“There Are Only Two Perfect Hedges…”

“There Are Only Two Perfect Hedges…”

Authored by Bill Blain via MorningPorridge.com,

“There are only two perfect hedges; the first is a flat book and the other is to be found in a Japanese garden.”

(I must thank my fellow teenage scribbler Anthony Peters for this morning’s quote.)

I warned April was going to be bad. Stocks down, bonds up. Everyone shocked and surprised by the Trump’s admission “It’s going to be bad…”, apparently. If you are still looking at the virus news for clues, wake up: It is bad, it’s going to peak, there is a risk of second wave. Stop. You can’t do anything about it. And if you worry about Covid-19, you are worrying about the wrong stuff.

It’s about the economy, stupid! 

I was reading an investment letter from a well known UK asset manager this morning, who are blithely predicting a V-Shaped recovery from the third quarter onwards will get investors their money back.

They had the good sense to caveat it with some “as long as the virus doesn’t change the rules” mumble-swerve. They think QE Infinity packages have “resolved” the debt bubble, the equity market is now realistically priced for a global recovery, governments’ have mitigated the damage, and we will see a massive jump in sentiment, activity and repressed demand when the lockdowns end, and economies reopen with a leap of unfettered joy. 

I want to meet their crack dealer. It must be extraordinary stuff. 

There is certainly going to be recovery – and not just on the back of pent-up demand, but it’s going to be seriously crippled by the damage already done. Whether companies have been shuttered, bankrupted or nationalised, it’s going to impact the speed of their response. Putting millions of people and companies back to work, in a decimated work-scape will not be immediate. Resolving billions of claims and counter claims will be fraught. I suspect it will be a great time to be a corporate lawyer, insolvency practitioner, and forensic accountant. 

How quickly we come out of this depends on how RESILIENT our economies prove to be. I am concerned. 

Governments have made big promises. There is a growing risk many of their support packages, designed to mitigate the effect of lockdown, could be perceived as failing. Perception is reality. Policy Deliverability is a critical component of Government efforts to enhance the Resilience of their economies to this crisis. At the moment the anecdotal evidence suggest they are long promises, short deliverables.  

Give them time… but..

Resilience is a function of confidence the government is doing the right thing. Here in the UK we pride ourselves on our ability to triumph in adversity, get through the bad times, and our National Resilience. That is going to be severely tested in coming weeks. For instance, the dismal performance of equivocating ministers shows it’s clear our “Wartime Government” utterly failed to coordinate the deliverability of an effective testing policy – which has massive implications for effectively handling the virus crisis and particularly timing the end of the economically catastrophic lockdown. 

Failures happen. We learn from them. 

Consider the pitiful confused response of the UK government in the opening years of the Second World War, taking years to find its stride, but eventually delivering a coordinated wartime economy that massively outproduced and outfought our enemies. That took place over 6 years. This time we have a few weeks.  

There are lots of new policies, programmes and plans. There are risks in terms of their long-term consequences and effects, but the biggest risk is their immediate deliverability. Read through the papers this morning and you get snapshots of just how demanding the need for them is:  

  • There have been more immediate layoffs around the globe already than through the whole of the 2007-2009 crisis. UK Universal Credit Claims jumped by 1 mm people last week – UK unemployment is headed for double digits. Norway’s unemployment rate already hit 10.4%. Half a million German SME’s have applied for support to shorten worker hours. Danny Blanchflower, now of Dartmouth College, predicts 10 million Americans were put out of work in March.

  • Most consumers have limited reserves and savings to cope with long-term loss or reduced earnings. The losses we’ve already seen in auto-loans, credit cards, student loans, and rentals are going to multiply. A massive global consumer Demand Shock is imminent. 

  • Companies are complaining government loan guarantees are locked up in red-tape and difficult to obtain. Shuttered shops and restaurants across the UK are receiving threatening demands to pay rent or go to court. (Knight Frank says less than a 1/3rd of the UK high street is paying rent.) Similar is happening across the Occidental world. 

  • Airlines are begging for bailouts. Companies around the globe are scrabbling for cash to withstand a few months of shutdown. Companies are going to be constrained for years by the long-term consequences of surviving this immediate crisis. Just-in-time companies lack time to survive.

These are all facts of real economic damage. Pile on top of that theoretical damage like a sovereign risk crisis in Europe, a renewed trade war as China tries to muscle in on US allies, and just how bad an oil crisis develops… 

On the topic of China, a must read WSJ piece this morning: China Assets Claim to Global Leadership, Mask by Mask.. It’s got some great quotes:

“When the epidemic started to explode everywhere, it was China who the entire world asked for help, and not the United States, the ‘beacon of democracy,’” the embassy said.

“It is China who lent a helping hand to more than 80 nations. Not the United States.”

Or how about this classic:

“Faced with this great epidemic, the philosophy of a community of shared future for mankind put forward by President Xi Jinping has seen its value for these times magnified,” Vice Foreign Minister Luo Zhaohui said in a press conference.

In view of all these points, ask yourself if you’d stay invested in the optimism of the firm that wrote the investment letter I referred to above….

