiveness of NPIs…early and forceful NPIs do not worsen the economic downturn. On the contrary, cities that intervened earlier and more aggressively experience a relative increase in manufacturing employment, manufacturing output, and bank assets in 1919, after the end of the pandemic. The effects are economically sizable. Reacting 10 days earlier to the arrival of the pandemic in a given city increases manufacturing employment by around 5% in the post period. Likewise, implementing NPIs for an additional 50 days increases manufacturing employment by 6.5% after the pandemic.

NPIs were common in 1918, being adopted in all major cities though not all with the same speed and severity. The authors were able to gather information on the speed and length of “school closure, public gathering bans, and isolation and quarantine” for 43 cities, via “municipal health department bulletins, local newspapers, and reports on the pandemic.” In 1918, “local responses were not driven by a federal response, as no coordinated pandemic plans existed.”

To be sure, our modern economy is of a very different sort than that of 1918—one can’t help but wonder at the fate of so many in our service, entertainment, and restaurant economy of today when looking at their analysis which focused on manufacturing and banking. They don’t discuss total unemployment, for example, and interventions today leading to possible 32 percent unemployment seem possibly more worrisome than what happened in the aftermath of 1918, when the highest estimates of the unemployment rate hovered around 11.7 (though that height wasn’t reached until 1921).

The authors admit:

We cannot pinpoint the exact dynamics and mechanism through which NPIs mitigate the adverse economic consequences of the pandemic. However, the patterns we identify in the data suggest that timely and aggressive NPIs can limit the most disruptive economic effects of an influenza pandemic. The epidemiology literature finds that early public health interventions reduce peak mortality rates—flattening the curve—and cumulative mortality rates…Because the pandemic is highly disruptive for the local economy, these efforts can mitigate the abrupt disruptions to economic activity.

The researchers think they see some sign in the COVID-19 context that “Countries that implemented early NPIs such as Taiwan and Singapore have not only limited infection growth. They also appear to have mitigated the worst economic disruption caused by the pandemic. Well-calibrated early and forceful NPIs should therefore not be seen as having major economic costs in a pandemic.”

America can only hope the history the authors think they found repeats itself.

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I screwed up

First thing’s first– I screwed up.

Yesterday I wrote to you about the US government’s initiative to loan money to small businesses, and I was wrong about an important detail.

I said the maximum amount of the loan was equal to 2.5x a company’s annual payroll expense. That’s incorrect.

The correct maximum loan amount is 2.5x a company’s average MONTHLY payroll expense over the past 12 months.

[The total amount that the government intends to shovel into the economy through this program– $350 billion– is still correct.]

So, apologies for the error… that’s what I get for reading legislation at 5am on Sunday.

A few readers alerted us to my oversight. And when I re-read the legislation to confirm my mistake, I couldn’t believe what I was seeing.

Honestly, a loan of 2.5x annual payroll made sense to me. It would give small businesses plenty of firepower to stay afloat for the long haul.

But this bailout is just 2 ½ months! That’s nothing. It implies that the government thinks everything will be back to normal by mid-June.

This is the “V-shaped recovery” theory– the idea that, while the economy has come to a screeching halt, it will come roaring back in a few months… and we’ll see an economic bonanza by the end of the year.

Most of the world certainly seems to buy into this belief, swinging from one extreme to another.

Not even ten days ago the general mood was abject terror, fear, and hysteria. Today we’re back to complacency and misguided optimism.

Stock markets worldwide have surged; the MSCI World Index (which tracks 1600+ large companies from 23 advanced economies) is up nearly 20% just in the last week, and the bear market is already over.

Governments are shoveling money into their economies, and central banks are printing trillions of dollars worth of currency… so the prevailing sentiment among investors is that companies will have a bad quarter or two, but everything will be back to normal within a few months.

Now, I need to caveat what I’m about to say by stating yet again that the world is not coming to an end. Rational, thinking people will always prevail, so please don’t take my comments as pessimistic.

Last week I wrote to you about a gentleman named James Stockdale– a US Navy pilot who spent more than seven years being tortured in a Vietnamese prison camp.

