COVID-19: How I See Things Unfolding

My previous blog post summarized how I presently see the COVID-19 pandemic situation. This one is my attempt to portray how I see this situation unfolding over the next couple of years. Again, my view is a general, big picture one of a curious, informed layperson who recognizes the great deal of uncertainty associated with predicting the future based on limited data. I don’t hold myself out to be an expert in any of the areas in which I make predictions.

It’s important to restate the motivation behind me trying to envision what may happen. My two main objectives are, 1) to make better decisions as an individual, and; 2) to participate responsibly in society from an informed, rational basis. I try to limit my analyses and conclusions to those that are most relevant to these objectives.

So, here is how I presently see things unfolding.

COVID-19 mitigation and outcomes will vary tremendously between and within countries. Widespread social distancing shutdowns currently in place will be relaxed around the world. They simply are not economically or socio-politically feasible as a long-term mitigation. As social distancing is relaxed and the virus continues to spread around the world, there will be waves of new infections occurring in different places at different times.

In high-income countries, as new waves of infections occur, it is likely that shutdowns will be reinstated on a regional basis, but with diminishing restrictions with each successive wave, a “social-distancing fatigue” syndrome. I see these countries moving towards a Susceptible-Infected-Recovered-Susceptible (SIRS) epidemiological model, in which infections becoming endemic and oscillating within a population. How severe subsequent outbreaks are will depend on the extent of testing, contact tracing and selective isolation that they implement in the absence of widespread social distancing.

For example, South Korea and New Zealand appear to have taken measures that have brought the virus well under control. On the other hand, the U.S. has just begun a 50 state experiment on relaxing social distancing restrictions with limited testing and almost no contact tracing. The effectiveness of a high-income country’s response appears to be more dependent on political rather than technological capacity.

Low-income countries will remain mostly open with minimal intervention and COVID-19 will be endemic, together with the other chronic diseases and poor health conditions often prevalent in these countries. The most effectively governed low-income countries will do their best and “tough it out” as they are used to doing. The less effective, especially those with kleptocratic dictatorships, civil unrest or wars will suffer worse effects and outcomes.

Middle income countries will correspondingly take measures and perform somewhere in between those of high- and low-income countries, also with a great deal of variability between and within countries.

Widespread testing and effective contact tracing won’t be available until the end of the summer and implementation will be fragmented. It is questionable whether or not widespread testing will be available at all in the U.S. Until these measures are implemented, the risk of second-wave outbreaks and shutdowns will be significant, ultimately inevitable. Testing and contact tracing will have substantial positive socio-economic impacts wherever and whenever they are implemented.

 A vaccine may be discovered by the end of summer, but it will take 18 months to rollout worldwide. Widespread distribution of the vaccine will begin in high-income countries first, then proceed to middle-income and finally to low-income countries. When a population is vaccinated, full regional recovery from the COVID-19 epidemic will be realized, but with travel and trade restrictions. When most of the world has been vaccinated, full global recovery will follow.

Vaccine or not, we can expect therapeutic treatments to be developed that prevent infection or reduce the severity and fatality rate of COVID-19, just like such treatments are available for other viruses. Effective treatments would have similar recovery effects as a vaccine, but perhaps more limited in nature and extent.

A lot more people will die. Until a vaccine or effective therapeutic treatments are available and with the limited mitigation measures being taken, COVID-19 fatalities will continue.

A study of the global impact of COVID-19 by Imperial College published in late March presents some startling projections for global infections and deaths. Under a mitigation scenario that limits social contacts sufficiently to prevent a second wave of infections, the study estimates there will be around 15 million deaths globally.

This figure seems high to me, assuming measures taken to date around the world approximate the study’s mitigation scenario and as I look at current data of actual deaths.  A more realistic estimate might be derived by from models that are based on current data and expected changes in mitigation measures.

I figure that the U.S. can be taken as a rough proxy for global death projections. It has a wide range of regional response and social behavior related to COVID-19, urban and rural areas and relatively high economic inequality. It is easing shutdown restrictions. This isn’t a bad approximation for what is and may happen around the world.