Meanwhile.. Cruising… 

Sometimes even I am surprised. Carnival Cruise Lines raised a $4 bln from a new 3-year 12% bond issue yesterday, secured on its fleet. I thought cruising was finished, but apparently the customers are still queuing up to buy holidays, and 45% of Carnival customers chose credit for future trips rather than a cash refund for cancelled trips. Forget the fact the new cash will only keep them solvent through the summer – when they will need more – or what the ships might be worth.. (there is always scrap.)

On the back of QE infinity – well you can apparently sell anything. New issue bond markets have never been so busy, pumping out bonds the punters are happy to buy, secure in the knowledge the Fed or the ECB will backstop them with QE bids. What’s not to like… 

What’s interesting is BBB rated Carnival is paying 12% on the back of its compromised business and distressed assets. Yet, I am hearing there are funds willing to bid even more aggressively for similar distressed assets in equally troubled industries. (If anyone has a couple of billion to invest in senior secured debt with good security over modern assets, and a 4%+ coupon, give me a shout..) 

Boeing

I might have upset a few C-Suite execs at Boeing y’day when I described the plane maker as an object lesson in doing absolutely the wrong thing on my Webinar for Iskha on the Outlook for Aviation. I ended up asking the question: “Why bail out Boeing for its appalling corporate behaviour?” 

My reasoning was that it’s a critical part of the US industrial ecosystem, but if the US is really heading for a wartime footing why not address air travel holistically: nationalise it, and pump in the money required to design and build new fuel efficient, composite aircraft that will prove long-term environmentally friendly, and be what airlines and passengers want when the global economy reopens.

Why not? 


Tyler Durden

Thu, 04/02/2020 – 10:44

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Oil, Stocks Soar After Trump Says He Expects Oil Production Cut; Russia/Saudis Deny

Oil, Stocks Soar After Trump Says He Expects Oil Production Cut; Russia/Saudis Deny

Update (1045ET): Shortly after the market moved on this tweet, Russian State Newswire RIA Novosti reports that “Kremlin denies President Putin has spoken with Saudi Crown Prince.”

Which appears to confirm what we said below. It is unclear if this is ‘new’ news or Bloomberg reporting ‘old’ news.

Additionally, Bloomberg’s Javier Blas notes that the statement from Riyadh (via the Saudi official news agency) is far more measured:

All code words from the Saudis for a deal that needs to include cuts from every nation.

So it appears like Trump ‘bent the truth’ that any agreement was in place or imminent.

Oil (and stocks) are both fading…

GLJ research’s Gordon Johnson is skeptical also, writing that:

“$25 WTI doesn’t help US. We need $50. What trump is doing doesn’t matter. More BKs.

No new rigs coming back if they cut production. All they’re doing is filling a 20mm barrel hole that we have b/c planes and cars are grounded.

And once economy comes back they turn back on anyway.

Market will be back negative by lunch.”

*  *  *

Whether it’s just more desperate jawboning or resembles reality, CNBC’s Joe Kernan reports that he just spoike to President Trump who claims his conversations with Putin and MbS suggest an oil production cut of up to 15mm barrels/day is imminent.

President Trump tells CNBC that he spoke to President Putin yesterday and Saudi Crown Prince today and expects them to announce an oil production cut of 10 million barrels and could be up to 15 million. 

President Trumptold reporters in Washington this morning that…

“Worldwide, the oil industry has been ravaged. Its very bad for Russia, its very bad for Saudi Arabia. I mean, its very bad for both. I think they’re going to make a deal.”

…and has just tweeted his confirmation:

The result is not surprisingly a massive 35% surge in crude…

With a huge gap higher as Trump stopped everyone out…

Stocks are also being buoyed by this…

We suggest skepticism here is well placed – it makes no sense for Saudis to back down now.

Just this morning, Kremlin spokesman Dmitry Peskov told reporters on a conference call that consultations with Saudi Arabia haven’t started yet and that there are no plans for Putin to contact Saudi leadership in next day or two. Additionally, he noted that “nobody is satisfied” with the situation on the global oil market, and confirmed that there have been no discussions yet of any possible agreements to replace OPEC+.


Tyler Durden

Thu, 04/02/2020 – 10:34

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China Rejects US Intelligence Report Claiming Beijing Lied About Coronavirus Numbers

China Rejects US Intelligence Report Claiming Beijing Lied About Coronavirus Numbers

Many were perplexed earlier this week by a headline proclaiming that Beijing would disclose a number of “asymptomatic” COVID-19 patients who hadn’t been previously included in the country’s numbers. As it dawned on them that the CPC was finally conceding, in its own roundabout way, that it had doctored the numbers during the height of the outbreak, rumors started to swirl, and reporters started picking up phones and calling their sources in the intelligence community.

That apparently culminated in the leaking of a classified intelligence report that detailed US intelligence’s findings about Beijing’s efforts to conceal the extent of the outbreak. The fact that China lied about the numbers probably surprised absolutely no one. But everybody knows how Beijing hates it when the international community says the quiet part out loud. Especially at a time when Beijing appears to be slowly reinstating lockdown conditions amid a resurgence in cases that officials have blamed on foreigners.

Hua Chunying

President Trump was unsurprisingly questioned about the report during last night’s press briefing. When asked, Trump denied that he had received an intelligence report like the one described by Bloomberg, but he added that China’s data do ‘appear low’.

“Their numbers seem to be a little bit on the light side, and I’m being nice when I say that,” Trump said.