Years later when asked about how he cultivated the mental strength to survive such brutal conditions, Stockdale replied:

You must never confuse faith that you will prevail in the end—which you can never afford to lose– with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

As I explained last week, the facts of our current reality are absolutely brutal.

This virus has spread at a rate never before seen in modern history.

Reducing the contagion requires shutting down most of the global economy, resulting in a wide range of catastrophic consequences, including countless jobs lost, millions of businesses going under, and even entire nations going bankrupt.

If they keep the economy shut down, hundreds of millions will suffer. But if they don’t keep the economy shut down, millions could die.

Now, the uncomfortable reality is that many people who might die of Covid-19 would likely end up dying of some other pre-existing condition. But still– what politician wants the blood of a million people on his hands?

There are, of course, patches of good news. Infections in Italy have fallen. China is starting to carefully open up for business again after a nearly 3 month hiatus.

But in the United States it’s a different story.

Infections continue to grow exponentially. Two weeks ago there were only 4,596 confirmed cases in the US. Yesterday there were 163,844, an increase of more than 35x in two weeks.

At least some of that growth rate can be explained by the increase in testing; the more people get tested, the more positive cases will be confirmed and reported.

But regardless, it’s clear that the virus is still rapidly spreading… and that’s why I find all this optimism to be so incomprehensible.

The S&P 500 rose 17% over a period of three days last week. There seems to be zero consideration given to the possibility that the pandemic could become much worse. Or there could be a second or third wave of infections.

Or that the hospital system could become totally overwhelmed. Or that many of the businesses which have closed will NEVER re-open. Or that the unemployment rate could remain elevated for quite some time.

Or that the stimulus will fall far short of the mark. Or that the market will lose confidence in the central bank. Or that social unrest will take hold. Or that supply chains could be disrupted.

It’s clear that very few people have the discipline to confront the most brutal facts of our current reality.

There are literally thousands of potential risks and consequences from this pandemic. And they’re all being ignored.

Source

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The Quarter-End Pension Rebalancing Is Over

The Quarter-End Pension Rebalancing Is Over

With stocks staging a remarkable bear market rally in the past week (even Goldman now says this is not the bottom and the impressive move of the past week is just another bear market rally), which reversed the fastest ever bear market, and pushed the S&P into a bull market…

… traders have attributed a big part of the move to what we first said more than a week ago would be forced buying by pension funds who were mandated to buy as much as $850BN in stock for quarter end to offset the underperformance of stocks vs bonds. 

To be sure, some doubt emerged whether that is indeed the case yesterday when P&I magazine reported that at least one California pension fund, the Los Angeles City Employees’ Retirement System, had temporarily modified its asset allocation and rebalancing policies, which includes allowing the staff to defer rebalancing its asset allocation, a move which many if not all other pension funds are expected to adopt.

That said, it was not clear if the new LACERS policy would take place this quarter or in the future, and so traders kept buying on Monday, frontrunning what they expected was a last minute dash by pension funds to buy stocks.

Well, at least according to Morgan Stanley’s Quantitative and Derivatives Strategist, any residual pension scramble to buy stocks is now over, and this quarter’s rebalance trade is effectively in the history books, to wit:

A week and a half ago QDS forecast $160bn in month-end equity buying as pensions and asset allocators would need to reallocate portfolios. Since then the S&P 500 is up 10% and is up 17% off the Monday lows. Our models now suggest $50bn still to buy globally (with $25bn in the US) and while that figure is still large, much of the impact may already be in the price.

As a result of the pension trade, the market’s low liquidity – “need to start earlier to spread the flow out over more days” – plus an attractive opportunity to monetize the rally in bonds and rotate into equities likely has brought forward some demand according to the QDS strategists who note that dispersion over the last few days has been in the 8th %ile since 2012 suggesting index led moves, and note that conversations with MS clients appear to suggest allocators are looking more favorably on credit than equity now.

In fact, as Morgan Stanley concludes, “equity allocations are likely now less than 1% off of target weights, which may be close enough for many allocators in this uncertain environment.”

This means that any attempt to frontrun pension funds at this point is just a frontrunning of other investors who believe they are frontrunning someone who is no longer buying.