The Institute for Health Metrics and Evaluation (IHME) has updated their projections to consider the relaxing of social distancing on a state-by-state basis. As of the date of this post, they predict 147,040 COVID-19 deaths in the U.S, with a band of uncertainty spanning from about 95,000 to 225,000 total deaths.

The U.S. population of 328 million is 4.2 percent of the world’s 7.8 billion. If we scale the IHME U.S. death projection up proportionally, total projected global deaths would be between 2.2 and 5.4 million. That’s a lot less, thankfully, than the Imperial College study figures and seems more realistic to me.

As I post this, there are 290,838 confirmed deaths attributed to COVID-19 worldwide. COVID-19 deaths are almost certainly under-reported; data on excess deaths from The Economist suggest by a factor of 2/3. So, a more likely current figure would be around 430,000 global deaths.

While my methodology is very rough, it suggests that between 5 and 12 times as many people will die from COVID-19 worldwide than have already died this year.

That’s a lot more deaths.

Elderly people are faced with a grim choice. COVID-19 fatality rates for those over 80 are reported greater than 10%. Presumably, rates of severe illness and hospitalization for the aged are even higher. The recommended mitigation measure for the elderly is “enhanced social distancing”, meaning essentially, isolation. This is the obvious and rational action to take with the prospect of a vaccine or effective therapeutic treatments on the horizon. But for how long?  I’m pretty sure that not many elderly people, if given a choice, would choose to live their last years shut in their homes with no visitors. I think we will see increasing numbers of older people choosing to risk infection rather than not have contact with their loved ones prior to the availability of vaccine or treatment. I’m left wondering what the implications of this will be.

Education will suffer. Schools and universities are likely to remain closed or only partially opened. Distance learning is not a substitute for classroom education, particularly for young children. Poor students have limited or no access to the technology required for remote teaching. Until we recover from this pandemic, student progress will come to a standstill and, in some cases, reverse as skills are forgotten. I expect there will be significant negative impacts on economic productivity, standards of living and social cohesion that will extend for years afterwards as a result.

The economy will be hit hard, but not catastrophically. The International Monetary Fund (IMF) currently forecasts that the GDP of advanced economies will shrink by 6.1% in 2020. The IMF and other major economic forecasts all assume that the economy will begin to recover in the third quarter. They also forecast economic growth in 2021.

I am more pessimistic. For one, I think the forecasts underestimate the contraction that will occur in the first half of the year. Second, I think that there has been more damage done to businesses, especially smaller ones, and this will impede recovery. Most importantly, I don’t believe that consumers will go out and make up for deferred spending like the “V” shaped recovery forecasts assume.  The IMF forecasts an additional 3% decline in world GDP if the pandemic does not recede in the second half of the year.  That would add up to something like a 10% decline in advanced economies for 2020.

I did my own “back of the envelope” economic forecast based on an assumed contraction of 15% in advanced economies in the first half of 2020. I figured that widespread shutdowns would be eased by June to be only 25% as extensive as they have been. By my estimation that would recover about 10% of what was lost in the first half. But from that I would subtract an additional 5% for stickiness in supply chains and consumer spending. So, I’m forecasting a 10% contraction in GDP for the year, close to the IMF’s worst case.

 

A 10% decline in 2020 is far worse than the Great Recession, when GDP fell by 2.5% and almost as bad as the Great Depression, when from 1931 to 1932, GDP fell by 13%.  Fortunately, we have better fiscal and monetary tools than we did during the Great Depression and this recession wasn’t caused by a broken financial system like the Great Recession.

So, the economy will recover as we recover from the pandemic.

That said, The Economist paints a somber picture of a “90% Economy” that the COVID-19 shutdowns will leave behind,

The “90% economy” thus created will be, by definition, smaller than that which came before. But its strangeness will be more than a matter of size. There will undoubtedly be relief, fellow feeling, and newly felt or expressed esteem for those who have worked to keep people safe. But there will also be residual fear, pervasive uncertainty, a lack of innovative fervour and deepened inequalities. The fraction of life that is missing will colour people’s experience and behaviour in ways that will not be offset by the happy fact that most of what matters is still available and ticking over. In a world where the office is open but the pub is not, qualitative differences in the way life feels will be at least as significant as the drop in output.