And as we reported at the time, Vice President Mike Pence told CNN on Wednesday that “the reality is that we could have been better off if China had been more forthcoming.”

That was probably the final straw for Beijing. Because on Thursday morning, Foreign Ministry spokeswoman Hua Chunying – a name that’s probably familiar to readers from the time China accused the US of ‘inciting panic’ during the early days of the outbreak (remember, the one Democrats wanted to reverse) – defended China’s handling of the outbreak as “open and transparent.”

“Some U.S. officials just want to shift the blame,” Hua told a regular briefing in Beijing. “Actually we don’t want to fall into an argument with them, but faced with such repeated moral slander by them, I feel compelled to take some time and clarify the truth again.”

Hua hit back by asking what the US has been doing for the last two months while the virus quietly spread across the country.

Hua questioned the speed of the U.S.’s response to the virus after banning arrivals from China on Feb. 2. “Can anyone tell us what the U.S. has done in the following two months?” she said.

According to the US intel report, China intentionally lowered case totals and death tolls, and withheld information to its global partners during the early days of the outbreak. Though Beijing eventually resorted to strict lockdowns that would never fly in the West, crushing the outbreak by sheer intensity, its repeated “adjustments” to its counting “methodology” sowed widespread doubt about China’s numbers. Officially, the country has reported roughly 82k cases and 3,300 deaths.

But experts suspect that the real totals for both could be far higher, tens of thousands, perhaps hundreds of thousands, of mild cases were likely left out, while the surge in the number of bodies quietly cremated showed up in some surprising places.


Tyler Durden

Thu, 04/02/2020 – 10:30

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COVID-19 Is Now The Third Leading Cause Of Death In The United States

COVID-19 Is Now The Third Leading Cause Of Death In The United States

Authored by Michael Snyder via The End of The Amnerican Dream blog,

More than 1,000 Americans died from the coronavirus on Wednesday.  As you will see below, that now makes COVID-19 the third leading cause of death in the United States on a daily basis. 

Unfortunately, the number of Americans dying from the coronavirus is expected to rise even more in the weeks ahead.  As the total number of confirmed coronavirus cases globally gets ready to cross the one million mark, many of those that initially attempted to downplay this pandemic are now changing their tune.  I think that it really startled a lot of people when President Trump warned that 240,000 U.S. citizens could potentially die during this pandemic.  Trump is taking COVID-19 very seriously, and everyone else should be as well.  This is truly a major national crisis, and it is just getting started.

But even though I have been writing about this pandemic day after day, I didn’t realize that coronavirus had already become the third leading cause of death in the entire country

A physician in San Diego, California, and data from the Centers for Disease Control and Prevention (CDC) are reporting that the coronavirus is now the third leading cause of death, killing 748 people a day in the United States.

This is only outranked by deaths from heart disease (1,774 a day) and cancer (1,641 a day).

And as I noted above, more than 1,000 people died from the coronavirus on Wednesday, and so this pandemic is catching up to heart disease and cancer very rapidly.

Made with Flourish

In fact, there are some that believe that coronavirus will actually become the leading cause of death in the U.S. “by mid-April”

Some researchers say the daily death toll could more than double – to 2,200 or more – by mid-April. That figure would eclipse heart disease, the nation’s No. 1 killer with about 1,772 deaths per day, according to the CDC.

To say that we were unprepared for a pandemic of this nature is a major understatement.

There are shortages of essential supplies all over the nation, and the federal government has almost entirely depleted the inventory of personal protective equipment in the Strategic National Stockpile

The Strategic National Stockpile is deploying the last round of shipments in its inventory, depleting the bulk of its protective gear, according to a source familiar with the matter.

The official added that the stockpile was never meant to serve as the only source of protective gear for the entire coronavirus response and said the states would need to get more supply from the private market.

We are supposed to have the greatest healthcare system in the whole world, but some of the things that we have been witnessing as this crisis has unfolded have been nothing short of horrifying.

There have been stories of doctors using the same mask over and over again, and in some hospitals nurses are being instructed to only use masks under very limited circumstances

There’s a perception among hospital nurses that our employers are not doing enough to protect us during this pandemic and that this puts our patients and the public at risk. Multiple hospitals across the country have insisted that nurses not use protective equipment except for those patients who have been placed on isolation precautions, even for patients who show symptoms consistent with COVID-19 but have not been diagnosed with it.

And if you can believe it, in some cases nurses have even been disciplined for wearing masks when they are not personally interacting with patients…

As a result, some health care workers are facing the threat of disciplinary action for wearing masks in the hallways, elevators and shared clinical and nonclinical areas of hospitals—in some instances even if they come from the worker’s own supply.

And a number of doctors and nurses are distraught over this, says Megan Ranney, associate professor of emergency medicine, Brown University. “I have heard multiple anecdotes from colleagues in other states who report they were personally disciplined or lectured when seen wearing procedural masks in the halls of their hospitals,” she remarks.

Is this really happening?

In one particularly disturbing incident, a nurse was actually asked to deal with very sick patients without wearing a mask at all, and that made national headlines when she quit her job and ranted about it on social media.

I don’t know why every doctor and nurse in America is not wearing a mask at all times at this point, and those that are knowingly putting them in danger should be completely and utterly ashamed of themselves.