Which brings us to a warning from Morgan Stanley:

While markets can certainly keep going higher (QDS still does forecast net equity demand over the next few days), the risk/reward of being long on asset allocation expectations alone is less clear and QDS is no longer as tactically bullish.

Finally, looking beyond month-end, QDS is concerned about a) retail MF redemptions and b) risk of L/S HF selling of Tech stocks after a strong rally in crowded longs.


Tyler Durden

Tue, 03/31/2020 – 12:38

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Why The Fed’s Bazooka Will Not Stop A Wave Of Corporate Defaults

Why The Fed’s Bazooka Will Not Stop A Wave Of Corporate Defaults

Authored by Benn Steil and Benjamin Della Rocca via The Council on Foreign Relations,

Acknowledging the enormous threat to jobs and incomes posed by the coronavirus epidemic, the Federal Reserve on March 23 pledged to use “its full range of authorities to provide powerful support for the flow of credit to American families and businesses.” 

Swift and bold action has backed up these words.

The Fed slashed its policy rate to zero and, more importantly, committed to buying Treasuries and mortgage-backed securities without limit. It is also putting cash directly into companies’ hands.

On March 17 it restarted a financial-crisis program for purchasing commercial paper—debt that companies issue to meet short-term obligations.

And on March 23 it unveiled plans to start buying corporate bonds—for the first time ever.

These moves into corporate lending are significant.

With stay-at-home orders covering 150 million Americans, consumer spending has ground to a halt. This deprives businesses of the cash they need to operate—to pay for supplies, rent, wages and the like. The Fed is therefore helping businesses borrow in order to avoid mass closures and layoffs.  Without unprecedented government intervention, St. Louis Fed president James Bullard believes unemployment could hit 30 percent next quarter.

Many companies, in fact, now look more vulnerable to financing shortfalls than in the run-up to the 2008 financial crisis. The black line in the chart above shows that U.S. manufacturing firms’ short-term liabilities have been climbing steeply since 2009. Today, the ratio of their short-term liabilities to assets stands higher than pre-crisis levels. And as the blue line shows, these firms are relying more and more on commercial paper to meet short-term liabilities.

For many cash-strapped companies, however, the Fed’s interventions will be of little or no help. The central bank’s corporate-debt buying will focus on companies with high credit ratings. But it is riskier-company borrowing that has skyrocketed of late. As the chart below shows, large shares of nonfinancial commercial paper issued since 2017 have come from lower-rated companies—much like in the run-up to 2008.

This mirrors the pattern in corporate-bond markets, where junk-bond issuance has soared. All this suggests that Fed buying will not stem the rising tide in corporate defaults.

Distressed companies are not completely out of lifelines. On March 26, the Senate approved $867 billion to support industries, small businesses, states and cities.

Still, unless the Fed expands its lending to cover low-rated borrowers, relief from the pandemic’s economic fallout for thousands of companies, and millions of workers, appears a long way off.


Tyler Durden

Tue, 03/31/2020 – 12:35

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CBS News Busted Using Overwhelmed Italian Hospital Video During Report About New York City

CBS News Busted Using Overwhelmed Italian Hospital Video During Report About New York City

It appears as thought the onset of a global pandemic and the ensuing carnage that it has wrought around the United States isn’t sensational enough for one newsmedia outlet, which was caught this week faking footage of a New York City emergency room dealing with the coronavirus outbreak.

Internet sleuths started to piece together a video clip from CBS on a report about the outbreak in New York, which was then picked up by the Gateway Pundit. The report about New York City used a video clip of an Italian hospital, seemingly overwhelmed with capacity.

The first photo is from Sky News’ coverage of the coronavirus crisis in Italy, from March 22. It shows an overwhelmed hospital staff in an emergency room in Northern Italy:

“This is the main hospital in Bergamo, in Lombardy province. It’s one of the most advanced hospitals in Europe,” Sky News reported at the time.