A sustained 10% contraction in the economy means a lot of jobs are lost and it looks like these will be disproportionately in low wage occupations. This will increase already troubling levels of inequality, threaten social cohesion and add fuel to the current fire of divisive, volatile politics.

There will be no big revolutions or social upheavals. Despite the death toll, economic depression, job losses, increased inequality and other epic consequences of the COVID-19 pandemic, the political and economic status quo will survive.  Authoritarian governments will maintain control. Effective social democracies will provide safety nets sufficient to maintain social cohesion. Mass uprisings in broken governments, like the U.S., will be prevented by economic coercion; the rich won’t risk losing their wealth, the middle class won’t risk losing their jobs and, with no safety net and animosity towards them, the poor will be afraid to protest.

Notice in the U.S. that all of the mass protests to date have been by mostly white people, predominantly lower-middle class. They protest to end the shutdowns so they can go back to work, regardless of the health risk. And they protest against government safety nets, because they abhor the concept of giving something to somebody for nothing, which brings into play racism and anti-immigration. I imagine that these protests, which often feature heavily-armed white men, are pretty intimidating to a poor person of color. Meanwhile, U.S. government assistance has been mostly targeted at preserving private sector companies, which provide the fought-over jobs and the investment returns to the wealthy. The U.S. economic system appears to have successfully divided people in ways that will preserve it.

Regardless of the government system, it appears that each has “antibodies” to protect itself from COVID-19 and keep it intact and alive.

Expect volatile politics, a shift in the world order and a war. The battle between populist-nationalist and liberal-globalist politics was well underway prior to COVID-19. The pandemic is intensifying this fight on many fronts, but it seems like anti-globalism is growing on both the right and the left. It is an unfortunate and ironic mistake that right when we need international cooperation the most to fight a pandemic, we are throwing globalism and international institutions into the garbage can.

The pandemic has also been the death blow to the U.S. role as the world’s premier leader, a position it has held since the end of World War II. The U.S. has not only limited or withdrawn its participation in global efforts against the pandemic, it has performed terribly so far in its own response and its president is ridiculed and derided. There is nothing to fill the world leadership void. The European Union is struggling to hold itself together. The Chinese government seems to be managing the pandemic well but does not have the international trust necessary to be a world leader. Asia, Africa, the Middle East and Latin America all lack regional alliances of any substance or power.

A retreat to nationalistic rivalry is exacerbated by the “scorekeeping” of the pandemic which is based on sovereign borders. Cases and deaths are portrayed like results from a dark Olympic Games. Which country is winning? Which state is losing?  How’s my “team” doing? Sadly, I believe that very few people are asking “How is the world doing?” Again, an unfortunate and tragic mistake in fighting a global pandemic of a virus that does not respect lines drawn on a map.

Economically, socially and politically it seems to me that the world is sitting in a very similar position as it was prior to World War II. I hope I am wrong, but there is a high probability that this pandemic will lead to another world war.

War is a powerful economic stimulus, it increases and consolidates government power and it distracts citizens from domestic problems. Multi-national companies, global trade and interconnected financial systems will stop the major powers (U.S., China, Europe, Russia) from fighting each other directly. This next war will be fought on proxy battlegrounds, just like the hot battles of the Cold War were fought in Korea, Vietnam, El Salvador, Angola.  Such a war will keep less developed and oil nations disrupted and subjugated to keep labor costs down and exploit natural resources.

And if a smaller nation doesn’t want to be subjugated? They need only look to Israel and North Korea for the answer. It is to obtain nuclear weapons. So, I expect nuclear proliferation to be the our next major crisis and existential threat.

The post-COVID future looks pretty dark to me.

And please, my predictions are not some form of a conspiracy theory. I am simply laying the facts and circumstances on the table and describing how I see them unfolding on their own, as similar facts and circumstances have done so in the past. I am not saying and I don’t believe that bad actors are secretly getting together to create a war. Rather, I am saying and believe that unless something shifts dramatically, nations will be drawn into war simply by the combination of circumstances.

Of course, I hope I’m wrong.