Meanwhile, the U.S. is still having a major problem getting coronavirus tests processed in a timely fashion.  The following comes from CNN

As the US health care system has scrambled to track the spread of coronavirus, one of the nation’s largest commercial labs has faced a backlog of tests that ballooned in the last two weeks, and has delayed results in some cases up to 10 days.

New Jersey-based Quest Diagnostics had about 160,000 coronavirus test orders waiting to be processed on March 25, which amounted to about half of the 320,000 total orders for the tests the company had received up to that date, according to Quest internal materials obtained by CNN.

Officially, the U.S. has more than 215,000 confirmed cases as I write this article, but if results were being processed in a timely manner that number would likely be far, far higher by now.

Of course there are still many people out there that are insisting that this pandemic is being overblown, but if that is the case then why did FEMA just put in a request for 100,000 body bags?

The Pentagon is seeking to provide as many as 100,000 military-style body bags for potential civilian use as the U.S. warns that deaths could soar in the coming weeks from the coronavirus pandemic.

The Federal Emergency Management Agency has requested 100,000 body bags, known as Human Remains Pouches, through an interagency group that directed it to the Defense Department. The Pentagon is looking into buying more bags and will draw some initially from a stockpile of 50,000 it maintains, according to two people familiar with the request.

And if this pandemic is not really that much of a threat, then why is New York City having prisoners dig mass graves?

NEW YORK CITY is offering prisoners at Rikers Island jail $6 per hour — a fortune by prison labor standards — and personal protective equipment if they agree to help dig mass graves on Hart Island, according to sources with knowledge of the offer. Avery Cohen, a spokesperson for the office of Mayor Bill de Blasio confirmed the general arrangement, but said that it was not “Covid-specific,” noting that prisoners have been digging graves on Hart Island for years.

For those that are still doubting, it is time to wake up.

People are dying all around us, the economy is collapsing, millions of Americans are losing their jobs, and “the perfect storm” has finally arrived.

Approximately 75 percent of the country is shut down right now, and the “shelter-in-place” orders are not likely to be lifted for quite some time.

In anticipation of being cooped up in their homes for an extended period, many Americans stocked up on toilet paper, and now we have learned that sales of alcoholic beverages have also gone through the roof

U.S. sales of alcoholic beverages rose 55% in the week ending March 21, according to market research firm Nielsen. Spirits like tequila, gin and pre-mixed cocktails led the way, with sales jumping 75% compared to the same period last year. Wine sales were up 66% while beer sales rose 42%. And online sales far outpaced in-store sales.

Nielsen said online alcohol sales were up 243%. Danelle Kosmal, a Nielsen vice president, suspects growth rates peaked that week as people loaded up their pantries before state stay-at-home orders went into effect.

It is during times of great crisis that we find out who we really are, and the weeks ahead are going to greatly test all of us.

Pray for those that are sick, pray for those that are dying, and let us all hope that this pandemic will pass as quickly as possible.

But at this moment it appears that we still have a long battle ahead of us, and that battle is going to change America permanently.


Tyler Durden

Thu, 04/02/2020 – 10:14

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Are There Fiscal Conservatives in a Pandemic? The Club for Growth Says It Doesn’t Matter.

On its website, the Club For Growth describes itself as “the only organization that is willing and able to take on any member of Congress on policy who fails to uphold basic economic conservative principles…regardless of party.”

The Club does indeed have a long track record within conservative politics. It was the tea party movement before there was a tea party movement; the rare D.C. organization that cared more about who was paying for the government than who was getting paid by it. The Club made its name by providing grassroots activists with congressional scorecards and candidates with a sought-after endorsement for abiding by the principles of low taxes, balanced budgets, and smaller government.

The Club prides itself on “exerting maximum pressure on lawmakers to vote like free-market, limited government conservatives,” as the organization’s website explains. “And when they don’t, we hold them accountable by publicizing their voting record.”

Except, well…not right now.

The Club for Growth is not including last week’s vote on the $2.3 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in its annual congressional scorecard. The bill passed the Senate without a single dissenting vote and cleared the House on a voice vote after Rep. Thomas Massie’s (R–Ky.) effort to require a roll-call vote was thwarted.

David McIntosh, president of the Club for Growth, said in an interview with Morning Consult that the group chose not to include the vote in its scorecard because “we understand the politics of needing to show the public we’re doing everything we can.”

As Morning Consult‘s Eli Yokley observes, that’s pretty much how conservatives are reacting across the board. Prominent conservative groups are refusing to criticize Republican lawmakers and President Donald Trump for the massive spending package, and polling shows fewer than 1 in 10 Republican voters disapprove of the measure’s passage.

That tells you something about the current state of the conservative movement. When the last Republican president signed the $700 billion Troubled Asset Relief Program (TARP), otherwise known as the 2008 bank bailout, polling from Gallup found that fewer than half of all Republicans supported it. When President Barack Obama signed the American Recovery and Reinvestment Act, the $833 billion stimulus passed in the wake of the last economic collapse, only about 30 percent of self-identified conservatives approved, Gallup found.

Now, we’re spending a whole lot more money with a whole lot less opposition.

As Reason Editor at Large Matt Welch put it last week: “There is no more politics of fiscal prudence in America, just a competition to see who can wag the biggest firehose.”