And this is the footage that CBS chose to air on March 25, while talking about New York City being the epicenter of the coronavirus outbreak in the U.S.:

Twitter user @Alx posted a side by side comparison of the two videos, stating “During a Pandemic it is essential that the Media gives us real and accurate information. It’s completely irresponsible for @CBSNews to use footage from an Italian Hospital when talking about the outbreak in New York City”:

CBS released a statement on Monday, admitting to the “mistake” and saying that they had taken “…immediate steps to remove it from all platforms and shows.”


Tyler Durden

Tue, 03/31/2020 – 12:20

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U.K. Cops Remind Us Why We Should Resist the Government’s Coronavirus Power Grabs

When the U.K. Parliament sought out broad new authorities to surveil and control people to fight the spread of the coronavirus, leaders insisted that these powers would be used responsibly and specifically for public health matters.

It took all of a weekend for a police department in England to show exactly why citizens shouldn’t trust officials to wield power responsibly.

Last Thursday, Parliament passed a bill forcing citizens to shelter in place, restrict their movement, and close down non-essential businesses and commerce. Fines for violators start at 60 pounds ($75) but can escalate up to 960 pounds ($1,200) for repeat scofflaws.

The law is full of exceptions. People are not prisoners in their own homes. But apparently the police in Derbyshire decided they knew what the law said without closely reading it. People need to stay indoors! So over the weekend, they sent their drones out to snoop on and attempt to shame people who had driven out to a park or gone for walks. Then they posted a video on Twitter:

Here’s the problem, beyond the creepy secret surveillance: These people in the video are not in violation of this new law. The Derbyshire Police are in the wrong. The section of the law that lists restrictions on movement for U.K. citizens provides an exception “to take exercise alone or with members of their household.” That is what all the people in this video appear to be doing. There are no large congregations of people in the video risking spreading the coronavirus to each other at all. Rather than shaming people, this video shows that the cops have no idea what this law they’re enforcing actually says.

Over at Spiked, Deputy Editor Tom Slater takes note of how British police are rushing out and deciding for themselves what the law means in ways that are stupid and controlling—and also wrongheaded. He notes that government officials have said that part of the law “means” that people are supposed to take exercise near their homes and only once per day. But that’s not what the law actually says, and Slater notes that police have confirmed that it is not a violation to drive out to somewhere isolated to get your exercise in. And, of course, busybody neighbors are now flooding police with calls whenever they see somebody outdoors.

But at least there’s a certain logic behind the belief that British citizens are forbidden to travel to parks to exercise, even if this interpretation of the law is incorrect. Less understandable is an effort by some U.K. police officers to attempt to control what products individual stores sell. Several convenience stores across England have said police and health officials are attempting to order them to stop selling chocolate Easter eggs because they say these goods are not essential.

But again, police are misreading the law. The law doesn’t declare that some goods are or are not essential. It declares that some shops are essential or non-essential. The shops that are allowed to remain open are largely permitted to sell whatever they want. Chocolate eggs are not a vector of coronavirus transmission!

These stupid examples are exactly why people resist government authority, even in times of great crisis.

Meanwhile, here in the United States, government officials are threatening people with jail time for violating quarantine orders. This is both a nastily authoritarian and particularly stupid response: Jails and prisons across the United States are becoming vectors of COVID-19 transmission. If you’re a mayor or police chief and you want to signal that you value “being in charge” over protecting actual public health and safety, dragging people to jail for violating your curfews should do it. Serious people don’t fight the coronavirus by threatening to expose more people to the coronavirus.

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Spanish Flu Experience Might Indicate That Public Policy Interventions Don’t Have Long-Term Economic Effects

Pandemics have substantial economic costs, but the things governments choose to do (or stop doing) to ease the pandemic can do economic good even beyond lowering mortality, according to a new preliminary study posted on the Social Sciences Research Network, authored by Sergio Correia (of the Federal Reserve Board), Stephan Luck (of the Federal Reserve Bank of New York), and Emil Verner (of Massachusetts Institute of Technology).

While it is very hard to feel good about the short-term economic outlook now with so many businesses, people, and industries deprived of the ability to earn income for an indeterminate period, their findings do provide some historical grounds for something short of utter despair about restrictions done to slow the pandemic spread.

