Ninth weekly Sunday off-the-record chat with experts

17 May 2020

Each Sunday, a friend organises a two-hour call for friends (many of whom are senior figures from finance, industry, and academia) to hear 10-15 experts talk about the COVID-19 crisis. This has now grown to 500-1,000+ attendees, with a consistently all-star cast of speakers drawn from many different fields.

Tonight’s installment, the ninth in as many weeks, covered wide ground, albeit largely focused on the US.

As with past conversations, it was held under the Chatham House Rule, meaning I can share a summary of the content but not the names of the participants. I have removed obviously identifying details as well. As with each of these, the notes are as near-verbatim as I can make them, and almost real-time (apologies for typos).

I missed three of the speakers and omit those notes.

In the summary below, note that questions listed at the start of each section were pre-submitted by organizer to the speakers; not all were answered.  Questions inline were asked live.

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Topic:  The ethics of experiments related to Covid19 and what should be the patient’s decision making process be in the hospital for treatments to the pandemic

Bio:    Director of Ethics Education in Psychiatry at a medical school; author

Questions:

1.   Many people are going into Covid19 hospitals without their loved ones who would normally help them make important medical and life decisions.  What is the new decision making process for treatments, such as using a ventilator?  If a loved one were to get admitted, what should we do to assist the treatment decisions?  On what basis, should we make the decision (ask alternative doctors, weigh more heavily the doctor’s in charge’s opinion, use some other heuristic like NO VENTILATOR no matter what?

2.  Some prisons are perfect areas for Covid19 experiments as a majority of prisoners are Covid19 positive (now or will be soon).  This would be a great laboratory to determine the impact of viral loads, treatments and even vaccines.  There are ethical concerns for experimentation that said a lot is on the line.  Given the importance of the answers, would it be ethical to ask prisoners to take additional risks for scientific purposes in exchange for less prison time and/or cash? 

3.     What’s wrong with paying fully-informed subjects to be challenged in vaccine trials?

4.        Everybody says young people should return to work and old people should stay home, and similarly, drug and vaccine trials should be run on young people. But old people have fewer quality-adjusted years left than young people.  Shouldn’t that factor in?

5.     If a different nation decided to be more aggressive with vaccine testing that violated our medical ethics would it be ethical to use the unethical study’s medical findings?

6..    What do we do if someone is asymptomatic for Covid19 and can infect others indefinitely, should the person be quarantined as long as she is carrying the virus?

7.     Some testing methods that use a monitoring device that evaluate your breathing, temperature, and heartbeat, will challenge our sense of privacy.  Will there be pushback of the intrusion into your life?

8.     How should society deal with the question of keeping criminals in prisons which increases their exposure to the corona virus vs. releasing them which increases society’s exposure to criminal activity?

• How we make decisions for COVID patients
  • As in any situation, we ask the patient.
  • If too sick or not able to understand, look to advance directives
  • Usually we look to “substituted judgement” if these are not options — usually we ask their close relatives to try to determine what they would have chosen if they could have.
  • Everyone should have an advanced directive, and give copies to loved ones, attorneys, keep copy on yourself, on your cell phone, etc.  Having it in a safe deposit box is useless.
• Ethics of vaccinations
  • Human challenge experiments.  In some cases prisoners being offered lower sentences if they take part.
  • This has ethical issues.  THey are disadvantaged in many ways.
  • Slippery slope — what if we ask them to donate blood or organs for shorter sentences?
  • On the other hand, this is a way prisons could give back.  Plus they might benefit from the experiment.
  • Also issue of what happens if we benefit from experiments done on unwilling populations elsewhere?
  • Need to be careful not to create incentives for unethical experiments.
  • In practice it’s inconceivable that we wouldn’t use a vaccine developed by a foreign country that was tested unethically.
• Q: Typhoid Mary was asymptomatic but infectious for a long time.  Imagine you were infectious for a very long time.  Is it appropriate to quarantine you for a long time?
  • If you posed a major threat, most would agree we should both quarantine you and find a way to provide you with a meaningful life.  We didn’t do this with Typhoid Mary.

Topic:  Uncertainty, Parameter Estimation for Models, and Type 1 and Type 2 Errors for Testing

Bio: Math/Statistics professor

Questions:

1. How should we estimate the critical parameter estimates for epidemic models?  Should we have a confidence interval and then place greater emphasis on the tails?
2. Humans are bad at estimating uncertainty, but in the real world, we have to make decisions with imperfect information.  How would you advise your parents to get from Florida to Chicago in times of pandemic?
3. If antibody and Covid tests have high false positives and false negatives, how can we interpret the data?