If fiscal conservatism still held any cache among Republican lawmakers, voters, and activists, there would have been an outcry about President Donald Trump and Republicans in Congress inflating the deficit to record highs over the past three years. It wasn’t all that long ago that grassroots conservatives were toasting the toppling of high-ranking Republicans for lesser slights.

If it meant anything, the Club for Growth wouldn’t have sided with a deficit-hiking president in his blood-feud with Rep. Justin Amash (I–Mich.). It wasn’t all that long ago that the Club for Growth was pouring money into Amash’s campaign coffers, probably because he owns a 98 percent lifetime rating on the group’s scorecards—you know, the ones that apparently don’t matter anymore.

The CARES Act was never going to be stopped by token opposition from the Club for Growth or its fellow travelers in the formerly influential circles of fiscal conservatism. That’s not the point. Holding people accountable doesn’t always mean they lose their jobs. But there is value in keeping voters informed, even if only as a way to deter future votes on similar measures. The lawmakers who voted for the CARES Act would be free to explain to voters why it was necessary to hand $60 billion—$32 billion in straight cash—to America’s airlines to stop COVID-19. Voters would decide as they will.

“We hold them accountable by publicizing their voting record,” is what the Club promises to do. And when you don’t do that thing—you had literally one job—it sends a signal about priorities that unfortunately run a lot deeper than a single vote.

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The Right to Unmarry: A Proposal Within a Proposal

Brian Frye and Maybell Romero’s new essay on The Right to Unmarry has a most unusual abstract:

BLF: This is a marriage proposal in the form of a law review article. In this article, I observe that Maybell Romero and I are in love. I want to marry her, and I believe she wants to marry me. At least I’ll find out pretty soon. But we cannot marry each other right now, because we are both currently married to other people.

Maybell and I want to end our existing marriages, and our respective spouses have even agreed to divorce. But the government will not allow us to marry each other until it decides to terminate our current marriages.

Maybell is unaware of this prologue to our article, describing our personal circumstances, but I’m sure she’ll see it soon. Wish me luck.

The Constitution protects the fundamental right to marry the person of your choice, so long as the choice is mutual. Any two people can agree to marry each other, and the government cannot stop them.

But the government can and does regulate the dissolution of marriages. While people can divorce, they need the government’s permission. A marriage isn’t over until the government says it is. And a person cannot remarry until their divorce is final. In other words, The government cannot prevent people from marrying each other, but it can and does force them to remain married.

We believe that people should be able to end a marriage and start a new one whenever they want. Indeed, we believe it is their constitutional right. If due process protects the right to marry based on autonomy and dignity, then it must also protect the right to unmarry on the same grounds. If it offends autonomy and dignity to prohibit a marriage, it offends autonomy and dignity to preserve a marriage, against the will of the married.

The state can legitimately regulate the allocation of property when a marriage is dissolved, just like it regulates the dissolution of any other partnership. But it cannot legitimately force people to remain married against their will or prevent them from remarrying. As always, love will out.

On the merits, my immediate objection was that divorce requires tying up loose ends. But they offer an answer to this:

[D]ivorce disputes are not about marital status, but about the distribution of property, the custody of children, and other contentious issues. None of these are implicated by the right to unmarry. Courts can and must resolve these difficult questions over a period of time, in consultation with the parties. But there is no reason or need for the marriage itself to persist, in order to address them.

So the right of which the authors speak is not the right to unmarry so much as the right to unmarry immediately. My remaining objection then is that it is not clear to me that the right to marry entails the right to marry immediately or even quickly. Anthony Kronman has noted “the statutory rule (found in many states) that a couple may not marry until a stated period of time has passed until the issuance of their license and that, once married, they may not obtain a divorce decree before the end of a similar cooling-off period.” Anthony T. Kronman, Paternalism and the Law of Contracts, 92 Yale L.J. 763, 788 (1983). To be sure, the cooling-off period for marriage is generally much shorter than the time it takes to complete a divorce. One possible explanation is that states do not wish to discourage shotgun weddings when a woman is pregnant.

One could imagine a longer cooling-off period for marriage, at least when pregnancy is not involved. Would it be so terrible if states required a couple to take a trip together before getting married (if possible within their means), or to answer jointly a questionnaire about how they might deal with some difficult questions, especially as to children, or to attest multiple times over a three-month period that they really do want to get married? My purpose here is not to advocate that states require more deliberation before marriage, but the idea does not seem crazy to me, and if that’s so, it’s also not clear to me that cooling-off periods for divorce are problematic.

But Frye and Romero should be applauded for pointed out the asymmetry in current policy. I wish them (as well as their current spouses) best of luck in their endeavors, personal and professional.

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Are There Fiscal Conservatives in a Pandemic? The Club for Growth Says It Doesn’t Matter.

On its website, the Club For Growth describes itself as “the only organization that is willing and able to take on any member of Congress on policy who fails to uphold basic economic conservative principles…regardless of party.”

The Club does indeed have a long track record within conservative politics. It was the tea party movement before there was a tea party movement; the rare D.C. organization that cared more about who was paying for the government than who was getting paid by it. The Club made its name by providing grassroots activists with congressional scorecards and candidates with a sought-after endorsement for abiding by the principles of low taxes, balanced budgets, and smaller government.