A series of pre-COVID-19 economic analyses on the economic effect and aftermath of the 1918 Spanish flu pandemic, reviewed previously at Reason, were short on granular discussion of how government or social reactions to the disease influenced economic outlooks or recovery. This new study, “Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu,” out just last week, tries to do that.

The authors look at “non-pharmaceutical interventions” (NPIs) during last century’s Spanish Flu pandemics and note “NPIs implemented in 1918 resemble many of the policies used to reduce the spread of COVID-19, including school, theater, and church closures, public gathering and funeral bans, quarantine of suspected cases, and restricted business hours.”

After considering these interventions, they find “areas that were more severely affected by the 1918 Flu Pandemic see a sharp and persistent decline in real economic activity.” But don’t blame the NPIs, since “early and extensive NPIs have no adverse effect on local economic outcomes. On the contrary, cities that intervened earlier and more aggressively experience a relative increase in real economic activity after the pandemic.”

Checking data on 43 distinct cities with differing reactions to the pandemic, they found that “cities that implemented NPIs for longer tend to be clustered in the upper-left region (low mortality, high growth), while cities with shorter NPIs are clustered in the lower-right region (high mortality, low growth).” The authors find “that NPIs play a role in attenuating mortality, but without reducing economic activity. If anything, cities with longer NPIs grow faster in the medium term.”

Among the typical economic problems the pandemic seemed to cause, the authors found “more severely affected areas experience a relative decline in manufacturing employment, manufacturing output, bank assets, and consumer durables” and that the 1918 pandemic “led to an 18% reduction in state manufacturing output for a state at the mean level of exposure. Exposed areas also see a rise in bank charge-offs, reflecting an increase in business and household defaults.”

The analysis of NPIs, though, is of perhaps more instant interest as we watch economic activity frozen by pandemic-related interventions. As the authors note, “All else equal, NPIs constrain social interactions and thus economic activity that relies on such interactions” so a first guess might be they’d impose long-term economic damage.

Despite that initial intuition, on digging they found:

Comparing cities by the speed and aggressiveness of NPIs…early and forceful NPIs do not worsen the economic downturn. On the contrary, cities that intervened earlier and more aggressively experience a relative increase in manufacturing employment, manufacturing output, and bank assets in 1919, after the end of the pandemic. The effects are economically sizable. Reacting 10 days earlier to the arrival of the pandemic in a given city increases manufacturing employment by around 5% in the post period. Likewise, implementing NPIs for an additional 50 days increases manufacturing employment by 6.5% after the pandemic.

NPIs were common in 1918, being adopted in all major cities though not all with the same speed and severity. The authors were able to gather information on the speed and length of “school closure, public gathering bans, and isolation and quarantine” for 43 cities, via “municipal health department bulletins, local newspapers, and reports on the pandemic.” In 1918, “local responses were not driven by a federal response, as no coordinated pandemic plans existed.”

To be sure, our modern economy is of a very different sort than that of 1918—one can’t help but wonder at the fate of so many in our service, entertainment, and restaurant economy of today when looking at their analysis which focused on manufacturing and banking. They don’t discuss total unemployment, for example, and interventions today leading to possible 32 percent unemployment seem possibly more worrisome than what happened in the aftermath of 1918, when the highest estimates of the unemployment rate hovered around 11.7 (though that height wasn’t reached until 1921).

The authors admit:

We cannot pinpoint the exact dynamics and mechanism through which NPIs mitigate the adverse economic consequences of the pandemic. However, the patterns we identify in the data suggest that timely and aggressive NPIs can limit the most disruptive economic effects of an influenza pandemic. The epidemiology literature finds that early public health interventions reduce peak mortality rates—flattening the curve—and cumulative mortality rates…Because the pandemic is highly disruptive for the local economy, these efforts can mitigate the abrupt disruptions to economic activity.

The researchers think they see some sign in the COVID-19 context that “Countries that implemented early NPIs such as Taiwan and Singapore have not only limited infection growth. They also appear to have mitigated the worst economic disruption caused by the pandemic. Well-calibrated early and forceful NPIs should therefore not be seen as having major economic costs in a pandemic.”

America can only hope the history the authors think they found repeats itself.

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