• Models
  • All models are wrong, some are useful
  • Statisticians, like artists, have the bad habit of falling in love with their models
  • Some are not accurate, some are pure fantasy
  • Think about weather forecasts.  Growing up they were pretty bad.  In recent years much more accurate.  (1) massive amounts of data and (2) really complex models based on physics.
  • Econometric models: one professor asked why his forecasts were always wrong.  “My job isn’t to make forecasts, it’s to sell forecasts.”
  • Models depend heavily on the quality of the models and on the parameters.
  • One group at Stanford looked at R and concluded that it is not the same in different places.  E.g., compare Japan to Italy in terms of the social norms.
  • Always lots of assumptions.
• (2) Chance of dying in a commercial air crash is vanishingly small — chance of dying by choking on food is 3x higher.  Probability of dying in a crash is also negligible.  Call it 1 in 10K for flying.  If death rate from COVID is 5%, you’d have to think that the chance of getting COVID is >1 in 4K to make them come out even.
• Big problem with false positives. People misunderstand this.  Say a test is 100% accurate for positive, but has 10% of negatives that test positive, and say that 5% of all people have the disease, then only ⅓ of people who test positive actually have the disease.

Topic:  The Economic collapse, negative interest rates and the end of cash

Bio: Professor of Economics

Questions

1. In chaotic times like the present, cash is even more important as banks/financial institutions/credit card companies may be unable to function.  There has been hoarding of gold and other cash substitutes.  Why get rid of cash?
2. Have there been cases of Covid19 spread from cash?
3. Do you think this is the time for negative interest rates, and if not, how important is having the option?
4. You say that recessions with a banking crisis are long and drawn out.  Do you think this sort of financial disaster will therefore be short lived?
5. Could interest bearing T-bills be used as a currency substitute.  This sounds fabulous and easy to do as the general ledger gets built.  This is fabulous for the citizens who give up seigniorage, why isn’t this the answer to cash?  I was thinking of USD interest earning bitcoin, but why isn’t this better?

• Worst crisis in a generation.
• After great depression took a decade to fully recover, after 2008 4-5 years.  Could be around that range in this case too.
• Sharply rising US debt?
  • Clearly warranted. Output down 25-35%.
  • Is it a free lunch? Some people say yes because growth rate greater than interest rate.  That’s quite common, but they still run into debt crises
  • In the modern state, a lot of the obligation of the government are beneath the table.  The headline debt isn’t all of it — there’s “junior debt” like pensions and the senior debt (headline debt) could weigh on it.
  • Italy for example is paying 16% of GDP/year in publicly provided pensions and their capacity for borrowing is limited.
  • US is quite unique.  How unique?  In 50s-70s we had the dilemma.  Japan and EU were holding more and more $s while the US economy was shrikning in relative terms.
  • US market held debt is almost as big as all other economies put together but our share of global GDP is shrinking.  One paper shows that if you look at this historically and theoretically, this can be a very fragile situation.
• Money
  • Fed are heroes for doing wartime finance, guaranteeing credit.
  • Where they have commented that they are not thinking about negative interest rates, then they are not thinking clearly.
  • EU and Japan haven’t done it write because they haven’t done with cash.
  • All new results on Europe is that the slightly negative rates have worked in a modest way.
  • To do more negative rates you have to get rid of cash completely so people can’t hoard cash.  China is starting to do this with the central bank digital currency.
  • You can phase out large denomination notes
  • You can set up an exchange rate between electronic and physical currency.
  • It’s not difficult to do negative rates. 
  • Not enough by itself but should be considered.
• Economy is in bad shape and I am not optimistic.  
• Q: Great depression lasted 10 years and 2008 latsed 4-5 years
  • If we get back to work and have a V-shapred recovery, great.  But think this will drag on, people will not get back to work, will run out of savings, will not be able to pay mortgages, will create financial strain. 
  • You can guarantee things to a point. The US has great capacity to do this, the ROW less so.. But you can’t guarantee things forever.

Topic:   MMT and the global economic challenge of Covid19

Bio: Independent economic consultant, professor, former  Global Chief Economist at a major bank

Questions:

1. Why is MMT going to end badly?
2. Are there long-term negative consequences to the shutting down the economy?
3. Do you expect Italy or Illinois to default?
4. Will there be a U recovery?

• The need for debt restructuring as part of the global response is my topic.
• Not talking about moratorium, but a jubilee.
• At the federal level the US is in the strongest borrowing position, likely to remain that way. But even in the uS, the state and local governments have little fiscal elbow room.
• Either they will be condemned to do nothing or engage in risky fiscal operations that put them at risk of default.
• Outside the US, other advanced economies are in significantly worse shape.
• EU crisis with the DE constituiontla court plus the new Hanseatic league unwillingness to consider debt mutualization.  This constraints companies like Italy.
• In the US the debt problem is a private sector problem.
• For SMEs debt should be forgiven.
• For listed companies the debt should be put into equity transferred by central bank into treasury, preferably in non-voting preference shares, but even regular equity is better than being constrained not to issue debt at all.
• In emerging markets, little option to do anything without debt forgiveness.