The Club prides itself on “exerting maximum pressure on lawmakers to vote like free-market, limited government conservatives,” as the organization’s website explains. “And when they don’t, we hold them accountable by publicizing their voting record.”

Except, well…not right now.

The Club for Growth is not including last week’s vote on the $2.3 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in its annual congressional scorecard. The bill passed the Senate without a single dissenting vote and cleared the House on a voice vote after Rep. Thomas Massie’s (R–Ky.) effort to require a roll-call vote was thwarted.

David McIntosh, president of the Club for Growth, said in an interview with Morning Consult that the group chose not to include the vote in its scorecard because “we understand the politics of needing to show the public we’re doing everything we can.”

As Morning Consult‘s Eli Yokley observes, that’s pretty much how conservatives are reacting across the board. Prominent conservative groups are refusing to criticize Republican lawmakers and President Donald Trump for the massive spending package, and polling shows fewer than 1 in 10 Republican voters disapprove of the measure’s passage.

That tells you something about the current state of the conservative movement. When the last Republican president signed the $700 billion Troubled Asset Relief Program (TARP), otherwise known as the 2008 bank bailout, polling from Gallup found that fewer than half of all Republicans supported it. When President Barack Obama signed the American Recovery and Reinvestment Act, the $833 billion stimulus passed in the wake of the last economic collapse, only about 30 percent of self-identified conservatives approved, Gallup found.

Now, we’re spending a whole lot more money with a whole lot less opposition.

As Reason Editor at Large Matt Welch put it last week: “There is no more politics of fiscal prudence in America, just a competition to see who can wag the biggest firehose.”

If fiscal conservatism still held any cache among Republican lawmakers, voters, and activists, there would have been an outcry about President Donald Trump and Republicans in Congress inflating the deficit to record highs over the past three years. It wasn’t all that long ago that grassroots conservatives were toasting the toppling of high-ranking Republicans for lesser slights.

If it meant anything, the Club for Growth wouldn’t have sided with a deficit-hiking president in his blood-feud with Rep. Justin Amash (I–Mich.). It wasn’t all that long ago that the Club for Growth was pouring money into Amash’s campaign coffers, probably because he owns a 98 percent lifetime rating on the group’s scorecards—you know, the ones that apparently don’t matter anymore.

The CARES Act was never going to be stopped by token opposition from the Club for Growth or its fellow travelers in the formerly influential circles of fiscal conservatism. That’s not the point. Holding people accountable doesn’t always mean they lose their jobs. But there is value in keeping voters informed, even if only as a way to deter future votes on similar measures. The lawmakers who voted for the CARES Act would be free to explain to voters why it was necessary to hand $60 billion—$32 billion in straight cash—to America’s airlines to stop COVID-19. Voters would decide as they will.

“We hold them accountable by publicizing their voting record,” is what the Club promises to do. And when you don’t do that thing—you had literally one job—it sends a signal about priorities that unfortunately run a lot deeper than a single vote.

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Medical vs. Legal Experimentation

Many clinic trials are exploring the safety and efficacy of potential treatments for COVID-19. Such clinical trials generally employ the “gold standard” of randomizing patients either to a treatment or to a control (or to multiple treatments and controls). Meanwhile, across countries, we see many different public health and legal responses to COVID-19. But these never seem to be randomized.

We are left to casual empiricism to evaluate important public health questions. Are Asian countries doing relatively well in fighting COVID-19 because of masks? Or is it some other factor? Meanwhile, California and Washington, which have succeeded to a great deal in flattening the curve, have taken many different measures in fighting COVID-19. How much has each measure contributed? Once countries and states start relaxing measures, it will be important to learn about the effect of different policy aspects of lockdown, so that we can measure at least the benefits of restrictions in the cost-benefits analysis. Perhaps we will get lucky, and some governments may pick arbitrary geographic or numerical cutoffs in implementing certain policies, allowing for regression continuity designs. Eventually, patterns will become sufficiently clear from uncoordinated policy actions around the world that we will learn more about policy effects. But our understanding would improve much faster if we used randomization.

A simple example: Suppose a state is considering whether to ban work on construction projects (or, equivalently, is considering lifting such a ban). Just as a clinical trial is appropriate when we have genuine uncertainty about the effects of a treatment, so too might a randomized governmental trial be appropriate here. Rather than apply a change to all worksites at once, apply it initially to half, chosen at random. Keep in contact with construction workers to find out how many test positive (and if testing becomes cheap, test them all at the beginning and end of the experiment). This may help us learn, for example, whether outdoor contact at work is considerably lower risk than indoor contact.

Many who reflexively support the idea of medical experiments oppose legal experiments. One reason might be informed consent, which may not be possible in some legal experiments. But this is really just a question of policy baselines. Ian Ayres, Yair Listokin, and I explained in a paper about the case for randomized legal experiments a decade ago:

[M]edical experiments can generally be viewed as equivalents to policy experiments.
Subjects in medical experiments who give informed consent presumably would prefer a guarantee of receiving the treatment rather than a chance of receiving a placebo. The status quo is a legal regime that constrains liberty by forbidding distribution of the treatment. Let us assume that the legal prohibition on what Eugene Volokh has called
“medical self-defense” is permissible. When the government authorizes a medical experiment, it is effectively authorizing a new legal regime that permits patients to have access to a treatment. The government, however, does not authorize this new legal regime in a universally applicable way; instead, it insists on randomization. Only some patients will legally have access to the treatment. It is thus sometimes permissible for new legal policies, including potentially pernicious ones, to be introduced randomly.