Topic:  Which firms will survive the pandemic within an industry?

Bio: Professor of Economics University 

Questions:

1. There is substantial variance in returns on capital within industries.  Do you think the weaker firms will be able to raise capital to survive in this recession?
2. If the strong firms survive and prosper will this mean that they will be getting increasingly greater market power, and if so what are the macroeconomic consequences?
3. We have had a catastrophic downturn in employment, how will this rectify itself in the short-term?
4. Will employees drift from the ineffectively managed firms to the best firms within an industry, and will that mean higher long-term productivity?

• Constant churn — reallocation — of capital and labor happening all the time.
• 200K net increase in jobs might mean 6 million hired and 5.8M leaving jobs.
• Similarly for company creation and closing.
• This process reallocations resources to higher-performing firms.  
• That’s good when we reallocate to higher productivity firms, that’s good for the world.
• Eg hospitals that are better at treating heart attacks over time get a higher share of patients.
• Covid will cause a much higher churn than usual.  More job losses and more companies going out of business.
• Will this be correlated with productivity?  In fact, this could be perverse, if good companies can’t get bridge financing; or of companies survive only because they have monopoly power or political connections.
• Another problem is if we keep pouring money, out of concern for job loss, into companies that produce products or services that people dont’ want.
• We don’t know yet which way it will go.
• But we should be concerned on the face of it.
• E.g., PPP program isn’t obviously correlated with productivity — we may be rescuing the wrong businesses.
• The effect of the crisis on market power and industry concentration is a concern.  These have been growing over several decades.  
• Firms that become big because of high productivity is a good thing.  But that works only if growth is related to productivity.
• We will definitely see an increase in concentration since small businesses will go out of business at a high rate.

Topic:  What are the implications for the Middle Class after the Pandemic?

Bio: Author on global, economic, political and social trends.

Questions

1. The global middle class was in trouble before Covid, what does this mean now?
2. Under stress, firms are much more aware of which employees are productive and who are expendable.  Do you expect that firms will run much leaner and that employment prospects will be more challenging?
3. You have written in the past about the benefits of the car and the suburbs.  City density and public transportation is dangerous in a Covid world.  Do you expect a resurgence of the car, suburban life, and the decline of the city center?  Will people want to work in city center office buildings and if not what will happen to real estate prices for these offices?

• Tech companies that have an ability to delivery digitally are in a strong position
• So to are large chains that can handle delivery, they will gain share.
• The oligarchy — Apple, Google, etc — will get more powerful.
• Concerned with the Third Estate — e.g., the small business community.  They say they can’t get loans, they are hard hit since they don’t have deep banking relationships, sometimes don’t speak English well.
• And the “serf class” of people who will never own real estate or a business — very concerned about them. Especially in very expensive areas like CA.
• Big concern on Main Street is that Wall Street will step in and buy everything.

Topic:  How is Russia and Putin Managing the Pandemic?

Bio: Professor of Government 

Questions:

1.  Will the much lower oil price undermine the Putin regime?  How secure is Putin’s hold on power?

2.  What is public opinion of how the Putin government has handled the Covid19 outbreak?

3.  Some governments appear to be more aggressive at quarantining, testing and tracing like China and South Korea.  Can Russia do this well, or is Russia more like the West with individuals less willing to restrict their movement?

• Russia is stronger and can better withstand low oil prices than previously.
• Low oil prices will put a strain on the economy
• Could contract 10% this year between oil and Covid stresses.
• Will it undermine Putin? Depends on a number of factors
• Medical capabilities were already very pool, this has exposed and stressed them further.
• Public opinion is very low in this crisis.
• PM and Mayor or Moscow doing better than Putin
• Second to only the US in terms of cases in the world.
• 10K new cases/day in the last week.
• 2,300 deaths in the official figures, but FT and NYT says that the deaths are around 70% higher than this.
• At lowest popularity rate in his 20-year reign.
• He is rarely addressing the population, remaining sequestered.
• He has delegated Covid to the PM and the Mayor of Moscow.
• The “Putin Forever” project is on hold.
• Still, he enjoys support for his constitutional changes that keep him in power.
• Can they do testing and quarantine?
  • Usually in a totalitarian state you expect that the people accept this.
  • But Russians also demand their liberty and are sceptical of the government.  Some scattered protests against the lockdowns.
  • Unemployment at 11% and gov’t support going to Kremlin-connected businesses.
  • Some resistance to obeying government rules.
  • Shortage of PPE and testing equipment.

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