Just as legal coercion will stop some people from receiving their treatment of choice in a medical experiment, so too will legal coercion stop some people from going to work in a legal experiment on construction projects during the pandemic. If we are very confident that we know the correct answer to whether such projects may proceed (and we may well be confident for now that a wide range of activities should be categorically banned), then we should not have an experiment. But at some point as we move into an emergency situation and at some point as we move out of an emergency situation, we will be quite uncertain about the correct policy response. In those cases, legal experimentation may be justified. If we are engaged in such experimentation, we ought to try to do it in a rigorous way so that we can make better decisions.

We are likely, alas, to have too few legal experiments in this emergency. Any one jurisdiction obtains only a portion of the social benefits of information arising from the experiment. If a single jurisdiction employs such experiments, the entire world can benefit from the resulting information, but that also means that a jurisdiction might not undertake an experiment in which social benefits exceed social costs, if the private costs exceed the private benefit. Meanwhile, the private costs include discomfort with legal experimentation, with doing something weird that is just not done. One can easily imagine a parallel universe in which people accepted legal experimentation but recoiled at the idea of medical experimentation or another parallel universe in which both kinds of experimentation were accepted, with appropriate concern for ethics regardless of the experiment type. My hope is that we move eventually toward the latter state of affairs.

 

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While a Real Epidemic Raged, the Surgeon General Was Spreading Misinformation About Masks and Vaping

On March 13, President Donald Trump stood in the Rose Garden and declared a national emergency in response to the coronavirus pandemic. 

Flanked by leading public health officials, Trump said COVID-19 threatens to strain America’s health care system and urged states to establish emergency operation centers. But there was one notable absence—the surgeon general.

The county’s top doctor wasn’t in D.C. but in New Orleans, soon to be a COVID-19 hotspot. Less than two hours before Trump took to the podium, Jerome Adams was speaking to a sparsely attended room at the Society for Research on Tobacco and Nicotine’s (SRNT) annual conference. 

SRNT is one of the biggest tobacco control conferences in the world. Academics, government officials, and nonprofits share research and ideas, mostly on how to regulate or ban nicotine products. A majority of registrants failed to show up, citing fears of contracting or spreading COVID-19. But Adams was clear: Even amid a global pandemic, regulating tobacco can’t be ignored.

“I want to give you some COVID-19 context because there are a lot of people who are probably surprised that I’m here right now,” said Adams. “Well, it’s important for us to understand more people are going to die in the next hour from smoking-related illnesses than have died in the United States from COVID-19 so far.” The statement sparked enthusiastic applause and even a whoop by an excitable attendee. 

It’s not entirely clear what relevance such a statement has, though. Most wouldn’t consider a highly contagious disease with the potential to overwhelm health care systems to be in the same basket of priorities as the voluntary use of products all users know can be lethal. Such false equivalency now seems gruesomely nonchalant, given more than 4,000 people have died from COVID-19 so far in the United States. 

Though COVID-19 was already hammering Italy—with the potential for similar situations to develop in Europe and the U.S.—Adams argued, “It is my belief as Surgeon General, that more people will die from misinformation, from panic, stigma, and discrimination than are going to die from the actual virus.”

Speaking at this conference in the middle of a pandemic and warning that “stigma” could cause more deaths than the virus itself could charitably be described as misjudgments in retrospect. Still, they’re not the only missteps Adams has made since the COVID-19 crisis began.

On February 29, Adams tweeted, “Seriously people- STOP BUYING MASKS! They are NOT effective in preventing general public from catching #Coronavirus, but if healthcare providers can’t get them to care for sick patients, it puts them and our communities at risk!.”

In a now-deleted tweet, sent on March 6, Adams said:

Screenshot via Guy Bentley

It’s now clear these statements on the effectiveness of face masks weren’t evidence-based recommendations but noble lies spread by government officials and the media meant to prevent shortfalls for health care workers.

Now Adams appears to be changing his tune on masks, writing on April 1, “Based on asymptomatic spread of #covid19 we asked CDC to look at new data to determine if we should change recommendations regarding which groups should wear masks to prevent spread. But if you choose to wear a face covering, this can’t come at the expense of social distancing.”

Aside from confusion on the issue of face masks, Adams has also inexplicably drawn a connection between the coronavirus and youth vaping. On March 23, Adams appeared on the Today Show to discuss COVID-19. Without evidence, Adams postulated that vaping could be the reason why young people may be at higher risk from COVID-19 than previously thought: “There are theories that it could be because we know we have a higher proportion of people in the United States and also in Italy who vape.”

Adams continued, “we don’t know if that’s the only cause.” Within a sentence, Adams neatly jumped from postulating an unproven theory to propagating it as fact.

There is zero evidence from anywhere in the world to support the claim Adams mooted. “There is no evidence that vaping increases the risk of infection or progression to severe conditions of COVID-19,” says the University of East Anglia’s Dr. Caitlin Notley.

After Bloomberg News ran with a headline “Vaping Could Compound Health Risks Tied to Virus, FDA Says,” following an apparently unclear email exchange with a Food and Drug Administration official, Iowa’s Attorney General Tom Miller and 12 public health experts wrote to the FDA to complain.

The letter makes clear there is, as of yet, no evidence that vaping is an additional risk factor for COVID-19. The signatories warned FDA that if its communications are, “arbitrary and ill-conceived, spreading fear and confusion with little scientific basis and with unpredictable consequences, then it would be better if FDA and its media spokespeople did not comment further at this time.”

Almost every independent expert concedes e-cigarettes are significantly safer than combustible cigarettes and have helped many smokers quit where other methods have failed. Few will disagree that teens shouldn’t be vaping, but spreading unsubstantiated claims about the risks of e-cigarettes does not lend credibility to public health authorities, especially at a time of crisis.

While there is no research on vaping and COVID-19, there is some analysis of Chinese data and the association between smoking and the coronavirus. According to an article in the European Journal of Internal Medicine, “active smoking does not apparently seem to be significantly associated with enhanced risk of progressing towards severe disease in COVID-19.” Similar results were found in an earlier preliminary analysis published in the online science platform Qeios, but data on this subject remains extremely limited. 

In December 2018, Adams declared youth vaping an “epidemic.” It’s troubling to think the surgeon general considered a minority of youth occasionally vaping a public health emergency, but until just a few weeks ago thought the flu was a bigger threat than the coronavirus.

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Medical vs. Legal Experimentation

Many clinic trials are exploring the safety and efficacy of potential treatments for COVID-19. Such clinical trials generally employ the “gold standard” of randomizing patients either to a treatment or to a control (or to multiple treatments and controls). Meanwhile, across countries, we see many different public health and legal responses to COVID-19. But these never seem to be randomized.

We are left to casual empiricism to evaluate important public health questions. Are Asian countries doing relatively well in fighting COVID-19 because of masks? Or is it some other factor? Meanwhile, California and Washington, which have succeeded to a great deal in flattening the curve, have taken many different measures in fighting COVID-19. How much has each measure contributed? Once countries and states start relaxing measures, it will be important to learn about the effect of different policy aspects of lockdown, so that we can measure at least the benefits of restrictions in the cost-benefits analysis. Perhaps we will get lucky, and some governments may pick arbitrary geographic or numerical cutoffs in implementing certain policies, allowing for regression continuity designs. Eventually, patterns will become sufficiently clear from uncoordinated policy actions around the world that we will learn more about policy effects. But our understanding would improve much faster if we used randomization.

A simple example: Suppose a state is considering whether to ban work on construction projects (or, equivalently, is considering lifting such a ban). Just as a clinical trial is appropriate when we have genuine uncertainty about the effects of a treatment, so too might a randomized governmental trial be appropriate here. Rather than apply a change to all worksites at once, apply it initially to half, chosen at random. Keep in contact with construction workers to find out how many test positive (and if testing becomes cheap, test them all at the beginning and end of the experiment). This may help us learn, for example, whether outdoor contact at work is considerably lower risk than indoor contact.

Many who reflexively support the idea of medical experiments oppose legal experiments. One reason might be informed consent, which may not be possible in some legal experiments. But this is really just a question of policy baselines. Ian Ayres, Yair Listokin, and I explained in a paper about the case for randomized legal experiments a decade ago:

[M]edical experiments can generally be viewed as equivalents to policy experiments.
Subjects in medical experiments who give informed consent presumably would prefer a guarantee of receiving the treatment rather than a chance of receiving a placebo. The status quo is a legal regime that constrains liberty by forbidding distribution of the treatment. Let us assume that the legal prohibition on what Eugene Volokh has called
“medical self-defense” is permissible. When the government authorizes a medical experiment, it is effectively authorizing a new legal regime that permits patients to have access to a treatment. The government, however, does not authorize this new legal regime in a universally applicable way; instead, it insists on randomization. Only some patients will legally have access to the treatment. It is thus sometimes permissible for new legal policies, including potentially pernicious ones, to be introduced randomly.

Just as legal coercion will stop some people from receiving their treatment of choice in a medical experiment, so too will legal coercion stop some people from going to work in a legal experiment on construction projects during the pandemic. If we are very confident that we know the correct answer to whether such projects may proceed (and we may well be confident for now that a wide range of activities should be categorically banned), then we should not have an experiment. But at some point as we move into an emergency situation and at some point as we move out of an emergency situation, we will be quite uncertain about the correct policy response. In those cases, legal experimentation may be justified. If we are engaged in such experimentation, we ought to try to do it in a rigorous way so that we can make better decisions.

We are likely, alas, to have too few legal experiments in this emergency. Any one jurisdiction obtains only a portion of the social benefits of information arising from the experiment. If a single jurisdiction employs such experiments, the entire world can benefit from the resulting information, but that also means that a jurisdiction might not undertake an experiment in which social benefits exceed social costs, if the private costs exceed the private benefit. Meanwhile, the private costs include discomfort with legal experimentation, with doing something weird that is just not done. One can easily imagine a parallel universe in which people accepted legal experimentation but recoiled at the idea of medical experimentation or another parallel universe in which both kinds of experimentation were accepted, with appropriate concern for ethics regardless of the experiment type. My hope is that we move eventually toward the latter state of affairs.

 

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